Signature of a $1.3-billion contract to develop a military airlifter could not come at a better time for Embraer. With its commercial and business aircraft production hit by the global economic malaise, development of an all-new tanker/transport for the Brazilian air force will boost the manufacturer's defense business and offset the civil aviation cycles.

"It's a brand new program for us, made in heaven," says CEO Frederico Fleury Curado following signature of the government-funded development contract at last week's Latin America Aerospace & Defense (LAAD) show in Rio de Janeiro. "It gives us the platform we need to fulfill one of our strategic objectives - to increase the relative contribution of defense."

While the seven-year contract to develop the turbofan-powered KC-390 turbofan-powered military transport will not offset the current downturn in civil deliveries (see p. 26), or reverse February's 20% cut in the workforce, the program will help Embraer toward the goal of increasing its defense business to 20% of revenues, from 8% last year, says Orlando Ferreira Neto, vice-president for the defense market.

Development of the KC-390 will also reshape the tactical airlift landscape, producing a direct competitor to Lockheed Martin's increasingly successful C-130J. Arguing that customers are looking for a proven, low-risk aircraft, the U.S. manufacturer questions whether its would-be rival is underestimating the task of developing a military transport capable of the full spectrum of tactical airlift and tanker missions.

The KC-390 marks the largest and most complex aircraft ever undertaken by Embraer, and both the company and its competitors say the program will be a challenge, particularly in light of the delays to the Airbus A400M military airlifter and the time it took Lockheed Martin to achieve full operational capability with the C-130J. Although the air force will fund development, any delay would cripple Embraer's defense growth.

Competitors also question whether $1.3 billion is enough to create an all-new military transport. Airbus has received more than $5 billion toward the A400M, and the aircraft has yet to fly, while it cost Lockheed Martin $1.2 billion to bring forth a derivative of its long-established C-130. Neto says the KC-390's development cost is "reasonable" given Embraer's experience, adding "we are comfortable with that number."

The KC-390 is part of a strategy by the Brazilian government to strengthen its defense force and industrial base. Other programs include the F-X2 competition for up to 120 new fighters, local manufacture of 50 Eurocopter EC725 transport helicopters, construction of a nuclear submarine with assistance from France, and an accord with French space agency CNES to develop Brazil's satellite and launch vehicle capability.

Embraer first unveiled its C-390 concept for a military airlifter at the 2007 LAAD show, but the aircraft now on the drawing board for the air force - and the program's structure - is very different to that envisioned back then. The original idea was to design a "quick and simple" derivative of the Embraer 190 large regional jet at a projected cost of $600 million - $400 million from the Brazilian government and the rest from the company and its risk-sharing partners.

"It was not a realistic aircraft," says Curado. Instead, says Neto, the C-390 concept served to provoke discussion with potential customers and solicit input that changed the blueprint substantially. The aircraft is no longer a derivative of the 190 - "The only thing they have in common is the 9 and the 0," - and totally funded by the Brazilian air force.

The KC-390 is a "sovereign program," says Curado. Any decisions involving taking on other companies or countries as risk-sharing partners will be made by the air force and government as a national strategy, he says. Talks with other countries on participation will take place over the first two years of the program.