Embraer S.A.

, 2013

A Strategic Audit Presented to the Faculty of the College of Business

Education, Nueva Vizcaya State University Bayombong, Nueva Vizcaya

In Partial Fulfilment of the Requirements for Subject

CBM 2 Strategic Management

1st Semester, SY 2022-2023

DOMRIGUE, ALEJAH KEITH L.

JANUARY 2023
I. Current Situation

A. Current Performance
 Embraer was founded in 1969 as a state-owned civilian and military aviation company
known at the time as Empresa Brasileira de Aeronautica. The Brazilian Aeronautics
Ministry secured a contract to buy 80 Bandeirante airplanes, which were built in a hangar
with a monthly production capacity of two aircraft.
 After growing in 1970s, acquired a Florida headquarters, and established a subsidiary
called the Embraer Aircraft Company to better serve the American market.
 Embraer Aviation International was established by the business in 1983 in Paris in order
to better serve markets in Europe, the Middle East, and Africa. In order to prevent
insolvency and profit from the early 1990s demand for smaller aircraft, the firm was
privatized in 1994.
 A few financial institutions acquired own membership in the business. Additionally,
Embraer S.A. became the official name of the business in 1994. In Melbourne, Florida,
Embraer established its first facility there. The hanger had a modern paint booth and was
7,500 square feet in size. It was intended for final assembly.
 According to Paulo Cesar Silva, President and CEO of Embraer Commercial Aviation, "It
is notable that our long-standing, valued customer Republic Airways a real innovation in
the regional transport business is the first customer for the improved E175." The E175
represents the best value for airlines since it has the lowest total operating cost. It is the
most comfortable, technologically advanced, and efficient aircraft in its class.
B. Strategic Posture
1. Mission
 “Embraer’s business is to generate value for its shareholders by fully satisfying its
customers in the global aviation market. By ‘generate value,’ we mean maximizing the
Company’s value and ensuring its perpetuity, acting with integrity and social
environmental awareness.”
2. Objectives
 Build a relationship based upon trust with its consumers, service partners, staff
members, and government.
 We are here to serve our customers.
 Our people are what make us fly.
 We strive for company excellence.
 Boldness and innovation are our hallmarks.
  Global presence is our frontier.
 We build a sustainable future.

II. Strategic Managers

A. Board of Directors
1. President and CEO, Frederico Pinheir, Fleury Curado and 6 Executive Vice-president of
Operations and two primary segments; Defense and Security and Commercial Aviation.
2. Two-year term, re-election permitted.
3. Monthly meetings.
4. Defines strategies; elects, supervises and dismisses members of the Board of Executive
Officers; monitors risks; and establishes general business policy.
B. Top Management
1. Formally responsible for the company’s performance on economic, environmental and
social topics: the Executive Vice President of Finance and Investor Relations and the Vice
President of People and Sustainability, respectively.
2. Two-year terms, with the possibility of re-election.
3. Monthly meetings.
4. The commercial aviation industry has reached maturity in the markets where it currently
competes.

III. External Environment

(EFAS Table; see Exhibit 1)

A. Natural Environment
 Rapid growth in the middle class citizens. (O)
 Percent of all Exports. (O)
B. Societal Environment
1. Economic
 Sensitivity to global economy events. (T)
 Economic growth rate. (O)
 Infrastructure quality. (O)
 Price of Fuel. (T)
2. Technological
  Technological forecasting. (O)
 Impact on cost structure. (T)
 Recent technological developments by Embraer S.A. competitors. (T)
3. Political- Legal
 Sales to Brazilian defense. (O)
 Member of Mercosul trading block. (O)
 Foreign government trade regulations. (O)
4. Sociocultural
 Demographics and skill level of the population. (O)
 Class structure, hierarchy and power structure in the society. (O)
 Leisure interests. (O)
C. Task Environment
 Weather (T)
 Climate change (T)
 Laws regulating environment pollution (T)
 Air and water pollution regulations (T)

IV. Internal Environment

(IFAS Table; see Exhibit 2)

A. Corporate Structure
 All executive jets can be customized to include showers, bedrooms, or standard
commercial jet seating layouts. (S)
 They are producing a larger E-jet in four different models. (S)
 There is no middle seat in E-jet so they can stand up as a passenger walks down the
aisle unlike competitor planes where many people have to bend over as they make their
way to their seat. (S)
B. Corporate Culture
 Generate value by fully satisfying its customer. (S)
 Despite the segment's rapid growth, Embraer believes that it has reached maturity in the
markets in which it currently operates. (S)
 They provide 48 different nations with services and products contained under the Defense
and Security’s umbrella. (S)
C. Corporate Resources
 1. Marketing
 They will continue to consolidate its position as one of the primary powers with
market-leading positions in the segments in which it operates. (S)
 Highly dependent on the international market for the purchase of equipment,
materials, and components that increases the company’s vulnerability to exchange
rate volatility. (S)
2. Finance ( see Exhibit 4 & 5)
 The drop in Embraer aircraft deliveries. (W)
3. R&D
 Focuses on various quality assurance initiatives improvement of production lines of
various aircraft. (S)
 Embraer does not have good relationships with universities. This may limit the
ability of the company to compete with aircraft manufacturers. (W)
4. Operation
 Embraer is only one-third of the size of Bombardier and one-tenth of the size of
Boeing, which hurts Embraer in terms of economies of scale. (W)
 Embraer’s core competence. Continual improvement process and is by far the
most efficient and most profitable. (W)
5. Human Resources
 Gives its employees equal opportunity and respects diversity. (S)
 In the company, there are governance bodies which are represented as
breakdown of employees per employee. (W)
6. Information System
 Wander Menchik, Head of Embraer’s Technology Development Program, offers an
insider’s view on the importance of innovation and intellectual property (IP) to the
company and its future goals. (S)
 Building planes for the commercial, executive, and military industries, it has
established itself as one of the world's top aircraft manufacturers thanks to its
pioneering spirit and dedication to innovation and perfection. (S)

V. Analysis of Strategic Factors

A. Situational Analysis (SWOT) (SFAS Matrix; see Exhibit 3)

1. Strengths
 Embraer Brand name o Product Excellence
  Aluminum supplied domestically from Brazil
 Generate value by fully satisfying its customer
 US- based manufacturing engineering, sales, and marketing facilities
 Embraer credit and leasing
2. Weaknesses
 Competition from China
 Lean manufacturing costs
 High attrition rate in work force
3. Opportunities
 Skill level of workforce
 Economic growth rate
 Class structure, hierarchy and power structure in the society
 Record high backlog on aircraft orders
 Space market entry
4. Threats
 Recovery from the global recession
 Brazil corruption scandals
 Fuel prize vs. airline industry need for new planes
B. Review of Current Mission and Objectives
 Current mission and objectives appears appropriate.
 Mission and objectives are really goals and it clearly shows realistic and attainable.

VI. Strategic Alternatives and Recommended Strategy

A. Strategic Alternatives
1. Growth through Concentric Diversification: A grand strategy of buying up of similar firms
in terms of products, markets, and technology to increase total profits of the resulting
bigger firm.
a. [Pros]: The advantages of buying up similar firms are it increases profits of
resulting bigger firms.
b. [Cons]: One of the disadvantages to buying another business in the same industry
is that you run the risk of being redundant.
 2. Pause Strategy: With the acceptance by its customer base, a company that utilizes
Innovation as one of its Grand Strategies take advantage of the profits from the
introduction of new or greatly advance current products.
a. [Pros]: It helps organizations differentiate themselves from the rest by
implementing different innovative marketing, production, and sales strategies.
b. [Cons]: The strategic management process is complex, time consuming, and
difficult to implement; it requires skilful planning in order to avoid pitfalls.
3. Retrenchment: A company pursuing a Market Development Grand Strategy conducts
marketing of its existing products.
a. [Pros]: It helps find lucrative new markets with new customers willing to buy your
products.
b. [Cons]: The major risk of market development is that it typically requires capital
investment in expansion.
B. Recommended Strategy
 Embraer should enter ultra- long –range jet market with its Legacy 1000E aircraft, to
compete with Boeing, Dessualt, and Borbardier.
 Continue its environmental and educational policies to increase sustainability of its
operation.
 Continue its agricultural division success with Ipanema, by marketing it in the new for
Embraer, Asian market.
 The defense and security division should expand its operations in the United States and
find other source of advantage, such as the space industry, possibly looking into being
able to launch space vehicles into Low Earth Orbit and beyond.
 Establish a more dominant foothold in the executive aviation industry with new production
and engineering facilities.

VII. Implementation

 Bigger effort should be placed on the discovery of competition in the ultra- long range market.
 More time should be placed on the study of Brazil’s economy and its effects on the operation of
Embraer.
 New market opportunities of Embraer’s entry into the space launch services should be analyzed.

VIII. Evaluation and Control

  Embraer should reduce revenue; the industry lay off workers and closed offices. The crisis also
demanded airlines reduce the number of sights and move up the retirement of aircraft.
 They should focus on its core vale/ business passenger aircrafts supporting evidence are
growing in the developing countries and globalization in general.
 Embraer should continue its expansion of operations into the United States and China, and look
for other developing regional jet and executive jet markets to capture the market share.

EXHIBIT 1: EFAS Table for Embraer S.A., 2013

External Factors Weight Rating Weighted Comments

score

OPPORTUNITIES

 Skill level of workforce 0.15 5 0.75 Provides participants with

practical skills necessary to
perform and certify the
maintenance tasks.

 Economic growth rate 0.15 5 0.75 The percentage change in the

value of all of the goods and
services produce by Embraer.

 Class structure, hierarchy and 0.15 4 0.6 A higher class is associated

power structure in the society with high power.

 Record high backlog on 0.11 3 0.33 Embraer’s backlog value

aircraft orders remained the same throughout
the quarter.

 Space market entry 0.14 4 0.56 Most important market in terms

of sales, revenue and profit.

THREATS

 Recovery from the global 0.10 3 0.3 Embraer has taken “firm and
recession swift” action to adjust to the
 global market crisis.

 Brazil corruption scandals 0.10 1 0.1 Entered into a resolution to

resolve criminal charges and
agreed to pay a penalty.

 Fuel prize vs. airline industry 0.10 2 0.2 Soaring fuel prices are having
need for new planes a major impact on the aviation
sector and airlines.

TOTAL: 1 3.59

EXHIBIT 2: IFAS Table for Embraer S.A., 2013

Internal Factors Weigh Rating Weighted Comments

t score

STRENGHTS

 Embraer Brand name o 0.15 5 0.75 It became one of the world’s

Product Excellence leading aircraft manufacturers.

 Aluminum supplied 0.14 5 0.7 They supplied domestically

domestically from Brazil from Brazil.

 Generate value 0.15 4 0.6 By generating value they fully

satisfying customers.

 US- based manufacturing 0.11 3 0.33 They begin to open a new US

engineering, sales, and manufacturing aircraft.
marketing facilities

 Embraer credit and leasing 0.10 3 0.3

WEAKNESSES
 Competition from China
0.10 2 0.2 China is one of the biggest
 competitors of Embraer.

 Lean manufacturing costs 0.15 4 0.6 Continually assessing and

improving the various parts of
organization.
 High attrition rate in work force
0.10 1 0.1 The rate at which people leave.

TOTAL: 1 3.58

EXHIBIT 3: SFAS Table for Embraer S.A., 2013

Strategic Factors Weight Rating Weighted Duration Comments

scale
S I L
H N O
O T N
E
R G
R
T
M
E
D
I
A
T
E

S1. Embraer Brand 0.15 5 0.75 X It became one of the

name o Product world’s leading aircraft
Excellence manufacturers.
S2. US- based 0.11 4 0.44 X They begin to open a
manufacturing new US manufacturing
engineering, sales, and aircraft.
marketing facilities
W1. Lean manufacturing 0.15 4 0.6 X Continually assessing
costs and improving the
 various parts of
organization.
W2. Competition from 0.05 1 0.05 X China is one of the
China biggest competitors of
Embraer.
O1. Skill level of 0.15 5 0.75 X Provides participants
workforce with practical skills
necessary to perform
and certify the
maintenance tasks.
O2. Economic growth rate 0.14 5 0.7 X The percentage change
in the value of all of the
goods and services
produce by Embraer.
O3. Space market entry 0.10 3 0.3 X Most important market
in terms of sales,
revenue and profit.
T1. Recovery from the 0.10 3 0.3 X Embraer has taken “firm
global recession and swift” action to
adjust to the global
market crisis.
T2. Fuel prize vs. airline 0.05 2 0.1 X Soaring fuel prices are
industry need for new having a major impact
planes on the aviation sector
and airlines.
TOTAL: 1 3.99