ED&S is the world's 74th largest defense company, says Aguiar, and defense-sector consolidation in Europe and North America means that ED&S will rise in the rankings. Aguiar predicts that in 2020 ED&S's revenue will have more than doubled compared with 2012.
ED&S has boosted its revenues partly through acquisitions. It recently bought Orbisat, a maker of ground-based radar equipment, and Atech, a C4I (command, control, communications, computers and intelligence) specialist. ED&S also established Visiona, a joint venture with Brazilian state-owned telecommunications company Telebras. Visiona will spearhead the push into satellites and space technology. And ED&S has formed a joint venture with Israel's Elbit Systems to develop UAVs, specifically ones for border control.
One key motive behind the acquisitions, says Aguiar, is to garner the expertise and capabilities that ED&S needs to compete for new contracts. He says Embraer is interested in buying more defense companies, particularly ones with expertise in monitoring and surveillance. The preference, however, is for local rather than foreign acquisitions.
Orbisat and Atech are based in Brazil. One strategy for wooing Brazilian government decision-makers involves highlighting that ED&S is offering a locally developed product and ensuring that Brazil has the technology and capability to protect itself without relying on foreign entities. ED&S executives also say that because the technology has evolved locally, ED&S owns the intellectual property and, as a consequence, is free to market the systems overseas.
The strategy is apt because Brazil's multibillion-dollar defense contracts have caught the eye of other Brazilian companies, which are boosting their own expertise and capability by partnering with foreign defense manufacuturers.
Andrade Gutierrez, a Brazilian diversified conglomerate that started in construction and is now one of the country's largest companies, has established Andrade Gutierrez Defesa e Seguranca, a joint venture with Thales. The French entity owns 40%, while the Brazilian parent owns 60%. Orlando Neto, who previously headed Embraer's defense business, is Andrade Gutierrez Defesa e Seguranca's leader.
In the past, it could be assumed that the Brazilian government would automatically award contracts to Embraer; but that is no longer the case, as Embraer no longer a state-owned enterprise. The government owns only 0.3% of the company, although it has veto rights over activities via “golden” shares.
One upside of developing a defense business is that Embraer can benefit from government largesse and mitigate downturns in commercial and business aviation. It also means that some of Embraer's R&D costs are covered by the government.