How Brazil’s Embraer survived a Boeing rejection

For Embraer, the third-largest plane maker in the world, the goal of that partnership was to build up its commercial aircraft division to better compete with Airbus, and maintain a  focus on its thriving private jet and military businesses. But in April 2020, Boeing pulled the plug after the pandemic and two major 737 Max accidents that killed hundreds severely hurt its business.  

That meant Neto had to rethink his strategy for Embraer from top to bottom, even as sales plummeted during the COVID crisis and no one knew when aviation would recover. “We had to reinvent ourselves, to reintegrate the commercial aviation and restart,” Neto told Fortune in an interview last week. “It was a baptism by fire.”

The company focused on private jets and sustainability, and it seems to be working. Neto says Embraer revenue should be around $6 billion or slightly higher this year, on track to hit $10 billion by the end of the decade. Last week, the company announced that its overall aircraft deliveries had risen by 33% year over year in the third quarter, with 57 jets delivered. Moreover, its business and private jet sales are thriving; Embraer planes currently transport some 5 million passengers a month in the U.S.

In mapping out his strategy, Neto solicited input from 70 Embraer executives, whom he credits with getting the company through the turbulence. While that sounds daunting and likely to lead to stasis by consensus-seeking, it showed Neto’s willingness to recognize that airplane building is a more complex and different game than the automotive world where the electrical engineer cut his teeth.

He says that Embraer’s current order backlog of $21 billion proves the company has executed what he calls “the best turnaround” and is now ready to enjoy “the harvest season.” 

Entering the era of sustainable fuel

With the Boeing contretemps behind it, Embraer has been busy getting its planes ready for a more sustainable era. Its fleet is already largely certified to fly using at least 50% sustainable air fuel (SAF), which comes with a smaller carbon footprint.

Embraer is now aiming to be certified for each flight to use 100% SAF by 2030. The market for SAF is still small, thanks to low supply and high cost, but airlines and planemakers alike believe it will be widely adopted in the future. “It’s inevitable,” Neto says.

But private jets, which have been widely criticized for its carbon emissions, is also a key part of the company’s growth strategy. Embraer does robust business with private jet timeshare companies like NetJets. Neto dismisses the idea that this is damaging to the environment, saying that private air travel generates a tiny fraction of total global carbon emissions. “It’s a very important productivity tool and as soon as you start to use a private jet, it’s very difficult to go back because it’s so convenient,” he says. 

Neto also touts the fuel efficiency of Embraer’s E195-E2 business jets, which he says also allows the planes to take more passengers and generate more money while reducing energy use. While growth projections for the business jet market are modest, Neto says the business will help Embraer outperform rivals. And he adds that Embraer’s air taxis, which will be fully electric and have zero emissions, will hit the market in about two years. 

As for obstacles in the way of a successful future, Neto says the supply chain chaos of the past year is mostly over, and he’s not worried about trade wars, despite some rhetoric from politicians. “The aviation segment is very global. There aren’t that many producers, and it’s well regulated,” he says.

One lesson from the COVID crisis, he says,  is that a CEO has to set the tone for the troops by remaining upbeat. “As a leader, we always have to be positive because one thing we know is that the crisis will end one day.”