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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.

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Speaker 2: Hello and welcome to another episode of the All Thoughts Podcast.

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Speaker 2: I'm Tracy Alloway and I'm Joe Wisenthal. Joe, this is it.

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Speaker 2: This is your long awaited embre Aer episode.

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Speaker 3: We're finally doing it. There are certain episodes we talked

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Speaker 3: forever about doing that we never do. The Jones, the

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Speaker 3: d Oh No. We did do a Dredgi Act episode,

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Speaker 3: the Jones Act being the big one. The other one

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Speaker 3: is we've never done it.

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Speaker 4: You know.

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Speaker 2: The Dredge Act episode was like a shadow Jones Act episode.

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Speaker 3: True because price We've never done an Onion Futures episode.

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Speaker 3: But at long last we are going to be talking

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Speaker 3: about Embraer.

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Speaker 2: Yeah, and this is such an interesting company. I know

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Speaker 2: we brought it up a few times before. But the

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Speaker 2: thing about it is, when you think about aerospace and

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Speaker 2: the layout of that particular industry, you usually think Boeing

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Speaker 2: versus Airbus. And we've certainly talked recently about the competition

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Speaker 2: between those two companies. They are the two biggest airplane

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Speaker 2: manufacturers aerospace manufacturers. But there's a third one, Comac. Not

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Speaker 2: quite yet, there's a third one, and it is a

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Speaker 2: lot smaller than Boeing and Airbus, but the fact that

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Speaker 2: it exists at all is kind of phenomenal. I don't

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Speaker 2: think a lot of people would have expected that the

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Speaker 2: world's third biggest aircraft manufacturer is in Brazil.

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Speaker 3: That's exactly right, because for one thing, a you never

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Speaker 3: hear about them. B Generally speaking, there are not many

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Speaker 3: Latin American successfully global advanced manufacturing companies period. There are

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Speaker 3: other big Latin American companies obviously, but not in manufacturing.

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Speaker 2: Most of them have to do with agriculture or commodity.

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Speaker 3: Yes, yes, it's a very unlikely story, the fact that

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Speaker 3: this company exists at all. And it's not just that

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Speaker 3: they exist, because the first time that they came up

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Speaker 3: on the show, it was in the context of a

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Speaker 3: conversation about the troubles of Boeing. They're really good, they're

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Speaker 3: really respected in very well regarded, very well regarded, they

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Speaker 3: make high quality products, they're in demand from carriers all

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Speaker 3: over the world. And so it's not just that it exists.

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Speaker 3: It's not just as from Latam at least in its niche.

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Speaker 3: It's considered to be one of the best in the world.

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Speaker 2: Absolutely, and so I think it's a worthwhile subject to explore.

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Speaker 2: How did Embrer come into being, what is its product offering,

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Speaker 2: what is the appeal? You know, it's a global market,

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Speaker 2: how has it managed to make inroads there, and what,

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Speaker 2: if anything it says about industrial policy and current efforts

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Speaker 2: to develop technologically advanced industries.

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Speaker 3: This is the key thing, because we talk a lot

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Speaker 3: about industrial policy right now, in part because the United

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Speaker 3: States and also to some extent Europe, we're in the

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Speaker 3: midst of this sort of industrial policy fever, and there's

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Speaker 3: this enthusiasm for spending money, and there's this enthusiasm for

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Speaker 3: reindustrializing and building up at least some capacity in certain

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Speaker 3: critical things, whether it's electric vehicles, whether it's batteries, whether

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Speaker 3: it's solar panels, whatever it is. So I think it's

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Speaker 3: important to sort of have an understanding of prior waves

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Speaker 3: of industrial policy, because all governments from time to time

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Speaker 3: want to build their own champions or want to be

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Speaker 3: less reliant on some other country that they import from,

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Speaker 3: and so it's really good to sort of get an

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Speaker 3: understanding of some of the success stories and what actually happened.

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Speaker 2: Absolutely all right, So this is a special episode, which

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Speaker 2: means we have two guests to talk about this. We're

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Speaker 2: going to start with someone who's been on the podcast before.

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Speaker 2: Richard Abulafia is of course the managing director over at

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Speaker 2: Aerodynamic Advisory, and we're going to start with him. Richard,

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Speaker 2: thank you so much for coming back on all thoughts.

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Speaker 5: Oh, it's a real pleasure. Thanks for having me on.

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Speaker 2: So when I think about the landscape of aerospace, I

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Speaker 2: mostly think about Boeing an airbus, but of course there

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Speaker 2: is a third and it happens to be Embreyer.

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Speaker 5: Yes, that's right, much smaller but very, very impressive and

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Speaker 5: deeply influential company of Embreyer.

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Speaker 3: So what is this company? What do they make? And

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Speaker 3: when you say impressive, what do you mean by that?

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Speaker 5: Well, the fact that they were created and were able

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Speaker 5: to deliver aircraft that the market wanted and have been

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Speaker 5: through multiple different incarnations over the years, a respected provider

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Speaker 5: of aircraft to both airlines, business aviation customers and even

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Speaker 5: military customers. It's pretty remarkable when you think about it,

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Speaker 5: given the very high barrier entry in this business.

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Speaker 2: So one thing I always hear when we start talking

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Speaker 2: about Embreer and how did it manage to become the

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Speaker 2: third biggest airplane producer in the world. A lot of

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Speaker 2: people will bring up this idea of specialization or having

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Speaker 2: some sort of niche in the market, some sort of focus,

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Speaker 2: And for Mbreer, it's the business jet, right like, that's

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Speaker 2: kind of what they're known for. A lot of people

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Speaker 2: consider them the gold standard in smaller business or regional jets.

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Speaker 2: How did that specialization come to be?

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Speaker 5: Well, you know, the real breakthrough was in scheduled air transport,

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Speaker 5: first with turboprop regional aircraft, then with regional jet regional aircraft.

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Speaker 5: After a couple of decades of doing that, they realized

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Speaker 5: that the business aviation industry was actually quite right for

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Speaker 5: them to enter, and indeed, the profit margins typically are

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Speaker 5: higher in the business jet industry. What they did was

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Speaker 5: basically a form of arbitrage. They recognized that the margins

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Speaker 5: they'd enjoy in business aircraft would be higher than regional

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Speaker 5: but maybe perhaps a little bit lower than the traditional

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Speaker 5: business jed companies like Cessna or Oker, Beachcraft or Bombardier.

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Speaker 5: So therefore, if they were aggressive about pricing, their margins

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Speaker 5: would go up, but they could still get into that

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Speaker 5: business aviation market. And to this day, business aviation has

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Speaker 5: been effectively constituted as the third leg of MBRERE. The

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Speaker 5: first original was sort of on the military side, then

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Speaker 5: the big breakthrough scheduled air transports, and now also business aviation.

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Speaker 3: So you mentioned smaller regional commercial plans, So just to

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Speaker 3: be clear, they don't have like a big wide body

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Speaker 3: like Boeing and Airbus two.

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Speaker 5: They don't really have a big wide body at all,

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Speaker 5: and they don't even have a proper narrow body unfortunately,

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Speaker 5: and the entire airline world would love them to develop

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Speaker 5: a traditional mainline narrow body at this point. As a

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Speaker 5: matter of fact, I think they're crying out for it

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Speaker 5: because Boeing is stumbling very badly as the second place.

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Speaker 5: The Airbus's doing great, but they've got backlogs that are

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Speaker 5: ten years long. So get wine. Eventually you'll get your jet.

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Speaker 5: People are crying for Embrayer to do something bigger than

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Speaker 5: the kind of large regional jets that they've been doing.

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Speaker 5: The one five E two series is kind of right

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Speaker 5: on that border between regional jet and mainline jet. But

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Speaker 5: you know, it can't do say transcn us or something

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Speaker 5: that a seven thirty seven Nax or an a three

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Speaker 5: to twenty Neo can do. Routinely, But boy, what airlines

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Speaker 5: love them to develop a new product that did that.

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Speaker 2: How is it that a Brazilian company is in a

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Speaker 2: position where the world's aviation market or airlines are crying

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Speaker 2: out for it to develop a narrow body because in

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Speaker 2: some respects, you know, we have national aerospace companies in

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Speaker 2: other places. So the last time we had you on

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Speaker 2: the podcast, we talked about Comac for a little bit.

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Speaker 2: In Russia, there's Tupulev and I can't remember the other one.

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Speaker 2: I think it starts with an US. But those haven't

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Speaker 2: really broken out of their local markets in the way

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Speaker 2: that ember Air has. How have they managed to do that?

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Speaker 5: Well, you've got to go back to that. I don't

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Speaker 5: want to say those great old days because they weren't great.

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Speaker 5: But everyone thought, gee, we should carbon factory in the

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Speaker 5: jungle and build our own cars, aircraft, computers, whatever else.

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Speaker 5: And so many people tried that. There were some truly

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Speaker 5: spectacular failures. In Latin America you had FMA and Argentina

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Speaker 5: and Air and Chile. In Indonesia you had IPT and

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Speaker 5: lots of people had that idea. The Japanese tried it,

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Speaker 5: lots of people, and the Chinese and Russians have been

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Speaker 5: sort of screwing around with it for some time. Also,

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Speaker 5: Ambrayer could have easily gone down that path of failure,

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Speaker 5: but a couple of things happened. One they hit paydirt

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Speaker 5: with a couple of key products, most notably the embreyor

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Speaker 5: one twenty, which was a turboprop transport that really proved

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Speaker 5: quite popular in North America back in the nineteen eighties.

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Speaker 5: And after that, rather than basically can on that government

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Speaker 5: owned government hobby shop that they had been on and

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Speaker 5: others had been on, they decided to privatize, and they

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Speaker 5: did that extremely successfully in the nineties. And then on

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Speaker 5: top of that, they continued that engineering driven culture. They

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Speaker 5: had a lot of their people who came from a

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Speaker 5: school that they and the government kind of co owned

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Speaker 5: that basically proved a terrific farm for engineers and executives

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Speaker 5: going into the airspace business. Ita, I believe, and this

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Speaker 5: culture has prevailed to this day despite privatization. They've managed

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Speaker 5: to come up with a very happy combination of government

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Speaker 5: driven industrial policy transformed into something that is sustainable and profitable.

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Speaker 3: I'm going to ask a really big zoom out question

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Speaker 3: because I realize I'm very ignorant of this, and I like, Oh,

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Speaker 3: there's a big plane that's a wide body, and then

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Speaker 3: there's a less big plane that I called a narrowbody,

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Speaker 3: but maybe it's not technically a narrowbody. I realized I

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Speaker 3: actually don't know any of this. Perhaps there are some

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Speaker 3: listeners who are the same. Can you talk about actually

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Speaker 3: just define some of the key segments of the commercial

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Speaker 3: aviation business broadly, and then with EMBRA air in the

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Speaker 3: markets they compete in. What do we talk about in

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Speaker 3: terms of market share?

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Speaker 5: Yeah, first of all, commercial jet transport, That of course

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Speaker 5: is airline travel, and that has three flavors. One is

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Speaker 5: a wide body, which is typically for intercontinental international routes,

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Speaker 5: and it's very simple. You get on board and they're

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Speaker 5: two aisles rather than one. Only Airbus and Boeing do those.

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Speaker 5: China would like to get into that. The only country

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Speaker 5: in the world outside the US that ever did its

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Speaker 5: own was the old Soviet Union. Europe only did it

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Speaker 5: by pooling their resources and creating Airbus. Then you've got

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Speaker 5: narrow bodies, which are basically for mainline jet operations, single

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Speaker 5: aisle in the middle, typically starting at about one hundred

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Speaker 5: and twenty hundred and thirty passengers and a minimum of

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Speaker 5: say three thousand autical miles or something like that. Then

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Speaker 5: you've got regional jets which look kind of like small

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Speaker 5: trunken narrow bodies that just don't have the rains. They

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Speaker 5: typically max out at maybe fifteen hundred nautical miles and

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Speaker 5: typically about one hundred and twenty people, so they're not

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Speaker 5: below and embrayor has produced either the very smallest narrow

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Speaker 5: bodies or the very biggest regional jets you can possibly

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Speaker 5: find it or create, and they've done incredibly well with them,

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Speaker 5: like wow, that's a really quality product. But they simply

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Speaker 5: don't satisfy the requirements for airlines that want to do

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Speaker 5: traditional mainline trans con routes with a sufficient number of sizes.

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Speaker 5: I think Southwest for example. You know, the smallest Southwest

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Speaker 5: plane is just slightly bigger and more capable than the

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Speaker 5: biggest Embraer aircraft. In terms of military you know, they

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Speaker 5: were originally created effectively, is to put it gently, a

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Speaker 5: kind of a hobby shop for the fascist Hunta in

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Speaker 5: Brazil circa you know, sixty seventy years ago. So they

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Speaker 5: did basic military self sufficiency sort of stuff. But they've

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Speaker 5: evolved and it produced some pretty impressive aircraft and right

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Speaker 5: now co producing grief Invider jets designed by SAB for

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Speaker 5: the Brazilian Air Force. Most impressively, they've created this remarkable

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Speaker 5: military transport, the Case three to ninety, which can also

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Speaker 5: do air to air refueling for the Brazilian Air Force

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Speaker 5: and for export customers. It's a remarkable creation typically for

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Speaker 5: Embra Air, designed on time and on budget, so that

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Speaker 5: just goes to show what they can do. And then

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Speaker 5: finally the third leg business aircraft, individual owners and operators,

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Speaker 5: fractional share providers, anybody who's catering to wealthy people and

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Speaker 5: wealthy companies that want their own form of private travel.

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Speaker 2: Joe, I always like looking at the regional jets because

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Speaker 2: you've got some weird ones, and you've got some weird

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Speaker 2: branding choices too. So I remember I was on I

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Speaker 2: guess it must have been like Austrian Airlines, and it

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Speaker 2: was a Dash eight from de Haveland, so a little turboprop,

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Speaker 2: and on the engine they had written in cursive the

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Speaker 2: Sounds of Silence, and that was the branding for the engine.

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Speaker 2: And I remember sitting there about to take off, just

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Speaker 2: thinking like silence is not the thing you want to

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Speaker 2: hear when you're on a turbo prop soaring above the mountains.

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Speaker 3: I get, yeah, a little macaw, maybe a little Yeah.

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Speaker 2: There's also there's a kind of weird Bombardier. I don't

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Speaker 2: even know if this would count as a regional jet

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Speaker 2: because I think it's for military use, but it has

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Speaker 2: like this really weird nose. If you look it up,

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Speaker 2: it's like.

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Speaker 5: The Yeah, the Bombardier cr Jason. Yeah, there's inverted to

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Speaker 5: various military uses. What's interesting is that Bombardier was originally

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Speaker 5: the third biggest airframer and they kind of mostly died.

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Speaker 5: They're now the world's only pure play publicly jet Prime.

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Speaker 5: Everything else has been sold off after they kind of

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Speaker 5: at the company on something that cost way too much,

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Speaker 5: so Embray Air was left with the keys to the kingdom.

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Speaker 5: In terms of market share, they've got one hundred percent

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Speaker 5: of the regional jet market, a great place to be,

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Speaker 5: and a perfectly respectable single digit percentage of the business

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Speaker 5: aircraft market.

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Speaker 6: And they really have.

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Speaker 3: They have one hundred percent in that regional So we're

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Speaker 3: talking about the US or where one hundred percent. That

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Speaker 3: sounds crazy.

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Speaker 5: There's no one else competing with them in regional jets. Nominally,

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Speaker 5: the Chinese are building the AARJ twenty one for Chinese customers.

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Speaker 5: Not sure i'd count it, but if you did, you

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Speaker 5: know it would be ninety ten or whatever.

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Speaker 2: That's crazy. So I remember, you just jogged my memory, Richard.

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Speaker 2: But when I was covering airlines in like circa two

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Speaker 2: thousand and eight, I remember writing Bombardier headlines all the time,

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Speaker 2: and then they just kind of like, yeah, it.

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Speaker 3: Was something in like twenty fifteen. I remember when I

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Speaker 3: just joined Bloomberg and there was a bunch of stuff.

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Speaker 3: What happened with them? Because I remember, yeah, the headline

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Speaker 3: where they going to be saved or bought or bailed

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Speaker 3: out or something.

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Speaker 5: Yeah, that's right, And basically they decided to make that

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Speaker 5: leap into narrow bodies. They developed or tried to develop,

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Speaker 5: something called the C series, which was exactly in that

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Speaker 5: low end Airbus and Boeing class, and they bit off

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Speaker 5: more than they could chew. They counted on the Canadian

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Speaker 5: government and the Quebec government provincial government bailing them out,

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Speaker 5: which to a certain extent worked, but boy, they just

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Speaker 5: kept needing money and it became a giant money pit,

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Speaker 5: and eventually they had to pay Airbus to take this

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Speaker 5: jet off their hands so they could say, oh, please,

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Speaker 5: let us at least, you know, salvage something from this

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Speaker 5: terrible experience. And now it's known as the Airbus A

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Speaker 5: two twenty is a good jet. But Bombardier was forced

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Speaker 5: to sell off everything, including its regional jet division, which

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Speaker 5: the Japanese bought to no purpose or end. And all

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Speaker 5: Bombardier does now is business jets. Thankfully, they do them

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Speaker 5: very well and it's a good company, but they ve

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Speaker 5: exy did everything else.

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Speaker 2: So going back to the sort of nineteen seventies nineteen

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Speaker 2: sixties aspect of all of this, so you laid out

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Speaker 2: very clearly the idea that there were a lot of

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Speaker 2: different countries that had national champions in terms of aerospace companies.

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Speaker 2: Everyone's trying to make their own car or make their

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Speaker 2: own plane or whatever. And when I think about that time,

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Speaker 2: I think about protectionism for some of those industries as well.

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Speaker 2: And so I guess the thing I'm wondering is, how

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Speaker 2: did a company like mbreer get a foothold in the US.

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Speaker 2: Was there some sort of like deregulation or liberalization of

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Speaker 2: the market that allowed it to get in there.

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Speaker 5: Yeah, this is absolutely a key thing to explore, and

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Speaker 5: it's something unique to the aircraft industry that you can't

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Speaker 5: really do autarchy. A lot of the theories of Latin

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Speaker 5: American and other emerging country developments revolved around autarchy, our

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Speaker 5: own demand, our own whatever. You can't do that with aircraft.

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Speaker 5: You just can't because seventy eighty percent of the value

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Speaker 5: of an aircraft is in extremely technical parts. You know,

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Speaker 5: you might be able to do your own aircraft. Good

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Speaker 5: luck doing your own turbine engine, or your own avionic

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Speaker 5: system or your own auxiliary power unit or whatever else.

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Speaker 5: That's all coming from somebody else. And they recognized that,

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Speaker 5: and they said, you know again, great management. They said, oh,

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Speaker 5: we have to be a systems integrator like Dell Computer. Okay,

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Speaker 5: And I think I think sometime in the early nineties

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Speaker 5: Jeffrey Sachs the economists the great observation. They're Brazil's greatest exporter.

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Speaker 5: They're also one of their biggest importers. They have to

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Speaker 5: that's the way it works.

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Speaker 3: So one of the other striking things is they have

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Speaker 3: this dominant market share in specific categories. It's impressive, it's profitable,

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Speaker 3: which is you know, not always a given. It's also

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Speaker 3: very small from a market cap standpoint, It's just a

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Speaker 3: five billion dollar company. Boeing is one hundred and nine

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Speaker 3: billion dollar companies, So it could lose five billion dollars

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Speaker 3: in market cap on a random Monday with like a

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Speaker 3: bad headline. What is the constraint there? Is it not

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Speaker 3: really been optimized? These just not that big markets that

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Speaker 3: it's playing in, even if it has dominant share, Is

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Speaker 3: it not that profitable? Has it not been run? I mean,

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Speaker 3: arguably one of the challenges or one of the complaints

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Speaker 3: leveled at Boeing it's, you know, it's been run too

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Speaker 3: aggressively to make profits at the cost of reliable planes.

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Speaker 3: Is there a situation kind of the opposite where it's

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Speaker 3: been less sort of focused on creating shareholder value.

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Speaker 5: You know, it's just really hard to break out of

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Speaker 5: their swim lanes. They developed a couple of business jets,

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Speaker 5: or of them to be exact, that are really great

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Speaker 5: business jets, but you have to have more than that

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Speaker 5: to achieve critical mass. Similarly, regional jets, you know, the

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Speaker 5: three buckets and scheduled air transport. Regional jets are like

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Speaker 5: maybe five percent of the whole business, so it's really

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Speaker 5: tough to break out of that. And of course they're

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Speaker 5: military share. Well, the military market's unbelievably fragmented, so no

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Speaker 5: matter how good you are, you're not going to build

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Speaker 5: an F thirty five fighter jet. You're going to get

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Speaker 5: have a tiny, tiny share. So they're very well run.

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Speaker 5: They tend to be a bit conservative, that is true,

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Speaker 5: and here we are today where all the world's airlines

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Speaker 5: love them and trust them and want them to develop

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Speaker 5: a jet that would compete with Airbus and Boeing. But

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Speaker 5: it's really tough to make that leap.

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Speaker 2: Why the reticence, Yeah.

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Speaker 5: Well, give you an idea. You know, when Marty a

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Speaker 5: bet the company on that C series I mentioned before,

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Speaker 5: they were a twenty billion dollars a year company. So

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Speaker 5: imagine if you're a five or six billion dollar company

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Speaker 5: and you're asked to make that giant investment in a

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Speaker 5: narrow body aircraft. You'd better have some very deep pocketed

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Speaker 5: partners helping you to do that, and maybe they'll line

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Speaker 5: those up. But the idea of doing it on their own,

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Speaker 5: that's like asking one of us to go and win

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Speaker 5: the Nobel Prize in physics it's just a big just

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Speaker 5: really hard.

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Speaker 2: How much synergy is there between building a regional jet

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Speaker 2: versus like the next level up a narrow body, Like

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Speaker 2: is it just a matter of you know, taking all

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Speaker 2: the components and spreading a model, Yeah, increasing them by

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Speaker 2: twenty percent or something like that. Or what's actually the

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Speaker 2: difference in terms of engineering.

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Speaker 5: Yeah, that's a great question. It's really financial bandwidth in

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Speaker 5: terms of skill set very similar. Good program management and

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Speaker 5: great connections between the people at the top. This is

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Speaker 5: what's gone wrong at Bowing, the connections between the people

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Speaker 5: at the top and the people engaged in the company's

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Speaker 5: core business of designing and building planes. It's gone horribly wrong.

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Speaker 5: And dembrare No, they're pretty darn good. So good program management,

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Speaker 5: good company management, good systems engineering, good systems integration. They're

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Speaker 5: great at all of us. The case three ninety most

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Speaker 5: effectively illustrates that new military transport. What we're just talking

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Speaker 5: about is that as you get bigger in size class,

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Speaker 5: oh boy, their requirement for cash bros exponentially, so that

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Speaker 5: C series total spend at the end of the day

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Speaker 5: about seven billion dollars maybe eight billion in today's money.

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Speaker 5: You know, back then four or five almost broke the

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Speaker 5: company really really hard to get, and that was something

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Speaker 5: that was smaller that I think that Embryer would like

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Speaker 5: to do. Embryer, I think would love to do a

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Speaker 5: one hundred and eighty or two hundred feet jed. They're

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Speaker 5: going to need something on the order of eleven twelve

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Speaker 5: billion dollars in today's money, and that's just not going

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Speaker 5: to come from a five billion dollar a year in

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Speaker 5: revenue company.

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Speaker 3: I'm sort of realizing, Tracy, because you know, my first

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Speaker 3: question is like, oh, what's so impressive about this company,

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Speaker 3: And the answer is the fact that they can make

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Speaker 3: airplanes at all consistently puts them into such a narrow

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Speaker 3: company that almost by definition, it is impressive. Do you

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Speaker 3: think at some point they will or is it just

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Speaker 3: they will try to like level up to another scale

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Speaker 3: and compete in a new market, or is that risk

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Speaker 3: of just sort of betting the whole house on a

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Speaker 3: new thing and not being able to sure you can

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Speaker 3: do it just like too inherently risky for a company.

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Speaker 5: Besides, yeah, they just aren't going to do it on

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Speaker 5: their own. It's just physically not possible. Again, for the

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Speaker 5: same reason, I won't get that Nuclear Physics Prize any times.

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Speaker 5: In However, what is sort of intriguing is there are

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Speaker 5: game changers out there. You've got these very large US

395
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Speaker 5: defense primes that might be looking to diversify into adjacencies,

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Speaker 5: and some of them are assistance providers too, like an

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Speaker 5: RTX or a GE or you know, even a North

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Speaker 5: of Crumen. On the on the pure point defense side,

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Speaker 5: maybe someone say, hey, this is an intriguing possibility. But

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Speaker 5: then even more intriguing, you've got these economies in the

401
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Speaker 5: Arab Gulf, Saudi Arabia and the UA looking to diversify

402
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Speaker 5: with vast oil revenue. Maybe they could work with Embreyer

403
00:22:39,440 --> 00:22:42,320
Speaker 5: and say, hey, this is intriguing. Now. The problem is,

404
00:22:42,359 --> 00:22:44,280
Speaker 5: of course, you know what's in it for them. How

405
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Speaker 5: do you have this great culture of engineering in Brazil

406
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Speaker 5: and somehow migrate that to reodd or something that's really

407
00:22:52,280 --> 00:22:56,000
Speaker 5: super tricky. In the track record of aircraft companies working

408
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Speaker 5: with people who have money and want to get into it,

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Speaker 5: it's not a great track record. Taiwan and McDonald douglas

410
00:23:01,760 --> 00:23:04,840
Speaker 5: tried that three decades ago. Didn't go so good. But

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Speaker 5: you can't rule it out and the amount of money

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Speaker 5: that's slashing around in the oil states. Is it wouldn't

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Speaker 5: even move the needle. If they were to say, here's

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Speaker 5: twelve billion, let's build a jet. You wouldn't even show

415
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Speaker 5: up and it wouldn't even show up in their balance sheet.

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Speaker 5: It's walking around money.

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Speaker 2: Maybe soft Bank can give them like fifty billion or something.

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Speaker 2: Why not be better then going into like some new

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Speaker 2: SaaS company. Okay, I have just one more question, and

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Speaker 2: this is something that I read a number of times

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Speaker 2: when I was researching what makes Embraer special and people

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Speaker 2: kept saying it's also ease of the mechanics. So the

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Speaker 2: idea that it can be fixed up pretty quickly and

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Speaker 2: pretty simply, and that's probably important if it's a smaller

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Speaker 2: jet that's going into smaller airports or more far flung

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Speaker 2: locations where resources are more limited. And I guess my

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Speaker 2: question is a is that true? And then be how

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Speaker 2: do you achieve that? Because my assumption would have been

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Speaker 2: that every aerospace manufacturer in the world would be trying

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Speaker 2: to create a problem free aircraft that doesn't need a

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Speaker 2: lot of work on it.

432
00:24:11,880 --> 00:24:14,639
Speaker 3: And I'll just add a quick c onto Tracy's question.

433
00:24:14,800 --> 00:24:18,080
Speaker 3: But do the constraints of having to operate in a

434
00:24:18,160 --> 00:24:22,200
Speaker 3: country like Brazil or regional areas like that, do they

435
00:24:22,240 --> 00:24:25,920
Speaker 3: have a forcing effect on achieving that result of simplicity

436
00:24:26,240 --> 00:24:30,320
Speaker 3: and ease of prioritizing things like ease of repair, stuff

437
00:24:30,359 --> 00:24:30,680
Speaker 3: like that.

438
00:24:30,840 --> 00:24:33,119
Speaker 5: Will you go back to the origins of the company,

439
00:24:33,200 --> 00:24:35,760
Speaker 5: when they were designing planes like the embryor one ten

440
00:24:35,840 --> 00:24:39,399
Speaker 5: Bandirante and other planes. You know it's agricultural aircraft. They

441
00:24:39,400 --> 00:24:42,720
Speaker 5: were all too mindful of the rather difficult operating circumstances

442
00:24:42,880 --> 00:24:46,040
Speaker 5: of a developing country like Brazil back then, and they've

443
00:24:46,040 --> 00:24:49,919
Speaker 5: had that mindset ever since. Now, our regional jets, remember,

444
00:24:49,960 --> 00:24:54,920
Speaker 5: our business jets, remember, are more maintainable than others. Not really,

445
00:24:55,000 --> 00:24:57,960
Speaker 5: but what they have gotten as a consequence of that

446
00:24:58,040 --> 00:25:01,560
Speaker 5: experience is an awareness of the important a good product support.

447
00:25:02,359 --> 00:25:05,320
Speaker 5: And it takes that background, that experience to realize that.

448
00:25:05,400 --> 00:25:07,720
Speaker 5: Like right now, you know, you've got everyone talking about

449
00:25:07,760 --> 00:25:11,920
Speaker 5: COMAC and China. Yes, excuse me, you need a worldwide

450
00:25:11,960 --> 00:25:17,439
Speaker 5: global support infrastructure before we even talk about exports, and

451
00:25:17,480 --> 00:25:21,639
Speaker 5: they're like, we need what now? And that is one

452
00:25:21,680 --> 00:25:24,240
Speaker 5: of the very biggest barriers to entry. And because of

453
00:25:24,320 --> 00:25:29,840
Speaker 5: embraer As origins, recognizing the importance of maintainability. They've always

454
00:25:29,880 --> 00:25:32,800
Speaker 5: emphasized that, they've always been really good about it. So

455
00:25:33,520 --> 00:25:37,639
Speaker 5: since World War Two, there's exactly been one country and

456
00:25:37,760 --> 00:25:41,880
Speaker 5: one company that has successfully entered the industry of building

457
00:25:42,040 --> 00:25:46,760
Speaker 5: commercial airliners, and that's Embray Air. That's incredible. Maybe the

458
00:25:46,840 --> 00:25:50,320
Speaker 5: Chinese are almost there, maybe we don't quite know. They

459
00:25:50,359 --> 00:25:52,760
Speaker 5: certainly haven't done so on an export basis the way

460
00:25:53,040 --> 00:25:57,080
Speaker 5: Embrey Air has. But in the historical context of everyone

461
00:25:57,240 --> 00:26:00,800
Speaker 5: trying to get into this industry and everybody failing, Embraer

462
00:26:00,920 --> 00:26:03,439
Speaker 5: stands out as a remarkable success story.

463
00:26:04,520 --> 00:26:07,160
Speaker 3: Richard, thank you so much for coming back on the show.

464
00:26:07,200 --> 00:26:07,960
Speaker 3: That was fantastic.

465
00:26:08,160 --> 00:26:09,480
Speaker 5: No, it's my pleasure, thank you.

466
00:26:24,960 --> 00:26:27,960
Speaker 3: That was our conversation with Richard Abu Lafi about the

467
00:26:27,960 --> 00:26:31,680
Speaker 3: extraordinary success of embra Airbud. We want to understand more

468
00:26:31,720 --> 00:26:34,760
Speaker 3: about where this company came from and the sort of

469
00:26:34,800 --> 00:26:39,880
Speaker 3: political and economic environment in Brazil out from which it emerged.

470
00:26:39,920 --> 00:26:42,320
Speaker 3: So we're going to be speaking with Juan David Rojas.

471
00:26:42,359 --> 00:26:45,720
Speaker 3: He is a calumnist on Latam issues at Compact Magazine

472
00:26:45,760 --> 00:26:49,160
Speaker 3: as well as a contributor to American Affairs. So Wan,

473
00:26:49,280 --> 00:26:51,080
Speaker 3: thank you so much for coming on the podcast.

474
00:26:51,280 --> 00:26:53,280
Speaker 6: Thanks for having me on big fan of the show.

475
00:26:53,240 --> 00:26:56,880
Speaker 3: Thank you so much. So we had the conversation with Richard,

476
00:26:57,000 --> 00:26:59,399
Speaker 3: we sort of got a rough outline of the history

477
00:26:59,440 --> 00:27:02,920
Speaker 3: of embra a is founded in Brazil in nineteen sixty nine,

478
00:27:03,640 --> 00:27:09,240
Speaker 3: what was going on in Brazil economically or politically, and

479
00:27:09,320 --> 00:27:14,439
Speaker 3: maybe perhaps even across Latam such that the country felt

480
00:27:14,480 --> 00:27:18,800
Speaker 3: it necessary to have some sort of homegrown aviation company.

481
00:27:19,359 --> 00:27:22,879
Speaker 4: So between the nineteen thirties and the nineteen eighties or so,

482
00:27:23,000 --> 00:27:26,040
Speaker 4: in Brazil and across most of Latin America, but in Brazil,

483
00:27:26,119 --> 00:27:29,800
Speaker 4: starting with the government of Jiduliu Ovodagas, you had consecutive

484
00:27:29,840 --> 00:27:35,320
Speaker 4: administrations from across the ideological spectrum, both democratic and authoritarian.

485
00:27:35,359 --> 00:27:37,520
Speaker 6: Marcus is actually a great figure to look into there.

486
00:27:37,560 --> 00:27:43,480
Speaker 4: But it promoted what were called ISI policies, import substitution, industrialization,

487
00:27:43,600 --> 00:27:45,800
Speaker 4: and in a nutshell, what that means is they used

488
00:27:45,800 --> 00:27:50,520
Speaker 4: protectionist measures, tear subsidies alike to both block the import

489
00:27:50,640 --> 00:27:53,600
Speaker 4: of industrial goods and foster the development of those same

490
00:27:53,640 --> 00:27:56,840
Speaker 4: products domestically. And this is actually what we've seen Brazil

491
00:27:56,960 --> 00:27:59,520
Speaker 4: do just weeks ago, along with a number of other

492
00:27:59,560 --> 00:28:04,560
Speaker 4: countries Mexico, the EU US raising tariffs against Chinese evs

493
00:28:04,600 --> 00:28:06,960
Speaker 4: and solar panels. So the idea is that, you know,

494
00:28:07,000 --> 00:28:09,880
Speaker 4: we want to develop our own EV industry. We can't

495
00:28:09,920 --> 00:28:12,160
Speaker 4: compete with China as such right now. We don't want

496
00:28:12,160 --> 00:28:16,440
Speaker 4: to import their goods. Now in Latin America is SI

497
00:28:16,600 --> 00:28:19,160
Speaker 4: policies get a bit of a bad rap with some

498
00:28:19,200 --> 00:28:23,200
Speaker 4: good reason, but they really shouldn't. Why today in Brazil,

499
00:28:23,480 --> 00:28:26,560
Speaker 4: of its twenty largest companies, half either were now or

500
00:28:26,600 --> 00:28:31,919
Speaker 4: at one point worse they don't. These are you know, Petrobras, Volley, CSN,

501
00:28:32,080 --> 00:28:35,760
Speaker 4: electro Bras, and of course Embiety. In each of these cases,

502
00:28:35,760 --> 00:28:38,840
Speaker 4: it took decades and loads of failures before any of

503
00:28:38,880 --> 00:28:42,479
Speaker 4: these companies became profitable. That's just industrial policy, one on one.

504
00:28:42,960 --> 00:28:46,320
Speaker 4: Depending on the industry in question, there's learning curves where

505
00:28:46,360 --> 00:28:51,640
Speaker 4: failure necessarily contributes to long term success. And what's said

506
00:28:51,760 --> 00:28:54,880
Speaker 4: is that around the time that Embiet was created, right

507
00:28:54,920 --> 00:28:57,520
Speaker 4: in the middle of the ISI period, Brazil was something

508
00:28:57,560 --> 00:28:59,360
Speaker 4: of an industrial powerhouse in the.

509
00:28:59,320 --> 00:29:01,880
Speaker 6: Region, specifically in auto manufacturing.

510
00:29:02,400 --> 00:29:06,040
Speaker 4: Again, a lot of these companies weren't necessarily profitable and

511
00:29:06,080 --> 00:29:09,040
Speaker 4: there were ambiguous failures which as in like nuclear power

512
00:29:09,080 --> 00:29:12,560
Speaker 4: and computers in Brazil, for example, but they were high

513
00:29:12,640 --> 00:29:16,440
Speaker 4: value sectors that contributed to huge gains both in productivity

514
00:29:16,480 --> 00:29:20,760
Speaker 4: and GDP growth. For perspective, average GDP growth in Brazil

515
00:29:20,840 --> 00:29:23,560
Speaker 4: during the ISI period was around five percent a year,

516
00:29:23,840 --> 00:29:26,360
Speaker 4: and since the eighties nineties it's been around two percent,

517
00:29:26,400 --> 00:29:28,360
Speaker 4: with productivity being stagnant.

518
00:29:28,640 --> 00:29:29,560
Speaker 6: And you know, this makes a.

519
00:29:29,480 --> 00:29:33,080
Speaker 4: Lot of sense because what we've seen since the nineties

520
00:29:33,240 --> 00:29:36,680
Speaker 4: is that Brazil's economy has really transitioned towards mining and

521
00:29:36,760 --> 00:29:42,280
Speaker 4: agriculture versus manufacturing, which manufacturing inherently is more beneficial towards

522
00:29:42,320 --> 00:29:43,320
Speaker 4: productivity growth.

523
00:29:43,520 --> 00:29:44,280
Speaker 6: You know, starting in the.

524
00:29:44,320 --> 00:29:47,280
Speaker 4: Nineties, industrial policy became kind of a bio word for

525
00:29:47,360 --> 00:29:51,120
Speaker 4: cronyism and an efficiency, and you haven't really seen efforts

526
00:29:51,120 --> 00:29:54,680
Speaker 4: in Brazil to develop high value sectors and new industries

527
00:29:54,720 --> 00:29:58,200
Speaker 4: where economies of scale are important, like aviation of the

528
00:29:58,240 --> 00:30:00,360
Speaker 4: companies I mentioned. You know, this makes sense. What were

529
00:30:00,360 --> 00:30:02,480
Speaker 4: these you know, Petrobrass, Pally, et cetera. They're all in

530
00:30:02,560 --> 00:30:09,000
Speaker 4: minding hydrocarbons. Ironically, still thanks to past industrial policy, which

531
00:30:09,040 --> 00:30:12,000
Speaker 4: isn't to say that privatization some of these cases was useful,

532
00:30:12,040 --> 00:30:14,840
Speaker 4: but Ambia it really is the outlier here and that

533
00:30:14,960 --> 00:30:18,040
Speaker 4: it's an aviation manufacturing.

534
00:30:17,360 --> 00:30:20,560
Speaker 2: From So can I ask you to dive a little

535
00:30:20,600 --> 00:30:25,680
Speaker 2: bit more into the political atmosphere when Embrer was created,

536
00:30:25,800 --> 00:30:29,160
Speaker 2: because my understanding is that, okay, it had some roots

537
00:30:29,360 --> 00:30:32,240
Speaker 2: in the nineteen forties and the nineteen fifties, but it

538
00:30:32,400 --> 00:30:35,960
Speaker 2: wasn't until nineteen sixty nine, as Joe mentioned, that it

539
00:30:36,200 --> 00:30:39,800
Speaker 2: was really crystallized into a company. And of course, Brazil

540
00:30:40,520 --> 00:30:45,040
Speaker 2: in nineteen sixty nine was undergoing a lot of political change,

541
00:30:45,360 --> 00:30:48,600
Speaker 2: and sometimes when people talk about industrial policy, there is

542
00:30:49,080 --> 00:30:52,360
Speaker 2: an implication or a connotation that in order to have

543
00:30:53,400 --> 00:30:57,440
Speaker 2: very fast industrial development sometimes you need a command economy

544
00:30:57,920 --> 00:31:00,800
Speaker 2: or a dictatorship of some sort, and that was sort

545
00:31:00,840 --> 00:31:03,640
Speaker 2: of my understanding is that was kind of the background

546
00:31:03,680 --> 00:31:04,720
Speaker 2: in nineteen sixty nine.

547
00:31:05,640 --> 00:31:09,800
Speaker 4: Yeah, that's exactly right. It's a really interesting point. There

548
00:31:09,840 --> 00:31:12,640
Speaker 4: was a twenty year military dictatorship in Brazil. Took power

549
00:31:12,720 --> 00:31:16,040
Speaker 4: in nineteen sixty four, left power in nineteen eighty five.

550
00:31:16,960 --> 00:31:19,840
Speaker 4: They actually created Embrae because in the decades up to

551
00:31:19,920 --> 00:31:23,840
Speaker 4: that point, the past governments tried to promote aviation solely

552
00:31:23,920 --> 00:31:25,080
Speaker 4: in the private sector and it.

553
00:31:25,120 --> 00:31:26,080
Speaker 6: Didn't really work.

554
00:31:26,600 --> 00:31:30,160
Speaker 4: Actually, interestingly, from the beginning, MBRAAD was a mixed private

555
00:31:30,240 --> 00:31:33,080
Speaker 4: public enterprise with the government holding only a fifty one

556
00:31:33,120 --> 00:31:37,880
Speaker 4: percent stake. And Brazil's military dictatorship was also interesting in that,

557
00:31:38,080 --> 00:31:43,440
Speaker 4: unlike Pinochet's dictatorship, were the last military dictatorship in Argentina,

558
00:31:44,200 --> 00:31:46,760
Speaker 4: they had more of a developmentalist but whereas you know,

559
00:31:46,880 --> 00:31:50,160
Speaker 4: the ideas of the Chicago Boys were more prominent in

560
00:31:50,800 --> 00:31:53,880
Speaker 4: Argentina during the seventies and eighties and Chile as well.

561
00:31:54,840 --> 00:31:58,520
Speaker 4: But importantly with mbraet and Aviation, as Brazil, there was

562
00:31:58,560 --> 00:32:01,960
Speaker 4: a concerted and consistent and effort over decades to really

563
00:32:02,040 --> 00:32:06,520
Speaker 4: develop the company and aviation. Richard mentioned the CTA, and

564
00:32:06,600 --> 00:32:08,840
Speaker 4: I want to say a little bit on that they

565
00:32:08,920 --> 00:32:11,520
Speaker 4: did this right and that they laid the groundwork through

566
00:32:11,600 --> 00:32:15,800
Speaker 4: the CTA and all THEA in the translation it's like

567
00:32:16,040 --> 00:32:21,440
Speaker 4: Technical Aerospace Center and it was modeled after Yeah, they

568
00:32:21,480 --> 00:32:24,720
Speaker 4: was modeled after MIT. They actually brought an MIT professor,

569
00:32:24,920 --> 00:32:29,280
Speaker 4: Richard Smith, and they developed all of these research institutes

570
00:32:29,680 --> 00:32:34,120
Speaker 4: that would focus on developing different designs for different planes

571
00:32:34,200 --> 00:32:37,000
Speaker 4: and the like. It actually produced one of EMBI had's

572
00:32:37,080 --> 00:32:40,720
Speaker 4: founders and longtime CEO, z D Silva. And this is

573
00:32:41,000 --> 00:32:44,440
Speaker 4: a guy, yeah, I want to mention because he's just incredible.

574
00:32:44,480 --> 00:32:47,720
Speaker 4: He was both a pilot and an aerospace engineer. He

575
00:32:47,840 --> 00:32:51,000
Speaker 4: actually worked on the prototype for the Bunday Nunchi, which

576
00:32:51,160 --> 00:32:54,480
Speaker 4: was EMBI had flagship program since its inception.

577
00:32:55,720 --> 00:32:56,560
Speaker 6: Actually funny story.

578
00:32:56,640 --> 00:32:59,040
Speaker 4: He left after like eighty six and then came back

579
00:32:59,120 --> 00:33:03,240
Speaker 4: once the company was privatized. But he was flying a

580
00:33:03,320 --> 00:33:08,800
Speaker 4: Shinghu which was actually a jet that unfortunately failed. But

581
00:33:09,280 --> 00:33:13,040
Speaker 4: he was on his way back from Brazilia with President

582
00:33:13,120 --> 00:33:19,240
Speaker 4: Samne to Sojous campus and he reportedly was one of

583
00:33:19,280 --> 00:33:23,400
Speaker 4: the first people to see Brazil's nineteen eighty six UFO incident.

584
00:33:23,480 --> 00:33:27,240
Speaker 4: There were like twenty like flashing lights all around so

585
00:33:27,360 --> 00:33:30,320
Speaker 4: Jose campus and it's famous in UFO lore.

586
00:33:30,440 --> 00:33:31,960
Speaker 6: But it's just kind of funny. He was one of

587
00:33:32,000 --> 00:33:33,000
Speaker 6: the first people to see it.

588
00:33:33,160 --> 00:33:36,600
Speaker 3: I'd never heard the nineteen eighty six Brazilian UFO incident.

589
00:33:37,040 --> 00:33:40,360
Speaker 3: May nineteen eighties series of radar and visual contexts.

590
00:33:40,560 --> 00:33:43,560
Speaker 2: This is going to establish a new precedent of all

591
00:33:43,720 --> 00:33:46,440
Speaker 2: all thoughts. Guests must come prepared with one piece of

592
00:33:46,640 --> 00:33:48,040
Speaker 2: uf UFO r Yes.

593
00:33:49,000 --> 00:33:51,680
Speaker 3: Wow, it's crazy. Yeah, it really happened. Huh okay, I'm

594
00:33:51,720 --> 00:33:55,880
Speaker 3: a believe that. Just to stay on the politics, the

595
00:33:56,280 --> 00:34:00,680
Speaker 3: military dictatorships are not that uncommon from time to time

596
00:34:00,720 --> 00:34:04,120
Speaker 3: around the world, particularly not that uncommon at various times

597
00:34:04,160 --> 00:34:07,320
Speaker 3: in the twentieth century in Latin America. But I hadn't

598
00:34:07,360 --> 00:34:09,600
Speaker 3: really thought about that that you do get sort of

599
00:34:10,040 --> 00:34:13,920
Speaker 3: different flavors of them from an ideological perspective. So it's interesting,

600
00:34:13,960 --> 00:34:17,320
Speaker 3: as you say, Chile sort of famously bringing in people

601
00:34:17,440 --> 00:34:21,279
Speaker 3: to give advice from the University of Chicago. Somewhat infamously,

602
00:34:21,880 --> 00:34:24,400
Speaker 3: I suppose, but it's interesting as you see your point,

603
00:34:24,560 --> 00:34:27,279
Speaker 3: maybe you can expand on that that the Brazilian one

604
00:34:27,400 --> 00:34:30,480
Speaker 3: had a very different attitude towards domestic economic development.

605
00:34:32,120 --> 00:34:34,320
Speaker 6: Yeah, you know, I'll step back a second.

606
00:34:34,480 --> 00:34:37,040
Speaker 4: If we think about all the countries in Latin America

607
00:34:37,640 --> 00:34:41,080
Speaker 4: where a company like embiad would really succeed, it makes

608
00:34:41,120 --> 00:34:43,279
Speaker 4: a lot of sense that Brazil would be it. It's

609
00:34:43,320 --> 00:34:47,640
Speaker 4: a massive country with multiple major cities far apart, making

610
00:34:47,719 --> 00:34:52,480
Speaker 4: aviation critical for both national security and commercial purposes. On

611
00:34:52,600 --> 00:34:55,919
Speaker 4: the latter that benefits from economies of scale. We're given

612
00:34:55,960 --> 00:34:59,680
Speaker 4: that Brazil has a large domestic market. There's a lot

613
00:34:59,719 --> 00:35:04,040
Speaker 4: of mo parts here, but really the intermingling, and you

614
00:35:04,120 --> 00:35:06,800
Speaker 4: could say this about a lot of other similar companies

615
00:35:06,840 --> 00:35:10,360
Speaker 4: around the world. The intermingling between the military and commercial

616
00:35:10,719 --> 00:35:14,719
Speaker 4: divisions of the company, particularly in Biet's case where exports

617
00:35:14,800 --> 00:35:17,520
Speaker 4: became prominent, was critical. You know, you think about it,

618
00:35:17,960 --> 00:35:20,720
Speaker 4: you need the military as a source of stable demand,

619
00:35:20,880 --> 00:35:24,000
Speaker 4: given that business cycles and aviation can be really volatile

620
00:35:24,160 --> 00:35:26,600
Speaker 4: and revenue tends to be limited, especially in a country

621
00:35:26,719 --> 00:35:30,120
Speaker 4: like Brazil. On the other hand, the potential for waste

622
00:35:30,239 --> 00:35:35,000
Speaker 4: as a monopoly or oligopolistic firm, depending on the state

623
00:35:35,120 --> 00:35:39,080
Speaker 4: military lends itself to the classic problem of protectionism. At

624
00:35:39,120 --> 00:35:43,080
Speaker 4: one point, the military insisted that all public sector planes

625
00:35:43,160 --> 00:35:45,640
Speaker 4: had to be purchased from MBIET and that all travels

626
00:35:45,640 --> 00:35:50,200
Speaker 4: should take place on those planes. And crucially, after sixty four,

627
00:35:50,280 --> 00:35:54,760
Speaker 4: the US imposed restrictions on military aid and weapons sales

628
00:35:54,920 --> 00:35:57,480
Speaker 4: in a similar way now to Russia, to force them

629
00:35:57,560 --> 00:36:00,319
Speaker 4: to rely on their own domestic industry. But the way

630
00:36:00,320 --> 00:36:03,440
Speaker 4: you mitigate that potential for croniism and the like is

631
00:36:03,520 --> 00:36:07,480
Speaker 4: by gearing your commercial operation towards exports and foreign markets,

632
00:36:07,880 --> 00:36:10,399
Speaker 4: particularly if you can find a niche, which is something

633
00:36:10,440 --> 00:36:10,960
Speaker 4: you guys.

634
00:36:10,840 --> 00:36:11,799
Speaker 6: Talk with Richard about.

635
00:36:12,880 --> 00:36:15,160
Speaker 2: I hadn't realized that, but it actually it makes a

636
00:36:15,200 --> 00:36:18,239
Speaker 2: lot of sense. The idea that Brazil is a very

637
00:36:18,360 --> 00:36:21,400
Speaker 2: large country with a lot of remote areas, and so

638
00:36:21,719 --> 00:36:25,239
Speaker 2: it really needs aircraft in many ways. But I guess

639
00:36:25,360 --> 00:36:28,800
Speaker 2: one thing I'm kind of curious about is when Brazil

640
00:36:28,920 --> 00:36:34,640
Speaker 2: was developing Emberer, what was the argument for comparative advantage

641
00:36:34,880 --> 00:36:37,440
Speaker 2: if there was one, Like, was there a moment in

642
00:36:37,520 --> 00:36:40,520
Speaker 2: time when people said, like, Okay, we need aircraft and

643
00:36:40,640 --> 00:36:42,920
Speaker 2: we can develop them in house. And lots of countries

644
00:36:43,280 --> 00:36:47,040
Speaker 2: are developing their own national aerospace companies at that time,

645
00:36:47,600 --> 00:36:51,000
Speaker 2: But was there a moment where they said and will

646
00:36:51,080 --> 00:36:53,160
Speaker 2: be better at it than other people.

647
00:36:53,680 --> 00:36:56,239
Speaker 4: That's a really interesting question, and it goes back to

648
00:36:56,360 --> 00:36:59,080
Speaker 4: that point on finding the correct niche. It's important to

649
00:36:59,200 --> 00:37:02,399
Speaker 4: keep in mind that Mbiada came onto the scene very

650
00:37:02,560 --> 00:37:06,240
Speaker 4: late in the history of aviation. At this point, Argentina's FMA,

651
00:37:06,400 --> 00:37:09,520
Speaker 4: for example, was way ahead of MBI had to say

652
00:37:09,600 --> 00:37:14,120
Speaker 4: nothing of peers and developed countries. Very astutely, the leadership

653
00:37:14,200 --> 00:37:16,759
Speaker 4: of the company looked at the global landscape and said,

654
00:37:17,440 --> 00:37:19,400
Speaker 4: you know what, there's no way we can compete with

655
00:37:19,560 --> 00:37:21,520
Speaker 4: what's coming out of Europe. In the US, is there

656
00:37:21,560 --> 00:37:24,360
Speaker 4: a place where we can specialize and so lo and

657
00:37:24,440 --> 00:37:26,200
Speaker 4: behold By the early seventies, they.

658
00:37:26,239 --> 00:37:28,879
Speaker 6: Produced the Ipanima and Shamanchi.

659
00:37:29,239 --> 00:37:32,320
Speaker 4: The first one was a small agricultural spray plane and

660
00:37:32,400 --> 00:37:35,160
Speaker 4: the second a small jet fighter that was designed by

661
00:37:35,239 --> 00:37:39,399
Speaker 4: one of the CTA's research institutes. Then in seventy three

662
00:37:39,520 --> 00:37:43,640
Speaker 4: they unveiled the bund Nuncia, a nineteen seat turboprop plane

663
00:37:44,360 --> 00:37:50,560
Speaker 4: with around five hundred models sold mostly to the Brazilian military.

664
00:37:51,080 --> 00:37:53,800
Speaker 4: And almost immediately after this the firm made this strategic

665
00:37:53,880 --> 00:37:58,439
Speaker 4: decision of orienting itself towards exports and engaging with partnerships

666
00:37:58,520 --> 00:38:02,719
Speaker 4: with foreign peers. When you talk about like developmentalism in

667
00:38:02,800 --> 00:38:06,040
Speaker 4: Latin America, you often see the region compared to the

668
00:38:06,120 --> 00:38:10,320
Speaker 4: Asian tigers, where the explanation will be the ISI policies

669
00:38:10,440 --> 00:38:13,560
Speaker 4: worked in you know, like Taiwan, South Korea, et cetera,

670
00:38:14,040 --> 00:38:18,640
Speaker 4: because they geared their industries towards explorts rather than just

671
00:38:18,760 --> 00:38:22,160
Speaker 4: the internal market, which was more prominent in most Latin

672
00:38:22,200 --> 00:38:24,320
Speaker 4: American countries and with most firms.

673
00:38:25,040 --> 00:38:29,080
Speaker 3: So you mentioned that by the time Embrer came into existence,

674
00:38:29,640 --> 00:38:34,680
Speaker 3: Argentina already had an aviation company FMA, which I'm just

675
00:38:34,800 --> 00:38:38,160
Speaker 3: looking at Wikipedia right now apparently was founded in nineteen

676
00:38:38,239 --> 00:38:40,520
Speaker 3: twenty seven, which seems but maybe.

677
00:38:40,600 --> 00:38:43,480
Speaker 6: Yeah, yeah, right around the time. Actually, so what happened?

678
00:38:43,560 --> 00:38:46,320
Speaker 3: Can you maybe give us the short compare and contrast

679
00:38:46,480 --> 00:38:50,120
Speaker 3: version of why regional carriers in the US are not

680
00:38:50,360 --> 00:38:53,040
Speaker 3: flying on little planes made by FMA.

681
00:38:54,000 --> 00:38:56,120
Speaker 6: There's a lot more history than you know.

682
00:38:56,200 --> 00:39:01,080
Speaker 4: Embrad went through a lot and saw are of failures,

683
00:39:01,760 --> 00:39:04,600
Speaker 4: but you know, you compare it to FMA and it's

684
00:39:04,719 --> 00:39:08,400
Speaker 4: just night and day. Why And it's sad because the

685
00:39:08,600 --> 00:39:11,960
Speaker 4: FM had that advantage they started so many decades earlier.

686
00:39:12,360 --> 00:39:13,480
Speaker 6: And this is to give you an idea.

687
00:39:13,520 --> 00:39:16,000
Speaker 4: It was first created I think in twenty seven by

688
00:39:16,080 --> 00:39:18,640
Speaker 4: secret decree and as a result of you can believe this,

689
00:39:18,760 --> 00:39:24,440
Speaker 4: there are no audits or financial records from the Argentine government.

690
00:39:24,920 --> 00:39:27,360
Speaker 4: And you know, another factor that's important too is the

691
00:39:27,440 --> 00:39:31,239
Speaker 4: fact that Brazil, you know, they had this twenty year

692
00:39:31,320 --> 00:39:35,960
Speaker 4: military dictatorship, but comparatively, there was a lot more stability.

693
00:39:36,080 --> 00:39:40,279
Speaker 4: That military dictatorship lasted a lot longer, and there was

694
00:39:40,400 --> 00:39:47,399
Speaker 4: continuity between these dictatorial and democratic governments. In Argentina during

695
00:39:47,440 --> 00:39:49,759
Speaker 4: the twentieth century, there were like I think something like

696
00:39:49,920 --> 00:39:55,160
Speaker 4: thirty something coups, and they had this effort during and

697
00:39:55,320 --> 00:39:57,839
Speaker 4: after the Second World War in Argentina. You know, bet

698
00:39:57,960 --> 00:40:02,000
Speaker 4: On famously took in a lot of Germans from Nazi

699
00:40:02,160 --> 00:40:04,400
Speaker 4: Germany and apparently.

700
00:40:04,080 --> 00:40:06,600
Speaker 6: They didn't jive well with the Argentines.

701
00:40:07,440 --> 00:40:10,360
Speaker 4: I have a few good data points on here that

702
00:40:11,160 --> 00:40:13,319
Speaker 4: in just five years fifty five and sixty they went

703
00:40:13,360 --> 00:40:17,400
Speaker 4: through nine different directors with a maximum term of twenty

704
00:40:17,520 --> 00:40:20,120
Speaker 4: three months, and it was just extremely volatile.

705
00:40:20,920 --> 00:40:22,480
Speaker 6: It was just a complete disaster.

706
00:40:22,920 --> 00:40:25,880
Speaker 4: And then, but I add the difference was that they

707
00:40:26,000 --> 00:40:30,280
Speaker 4: really specialized in going after these small and later regional jets.

708
00:40:30,960 --> 00:40:33,120
Speaker 6: That then the regional ones took off in.

709
00:40:33,160 --> 00:40:36,799
Speaker 4: The nineties after the company privatized, and they ended up

710
00:40:36,840 --> 00:40:39,520
Speaker 4: privatizing FMA also in the nineties, and that was a

711
00:40:39,600 --> 00:40:44,239
Speaker 4: complete disaster. Is run by Lockheed and they promised to

712
00:40:44,640 --> 00:40:47,399
Speaker 4: like not layoff with some of the workers and made

713
00:40:47,440 --> 00:40:50,400
Speaker 4: other promises, broke all of them. But the Argentine states

714
00:40:50,480 --> 00:40:51,879
Speaker 4: still look the other way.

715
00:41:07,719 --> 00:41:09,920
Speaker 2: Going back to mbreer, can you talk to us about

716
00:41:10,239 --> 00:41:14,920
Speaker 2: I guess its role in the overall Brazilian economy, because

717
00:41:15,239 --> 00:41:17,200
Speaker 2: this is something I was thinking about. We did that

718
00:41:17,480 --> 00:41:20,840
Speaker 2: episode with Ricardo Houseman where he was talking about.

719
00:41:20,600 --> 00:41:23,520
Speaker 3: That episode is very much in the background of my mind.

720
00:41:23,719 --> 00:41:29,240
Speaker 2: Yeah, and he was talking about, you know this idea

721
00:41:29,360 --> 00:41:32,360
Speaker 2: that once a country develops one industry, it sort of

722
00:41:32,760 --> 00:41:36,000
Speaker 2: leads to other industries where there are synergies or where

723
00:41:36,080 --> 00:41:40,080
Speaker 2: that technological knowledge can be built upon. So I'm curious, like,

724
00:41:40,480 --> 00:41:44,480
Speaker 2: were there other trees that Mbreer actually led to within

725
00:41:44,560 --> 00:41:45,600
Speaker 2: the Brazilian economy.

726
00:41:46,320 --> 00:41:50,960
Speaker 4: The military industrial sector had a number of different firms

727
00:41:51,000 --> 00:41:53,200
Speaker 4: and actually, when that comes to mind right now, unfortunately

728
00:41:53,280 --> 00:41:56,759
Speaker 4: because it runs the risk of being acquired by a

729
00:41:57,120 --> 00:42:00,600
Speaker 4: foreign company, AVI Bras, which specialized and make a number

730
00:42:00,719 --> 00:42:06,279
Speaker 4: of military hardware, and the CTA it was based out of,

731
00:42:06,400 --> 00:42:08,800
Speaker 4: so Jouzebu's comp was in the state of sal Pablo

732
00:42:08,920 --> 00:42:12,320
Speaker 4: is kind of known as Brazil's silicon valley, and that

733
00:42:12,560 --> 00:42:16,880
Speaker 4: actually turned into this huge industrial hub. I believe Lula

734
00:42:17,080 --> 00:42:20,200
Speaker 4: actually worked out of there when he was a union

735
00:42:20,320 --> 00:42:24,680
Speaker 4: leader for the Brazil's Metallurgy Union. And I had as

736
00:42:24,719 --> 00:42:27,759
Speaker 4: a pretty small company. It's worth only about what like

737
00:42:28,000 --> 00:42:32,440
Speaker 4: five billion dollars. And unfortunately, what we saw after the

738
00:42:32,560 --> 00:42:36,360
Speaker 4: nineties is that a lot of Brazil's industry in manufacturing

739
00:42:36,520 --> 00:42:40,160
Speaker 4: really collapsed because of the fact that they liberalized trade

740
00:42:40,280 --> 00:42:43,440
Speaker 4: and privatized a lot of these companies. Some of them

741
00:42:43,480 --> 00:42:47,719
Speaker 4: did better, like Petrobras and Voley, for instance, but a

742
00:42:47,800 --> 00:42:54,600
Speaker 4: lot of the indigenous auto manufacturing firms basically collapsed overnight, unfortunately.

743
00:42:54,920 --> 00:42:57,200
Speaker 3: So this touches on a couple of things what I

744
00:42:57,280 --> 00:43:00,759
Speaker 3: was going to ask next, But in your view, I mean,

745
00:43:01,040 --> 00:43:04,279
Speaker 3: the whole reason we're interested in Amber Air in the

746
00:43:04,360 --> 00:43:07,480
Speaker 3: first place is because two things, right. The first is

747
00:43:08,160 --> 00:43:10,360
Speaker 3: it's really hard to make a plane, period, and we

748
00:43:10,480 --> 00:43:13,080
Speaker 3: see that in the US, and we see that in China,

749
00:43:13,280 --> 00:43:15,920
Speaker 3: and I guess Europe seems to be doing fine with

750
00:43:16,120 --> 00:43:20,279
Speaker 3: making planes at Airbus, but objectively speaking, building a reliable

751
00:43:20,360 --> 00:43:23,680
Speaker 3: commercial plane is really difficult, so that's very unlikely. And

752
00:43:23,800 --> 00:43:27,520
Speaker 3: then b there are just not many advanced manufacturing success

753
00:43:27,560 --> 00:43:30,840
Speaker 3: stories in Latin America period, which sort of touches on

754
00:43:31,000 --> 00:43:34,560
Speaker 3: the question that Tracy just asked about. So part of

755
00:43:34,680 --> 00:43:38,920
Speaker 3: the question here is like what happened such that A Like,

756
00:43:39,080 --> 00:43:41,800
Speaker 3: how is there this one company that managed to overcome

757
00:43:41,880 --> 00:43:45,680
Speaker 3: two very unlikely things happening? And b is it just

758
00:43:45,800 --> 00:43:48,600
Speaker 3: a matter of premature liberalization? And your viewer like, what

759
00:43:48,719 --> 00:43:52,240
Speaker 3: are the factors that cause that there aren't more Embra airrors?

760
00:43:52,440 --> 00:43:55,120
Speaker 3: You know, why isn't there a Brazilian byd or whatever

761
00:43:55,239 --> 00:43:55,480
Speaker 3: it is.

762
00:43:57,160 --> 00:43:59,360
Speaker 6: As far as why am but I had succeeded, a

763
00:43:59,400 --> 00:44:00,279
Speaker 6: lot of it is luck.

764
00:44:00,440 --> 00:44:04,680
Speaker 4: A lot of it is just smart investments, really good

765
00:44:04,800 --> 00:44:09,759
Speaker 4: competence and cultivating talent for this company. But as far

766
00:44:09,800 --> 00:44:13,160
Speaker 4: as why there isn't a Brazilian bid, you know, there's

767
00:44:13,280 --> 00:44:17,040
Speaker 4: this automaker in Brazil, Bouguel. Its president was known as

768
00:44:17,120 --> 00:44:21,560
Speaker 4: the Brazilian Henry Ford. And to be honest, most of

769
00:44:21,600 --> 00:44:24,840
Speaker 4: the cars that this company made weren't great, but a

770
00:44:24,920 --> 00:44:25,920
Speaker 4: lot of them had potential.

771
00:44:25,960 --> 00:44:26,759
Speaker 6: They were actually.

772
00:44:26,560 --> 00:44:29,440
Speaker 4: Making evs during the seventies and eighties. They were these

773
00:44:29,480 --> 00:44:32,600
Speaker 4: small little cars, and the jeeps that they made were

774
00:44:32,640 --> 00:44:37,880
Speaker 4: pretty good. Unfortunately, after they removed tariffs and allowed competition

775
00:44:38,040 --> 00:44:41,080
Speaker 4: with imports in the nineties, the company went bankrupt in

776
00:44:41,160 --> 00:44:42,120
Speaker 4: nineteen ninety six.

777
00:44:43,160 --> 00:44:46,279
Speaker 6: And we talk about premature liberalization.

778
00:44:47,400 --> 00:44:50,480
Speaker 4: It's interesting because what I would argue with the company

779
00:44:50,719 --> 00:44:53,560
Speaker 4: like that is that you don't want to just prop

780
00:44:53,719 --> 00:44:57,200
Speaker 4: up these companies unnecessarily, especially if they're not giving results.

781
00:44:57,239 --> 00:45:01,160
Speaker 4: But if there's potential there, things maybe would have been different. If,

782
00:45:01,280 --> 00:45:03,520
Speaker 4: let's say, policymakers have said, you know what, we don't

783
00:45:03,560 --> 00:45:05,720
Speaker 4: want you to fail, but we want to see results,

784
00:45:05,760 --> 00:45:09,200
Speaker 4: you need to gear your operation towards exports, and we're

785
00:45:09,239 --> 00:45:12,120
Speaker 4: going to condition a lot of our support on increasing production,

786
00:45:12,280 --> 00:45:12,760
Speaker 4: et cetera.

787
00:45:13,800 --> 00:45:17,720
Speaker 2: What's the new industrial policy in Brazil? I keep hearing

788
00:45:17,800 --> 00:45:20,480
Speaker 2: about that, and I guess the big question is when

789
00:45:20,520 --> 00:45:23,279
Speaker 2: you say new industrial policy, how does that differ from

790
00:45:23,320 --> 00:45:24,640
Speaker 2: the old industrial policy?

791
00:45:25,360 --> 00:45:29,560
Speaker 4: Lula, I believe it was earlier this year unveiled what

792
00:45:29,680 --> 00:45:32,640
Speaker 4: he called his new Industrial Plan. I think it is

793
00:45:32,760 --> 00:45:36,360
Speaker 4: where I forget exactly the figure, including you know, a

794
00:45:36,400 --> 00:45:39,960
Speaker 4: bunch of subsidies, local content requirements, credit lines in order

795
00:45:40,000 --> 00:45:45,240
Speaker 4: to attract investments, specifically in manufacturing. And actually the results

796
00:45:45,280 --> 00:45:50,120
Speaker 4: so far are pretty good. The landis buyd great Wall Motors.

797
00:45:50,239 --> 00:45:53,880
Speaker 4: A number of key firms have opened up plants in

798
00:45:53,960 --> 00:45:57,520
Speaker 4: Brazil and the idea is to be able to benefit

799
00:45:57,719 --> 00:45:59,400
Speaker 4: from that technology transfer.

800
00:45:59,520 --> 00:46:01,319
Speaker 6: And it's you know, it's just it's one thing just.

801
00:46:01,360 --> 00:46:06,200
Speaker 4: If foreign multinationals are opening up plants in your country.

802
00:46:06,280 --> 00:46:08,799
Speaker 4: Another is that you can really actually learn from them

803
00:46:09,080 --> 00:46:10,640
Speaker 4: and then create your own firms.

804
00:46:11,320 --> 00:46:13,920
Speaker 3: There's been plants in Mexico for a long time, US

805
00:46:13,960 --> 00:46:17,640
Speaker 3: automaker plants, but Mexico does not have as far as

806
00:46:17,719 --> 00:46:21,040
Speaker 3: I know, a rising domestic auto industry of its own.

807
00:46:21,280 --> 00:46:23,279
Speaker 3: What are the barriers? Why is it that in some

808
00:46:23,480 --> 00:46:27,160
Speaker 3: cases it's in theory that works. You have some foreign

809
00:46:27,160 --> 00:46:29,399
Speaker 3: automakers like Ford set up a plant, and then there's

810
00:46:29,520 --> 00:46:31,880
Speaker 3: no how, and then there's domestic building and there's rising

811
00:46:31,960 --> 00:46:35,200
Speaker 3: the value chain, and then sometimes you're still just basically

812
00:46:35,680 --> 00:46:38,520
Speaker 3: capturing only a modest share of value as a place

813
00:46:38,640 --> 00:46:41,200
Speaker 3: for and finishing, and it doesn't spread out.

814
00:46:41,840 --> 00:46:45,600
Speaker 4: Mexico is really today one of the few put countries

815
00:46:45,640 --> 00:46:48,960
Speaker 4: in Latin America that has a really robust manufacturing sector.

816
00:46:49,040 --> 00:46:52,239
Speaker 4: But as you stated, it's all really just assembly. They

817
00:46:52,360 --> 00:46:56,719
Speaker 4: just import inputs from abroad, assemble these finished goods and

818
00:46:56,840 --> 00:46:59,399
Speaker 4: send them to the US. And this is actually how

819
00:47:00,000 --> 00:47:03,920
Speaker 4: a lot of the Asian tigers started out Taiwan and Singapore,

820
00:47:04,200 --> 00:47:07,279
Speaker 4: et cetera. They started out assembling these goods and then

821
00:47:07,600 --> 00:47:12,640
Speaker 4: exporting them. But they eventually graduated such the point where

822
00:47:12,680 --> 00:47:16,320
Speaker 4: you know, they developed companies like Samsung, TSMC the like.

823
00:47:17,080 --> 00:47:21,320
Speaker 4: And exactly why that hasn't happened in Mexico, for instance,

824
00:47:21,400 --> 00:47:25,040
Speaker 4: in other Latin American countries, it's hard to say. I

825
00:47:25,120 --> 00:47:27,360
Speaker 4: think we could chalk it up to an extent to

826
00:47:27,520 --> 00:47:30,120
Speaker 4: a lack of imagination honestly.

827
00:47:31,280 --> 00:47:33,960
Speaker 2: So on that note, I mean, I know your expertise

828
00:47:34,200 --> 00:47:37,759
Speaker 2: is Latin America, but do you think nowadays you could

829
00:47:37,960 --> 00:47:41,840
Speaker 2: have a repeat of an Embraer in the sense that

830
00:47:41,960 --> 00:47:46,040
Speaker 2: you could have, you know, a homegrown high tech industry

831
00:47:46,280 --> 00:47:49,400
Speaker 2: despite the idea that there are all these you know,

832
00:47:49,719 --> 00:47:53,200
Speaker 2: quite high barriers to entry, especially for something as complex

833
00:47:53,400 --> 00:47:54,560
Speaker 2: as building aircraft.

834
00:47:55,880 --> 00:47:59,239
Speaker 4: That's a tough question because if it were to happen,

835
00:47:59,320 --> 00:48:02,080
Speaker 4: it would take deck and it would take decades for

836
00:48:02,160 --> 00:48:07,040
Speaker 4: us to see a firm that's really successful. I meant

837
00:48:07,080 --> 00:48:09,720
Speaker 4: to get into this, EMBI had was really in crisis

838
00:48:09,880 --> 00:48:13,759
Speaker 4: mode during much of the eighties and early nineties. Why

839
00:48:14,600 --> 00:48:18,520
Speaker 4: during the seventies, Brazil saw this huge boom upwards of

840
00:48:18,640 --> 00:48:21,920
Speaker 4: like ten percent growth each year, and they were investing

841
00:48:22,000 --> 00:48:24,880
Speaker 4: in all of these manufacturing companies, but a lot of

842
00:48:24,960 --> 00:48:29,000
Speaker 4: that was financed with external debt. You get to seventy nine,

843
00:48:29,080 --> 00:48:32,120
Speaker 4: I believe in mister Volker, and the Federal Reserve starts

844
00:48:32,200 --> 00:48:36,800
Speaker 4: massively raising interest rates. This causes a huge crisis in

845
00:48:36,880 --> 00:48:40,480
Speaker 4: Brazil that causes the country's debt to explode and similarly

846
00:48:40,560 --> 00:48:43,040
Speaker 4: affected a lot of other countries in Latin America. You

847
00:48:43,080 --> 00:48:45,400
Speaker 4: guys might have heard the term the last decade for

848
00:48:45,840 --> 00:48:50,040
Speaker 4: to the nineteen eighties. Interestingly, actually in Brazil up until

849
00:48:50,080 --> 00:48:54,319
Speaker 4: like eighty five, the military their view was that they

850
00:48:54,440 --> 00:48:58,400
Speaker 4: could pay down some of their debt by promoting exports,

851
00:48:58,440 --> 00:49:01,960
Speaker 4: and they ran these huge surflas. Since then after eighty

852
00:49:02,040 --> 00:49:06,080
Speaker 4: five they started more of an austerity regime. There was

853
00:49:06,120 --> 00:49:08,480
Speaker 4: also a slump in the early nineties because of the

854
00:49:08,800 --> 00:49:12,040
Speaker 4: golf War, but the company was given like a half

855
00:49:12,080 --> 00:49:16,520
Speaker 4: a billion dollar rescue package. But when it was finally privatized,

856
00:49:16,560 --> 00:49:18,320
Speaker 4: it actually had to be put up for auction like

857
00:49:18,480 --> 00:49:21,200
Speaker 4: five times because it was viewed as so undesirable.

858
00:49:21,560 --> 00:49:25,920
Speaker 3: So that's interesting, the vulgar shock sort of clobbering the

859
00:49:26,040 --> 00:49:29,160
Speaker 3: economies of countries that had gone into debt to do

860
00:49:29,360 --> 00:49:33,239
Speaker 3: domestic investment. You mentioned the golf war downturn, which I

861
00:49:33,560 --> 00:49:38,680
Speaker 3: hadn't thought about. But after the military dictatorship ended after

862
00:49:39,040 --> 00:49:41,680
Speaker 3: twenty years and then the company went private, Like, what

863
00:49:42,040 --> 00:49:44,960
Speaker 3: was the sort of policy stance of the government at

864
00:49:45,000 --> 00:49:47,440
Speaker 3: that time. Was it a sort of sort of classic

865
00:49:47,640 --> 00:49:51,759
Speaker 3: Washington consensus pursue that kind of liberalism? Like what was

866
00:49:51,840 --> 00:49:55,600
Speaker 3: the environment the domestic policy environment during that sort of

867
00:49:56,239 --> 00:49:58,120
Speaker 3: those rough years in the eighties and nineties.

868
00:49:58,880 --> 00:50:00,640
Speaker 6: You know, I think you I could say it's a

869
00:50:00,719 --> 00:50:01,360
Speaker 6: bit of both.

870
00:50:01,719 --> 00:50:05,279
Speaker 4: The key thing is that when the company was privatized,

871
00:50:05,320 --> 00:50:07,839
Speaker 4: the government kept what's called the golden share, giving them,

872
00:50:07,880 --> 00:50:10,799
Speaker 4: you know, veto power over changes in ownership and really

873
00:50:11,360 --> 00:50:14,040
Speaker 4: strategic decisions with regards to.

874
00:50:14,160 --> 00:50:15,200
Speaker 6: The running of the company.

875
00:50:15,800 --> 00:50:18,279
Speaker 4: And it's really because of this golden share that the

876
00:50:18,320 --> 00:50:21,440
Speaker 4: company is still a Brazilian company. Avibas actually, which I

877
00:50:21,520 --> 00:50:26,000
Speaker 4: mentioned before, was completely privatized. The government kept zero ownership,

878
00:50:26,040 --> 00:50:28,640
Speaker 4: and it's because of that that it runs the risk

879
00:50:28,760 --> 00:50:32,680
Speaker 4: now of being sold off and no longer being Brazilian.

880
00:50:33,560 --> 00:50:37,680
Speaker 4: They had this pre privatization venture into I think it

881
00:50:37,760 --> 00:50:42,759
Speaker 4: was the erj that really took off after privatization. There's

882
00:50:42,800 --> 00:50:44,600
Speaker 4: all these interests in regional jets.

883
00:50:44,680 --> 00:50:47,239
Speaker 6: But on the one hand, there was a more lase

884
00:50:47,280 --> 00:50:48,160
Speaker 6: a fair approach.

885
00:50:48,800 --> 00:50:53,800
Speaker 4: But you know, because aviation manufacturers it is really necessary

886
00:50:53,880 --> 00:50:55,320
Speaker 4: to have support from the government.

887
00:50:55,400 --> 00:50:59,920
Speaker 6: I mean, you know, Boeing and the like their government contractors.

888
00:51:00,560 --> 00:51:03,719
Speaker 4: The support that I had received from the Brazilian state

889
00:51:03,960 --> 00:51:06,440
Speaker 4: was similar to its more developed peers.

890
00:51:06,480 --> 00:51:08,759
Speaker 6: You know, they're still subsidized and the.

891
00:51:08,920 --> 00:51:12,000
Speaker 3: Like one David Rojas, thank you so much for coming

892
00:51:12,040 --> 00:51:12,600
Speaker 3: out odd luck.

893
00:51:12,680 --> 00:51:14,279
Speaker 6: That was great. Thanks to ton guys.

894
00:51:26,920 --> 00:51:30,160
Speaker 3: Tracy. I'm really glad we finally did an EMBRA air episode.

895
00:51:30,400 --> 00:51:34,400
Speaker 3: I think my big takeaway is it's really hard to

896
00:51:34,480 --> 00:51:36,880
Speaker 3: make an airplane, and you also just need a lot

897
00:51:36,920 --> 00:51:37,239
Speaker 3: of luck.

898
00:51:37,719 --> 00:51:39,520
Speaker 2: Yeah, it's funny you say that. I was about to

899
00:51:39,560 --> 00:51:42,759
Speaker 2: say the exact same thing, like there's a tendency to

900
00:51:42,920 --> 00:51:45,680
Speaker 2: think like, oh, they must have done all the right things,

901
00:51:45,800 --> 00:51:48,319
Speaker 2: or there's some sort of like insight that you can

902
00:51:48,480 --> 00:51:52,000
Speaker 2: pull out of this one specific example. But it seems

903
00:51:52,080 --> 00:51:54,879
Speaker 2: in some respects like, yeah, they got lucky. They made

904
00:51:54,920 --> 00:51:58,680
Speaker 2: some good decisions, they had some good management. I guess

905
00:51:58,760 --> 00:52:02,600
Speaker 2: the one thing that they did was identify that niche right.

906
00:52:02,760 --> 00:52:04,880
Speaker 2: And the other thing I was thinking about is actually

907
00:52:05,000 --> 00:52:07,960
Speaker 2: Quan hit upon it really well in that second part

908
00:52:08,000 --> 00:52:10,920
Speaker 2: where he was talking about how the geography of Brazil

909
00:52:11,080 --> 00:52:13,920
Speaker 2: kind of lent itself to the need for aircraft, and

910
00:52:14,000 --> 00:52:16,840
Speaker 2: I guess within that you would want lots of regional

911
00:52:16,960 --> 00:52:21,279
Speaker 2: or smaller jets because you're going to more remote locations

912
00:52:21,400 --> 00:52:25,560
Speaker 2: and probably not you know, big metropolitan centers all the time,

913
00:52:25,640 --> 00:52:28,000
Speaker 2: and so in some respects it kind of lent itself

914
00:52:28,360 --> 00:52:31,280
Speaker 2: to that regional jet or business jet idea totally.

915
00:52:31,719 --> 00:52:35,239
Speaker 3: It dovetails with the point Richard made to that one

916
00:52:35,320 --> 00:52:39,800
Speaker 3: of the preconditions for establishing any sort of aviation company

917
00:52:39,920 --> 00:52:44,000
Speaker 3: at scale is that really excellent customer support or customer

918
00:52:44,160 --> 00:52:47,280
Speaker 3: service network. And so you think, like, well, one reason

919
00:52:47,800 --> 00:52:50,720
Speaker 3: why Brazil and not any other country in Latin America

920
00:52:50,960 --> 00:52:53,560
Speaker 3: is just by luck, I guess, the sheer size and

921
00:52:53,640 --> 00:52:57,200
Speaker 3: the sheer necessity of having to build out all that

922
00:52:57,320 --> 00:53:00,840
Speaker 3: stuff at scale just to even serve the domestic market.

923
00:53:00,960 --> 00:53:03,320
Speaker 2: Absolutely. The other thing that I think is interesting is

924
00:53:03,400 --> 00:53:08,439
Speaker 2: that idea of like synergistic economic development. And I guess

925
00:53:09,120 --> 00:53:11,680
Speaker 2: we shouldn't make this a three parter, but maybe we

926
00:53:11,760 --> 00:53:15,320
Speaker 2: need to get Houseman on to explain why Amber didn't

927
00:53:15,440 --> 00:53:19,160
Speaker 2: like lead to a bunch of other synergistic businesses in Brazil.

928
00:53:19,400 --> 00:53:19,520
Speaker 4: Right.

929
00:53:19,600 --> 00:53:22,200
Speaker 3: You'd think it would, because you know there's like, are

930
00:53:22,239 --> 00:53:26,400
Speaker 3: there certain component manufacturers that could then sell into others

931
00:53:26,800 --> 00:53:30,080
Speaker 3: exactly right, all these different things or engines that go

932
00:53:30,239 --> 00:53:33,320
Speaker 3: into a jet that can be modified for engines for results.

933
00:53:33,480 --> 00:53:38,240
Speaker 2: So if you're doing it for nationalistic reasons, at least initially,

934
00:53:38,560 --> 00:53:42,120
Speaker 2: you would think that security would be a factor here.

935
00:53:42,360 --> 00:53:45,640
Speaker 2: That you wouldn't necessarily want to rely on imports for

936
00:53:45,760 --> 00:53:48,800
Speaker 2: some of those like vital components, and yet that seems

937
00:53:48,840 --> 00:53:49,640
Speaker 2: to be the case here.

938
00:53:49,760 --> 00:53:50,640
Speaker 1: So I don't know.

939
00:53:51,120 --> 00:53:55,160
Speaker 3: Yeah, no, I don't know. It's very interesting story, it is,

940
00:53:55,520 --> 00:53:57,480
Speaker 3: I think to you as you sort of there's like

941
00:53:57,640 --> 00:54:01,480
Speaker 3: it's a little unsatisfying, only in this sense that we

942
00:54:01,600 --> 00:54:04,000
Speaker 3: can't look to ember Air and say like, oh, that's

943
00:54:04,040 --> 00:54:06,960
Speaker 3: how it's done, because what you want is you want

944
00:54:07,000 --> 00:54:09,160
Speaker 3: to see like, oh, this is you know, I feel

945
00:54:09,200 --> 00:54:13,480
Speaker 3: like when we talk about East Asian manufacturing success stories,

946
00:54:14,080 --> 00:54:17,359
Speaker 3: that blueprint, at least on paper, looks a little bit clearer, right.

947
00:54:17,520 --> 00:54:20,279
Speaker 3: It's like, yeah, you do final assembly first, and then

948
00:54:20,320 --> 00:54:22,879
Speaker 3: you do this, and then you set a series.

949
00:54:22,600 --> 00:54:24,840
Speaker 2: Of it's like a natural progression, and you set.

950
00:54:24,680 --> 00:54:27,400
Speaker 3: These export targets, and then the companies that hit the

951
00:54:27,520 --> 00:54:30,600
Speaker 3: export targets are presumed to be making something good because

952
00:54:30,640 --> 00:54:33,239
Speaker 3: they've satisfied the export test, and then you give them more,

953
00:54:33,440 --> 00:54:38,840
Speaker 3: et cetera. But at least in Embraer's situation, there aren't

954
00:54:38,960 --> 00:54:43,400
Speaker 3: enough other examples of such a thing, although obviously the

955
00:54:43,480 --> 00:54:46,319
Speaker 3: export discipline was part of it, where you could say, okay,

956
00:54:46,360 --> 00:54:49,160
Speaker 3: now let's repeat this over and over again, but still

957
00:54:49,239 --> 00:54:49,880
Speaker 3: very fascinating.

958
00:54:50,040 --> 00:54:51,440
Speaker 2: Absolutely, I'm glad we did it.

959
00:54:51,640 --> 00:54:52,320
Speaker 3: I'm glad.

960
00:54:52,760 --> 00:54:55,160
Speaker 2: I still have questions, so maybe this will become like

961
00:54:55,960 --> 00:54:57,320
Speaker 2: a multi part series.

962
00:54:57,600 --> 00:55:00,560
Speaker 3: It also, I mean it is. The Houseman episode just

963
00:55:00,600 --> 00:55:02,800
Speaker 3: sort of looms in my mind. Yeah, the whole conversation

964
00:55:02,880 --> 00:55:04,600
Speaker 3: because it's like, oh, yeah, you did it once, why

965
00:55:04,640 --> 00:55:07,600
Speaker 3: can't you do more? Or why can't Mexico then do more?

966
00:55:07,760 --> 00:55:11,800
Speaker 3: Given the long standing existence of final assembly plans. I

967
00:55:11,840 --> 00:55:14,000
Speaker 3: don't know. I guess if it were easy, every country

968
00:55:14,040 --> 00:55:14,799
Speaker 3: would be rich by.

969
00:55:14,760 --> 00:55:15,880
Speaker 2: Now you know what we should do?

970
00:55:16,040 --> 00:55:16,200
Speaker 1: Joe.

971
00:55:16,320 --> 00:55:19,440
Speaker 2: Yeah, every time we talk about that Ricardo Houseman episode,

972
00:55:19,520 --> 00:55:22,319
Speaker 2: I get that vision of like monkeys keeping from tree

973
00:55:22,360 --> 00:55:26,960
Speaker 2: to tree. We should write a children's song about economic development,

974
00:55:27,080 --> 00:55:29,600
Speaker 2: monkeys and industrial policy or something.

975
00:55:29,760 --> 00:55:31,080
Speaker 3: I'm seeing a children's book.

976
00:55:31,239 --> 00:55:32,279
Speaker 2: Ooh, a children's book.

977
00:55:32,520 --> 00:55:32,920
Speaker 6: I like that.

978
00:55:33,239 --> 00:55:35,640
Speaker 2: Okay, all right, let's leave it there.

979
00:55:35,880 --> 00:55:36,640
Speaker 3: Let's leave it there.

980
00:55:36,960 --> 00:55:39,560
Speaker 2: This has been another episode of the All Thoughts Podcast.

981
00:55:39,680 --> 00:55:42,880
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway and.

982
00:55:42,960 --> 00:55:45,600
Speaker 3: I'm Joe Wisenthal. You can follow me at The Stalwart.

983
00:55:45,800 --> 00:55:51,040
Speaker 3: Follow Juan David Rojas. He's Rojas r Wan d Follow

984
00:55:51,160 --> 00:55:56,480
Speaker 3: Richard albu Lafia's firm Aerodynamic Advisory Aerodynamic ad Follow our

985
00:55:56,560 --> 00:56:00,239
Speaker 3: producers Carmen Rodriguez at Carmen armand dash Ol Bennett add

986
00:56:00,320 --> 00:56:03,319
Speaker 3: Dashbod and Kilbrooks at Kilbrooks. And thank you to our

987
00:56:03,360 --> 00:56:06,800
Speaker 3: producer Moses Ondam. For more Oddlots content, go to Bloomberg

988
00:56:06,840 --> 00:56:09,640
Speaker 3: dot com slash odd Lots, where of transcripts, a blog,

989
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990
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991
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992
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993
00:56:21,600 --> 00:56:23,920
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996
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1001
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1002
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Speaker 6: In in