The fascination of the airline industry


From the beginning of my childhood I was fascinated with aircrafts. One day flying in the air was happened. But my enthusiasm about aircraft and how it works never stopped. Fortunately, my educational requirement helped me get more into this area; but in a different field though. Here I would be happy to announce the name of the company which has been undergone drastic change in management and activities for different causes and found to be worthful in many respects.

Embraer was setup in the late 1960's as a public company of Brazilian Government after initial success; the company ran into trouble in the late 1980's and was privatizatized in 1994. Under private management, Embraer concentrated on developing regional jets which pitied it directly against Canada based Bombardier who introduced regional jets in the aviation market. Embraer made major foray into business jets with the successful launch of its Legacy 600 in 2000. After this, analysts said that the company was well positioned to take advantage of rapidly growing market for small and midsized aircraft and business jets in the early 2000s. In 2005, Embraer had a net income of $446 million from revenues of $3.8 billion and employed nearly 17000 people.

T1.2 : Activities and scale of operation

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As up to 2006, Embraer was the fourth largest aviation company in the world in terms of aircraft deliveries behind AIRBUS SUS, The Boeing Company, and Bombardier Aerospace. In addition to business jets, Embraer manufactured commercial, military and agricultural aircraft. The company announced of launching new business jet: lineage 1000. The design was based on Embraer's successful E-190 regional passenger jet platform and the aircraft had the capacity to seat between 13 and 19 passengers, depending on the cabin design. The cabin could be split into five zones, and customers could choose from a variety of interior design options, which included putting in a stand-up shower and full-size bed. The lineage was a long haul plane with a range of 4200 nautical plane.

Embraer which is a public sector enterprise of Brazilian Government formed on July 29, 1969 by Ministry of Aeronautics of Brazilian government. At the beginning most of the projects were controlled and supervised by Brazilian Air force which then was not used for commercial vision that's why at that time the air force acquired considerable expertise in air craft technology. In 1968, the company made a prototype of an aircraft Bendeirant which was proposed as commercial aircraft. Primarily it was set up a target that could make two Bendeirant aircrafts in a month. The first few Bendeirants were sold to the Brazilian air force in 1973. From 1975 Embraer started exporting the Bendeirant and up to 1990 the company sold about 500 crafts in over 35 countries. This success served to enhance company's reputation in global aviation industry.

Embraer made agricultural planes for Brazilian government in the early 1970's. At that time the company developed this aircraft for commercial clients. Among these crafts notable crafts as Xingu, Tucano. Xingu is the first pressurized craft where Tucano severed as first combat aircraft. Tucano served as defence forces of 14 countries including UK and France at that time. In late 1970 the company made a new aircraft known as Brasilia which was a turboprop regional plane with capacity of 30-40 passengers. The Brasillia was first sold to ASA (Atlantic Southeast Airlines of USA) in 1985. It was the lightest and fastest aircraft at that time. From the beginning of 1980's Embraer developed a subsonic fighter plane which was known as AMX program, was one of the successful projects in company's life time.

T2. (a) Key Causes of Changes or Factors Influenced a Change

From the late half of 80's decade this turned out to be a dark period for the company. In reality there some distinguished reason for this situation:

The company was partnered with FMA (Lockhead Martin Aircraft Argentina). Both were manufacturing the CBA 123 vector plane which was supposed to be the most advanced turboprop at that time as it included the best technologies of its time. But the prohibitive price led to its commercial failure. The project had cost about $300 million, was eventually cancelled without even a single plane sold.

A new constitution of 1988 reduced the support from Brazilian government to the aviation industry and at the cold war by reducing the defence matters of the government resulted serious financial trouble for Embraer.

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Being a government company, Embraer had lacked a business orientation, and failed to stay in touch with the changes in the business environment over twenty years. The products though technologically advanced, no longer matched the market's needs. In the early 1990's Embraer drastically cut and lay off more than fifty percent of its employees.

So, counting loss of about $300 million, the company could not manage money for backing up this dreadful situation by Brazilian Government who had been as a catalyst of confidence of the company. There could have been several ways to solve this issue. For an example:

The company could increase shares in its account to raise money for a different project which may be profitable.

As project 'Vector' was a loss that time, the company could sell first few planes in low cost to some of its regular clients to raise some money for a low-cost project.

But authority of the company might have seen no other ways to be benefited in that critical situation and hence decided to push the company free from the government feedback as of reason no 3 stated earlier. As a result of this the company was decided to be privatized in December 1994 by Brazilian government, but retained a power to give veto over the strategic issues like sale of shares to foreign investors, employee relationship, and sale of aircraft to military. Control over the company was acquired by

Syndicate of Brazilian investors as Bonaza group and

Brazil's largest government-owned pension funds

Previ and Sistel

Each of the shareholders acquired 20% of voting capital of the company.

Strengths and Weaknesses

There were some other companies in the market as Bombadier and some Asian and Russian competitors. As Embraer was building medium sized of aircraft, the competitor was seleccted those who were building the same typr of aircrafts.

Future strategic resources






Russian competitor



Continued low-cost manufacturing capability.





Deliberate siting of facilities generally maintains lower costs.

Expand 3D virtual modelling.





Assumption made that Bombardier has little or less equivalent.

Access to technical and manual workforces.





Others have one but not both, Embraer has both and is future-proof.

Continued education programmes.





Assumption made that Bombardier has little or no equivalent.

Partnership building in developing world, especially defence sectors.





More national empathy, common ground, political acceptability and likelihood of financial subsidies.

Strong and established leadership.





Botelho's perceived reputation as a constant steady hand.

Level of world-wide defence contracts.





Unknown, but smaller defence aircraft is probably a lucrative area worthy of pursuit.

Level of Chinese and Indian contracts.





Previously dismissed by Bombardier but watch emerging players.

Monitoring competitors and emerging technology.





Generally a level playing field for all industries in this age of information and knowledge.

Protection from global economical fluctuations.





Due to staple arenas and competences.

Reliance on host nation economics.





Previously required for existence; need to cut loose or stretch.

Influence of host nation political forces.





Assumption that Canada has generally less intervention.

Reliance on regional jets sector.





Bombardier retained competences in larger airframes and turboprops.

Concluding the remarks and value set by the scenario found in the market the following strength and weaknesses could be drawn.



Continued low-cost manufacturing capability.

Limited world-wide contractual capability.

3D and virtual modelling.

Entry into wider Asian, Russian and eastern markets.

Access to technical and manual workforces.

Reliance on host nation economical forces.

Continued education programmes.

Influence of host nation political forces.

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Reliance on commercial jet sector.

Susceptibility to global economical fluctuations.

Partnership building in developing world.

Chinese and Indian defence contracts

[T2. (b) + T3.(a)]: Stakeholders Involved In Change

After privatization Mauricio Botelho, a former executive director of Bonaza group, was elected as President and the CEO of Embrear. As reaction of this change some steps have been decided by Botelho. Some of the steps were:

Divulged turnaround plan to board.

Discussed with union leaders about further layoff and his plan.

10% wage cut of all employees with him.

Making half overtime hours.

As a result of this, many stakeholders were involved directly and indirectly. The stake shoulders were


Union leaders

Employees of the company


Brazilian Goverment

Canadian Goverment


Education system of Brazil


Divulged the plan to board

Rather being complacent to his early fame in his career, Botelho was cognizant to his commitment. It was loyal to the company and its worker. As a CEO of the company he set his target to regain solvency and improving productivity. So after building the plan and the target, he had to help union leaders comprehend the goals and put them in their mind so that they could lead their own sectors or could debate with him if there would have any confusion. In this situation, normally person's tend to condescend with the flow, castigates the matter that had been discussed about, reprove (Clemency) the goals from their own points. But Botelho was resolute and his cogent reasons must have had strong ground and he was able to sow the theme to his team.

Discussed with trade union leaders (Botelho and Union Leaders, Employees)

"Union leader's function is to make sure the adequate wages, hours of work, better treatment from employers and to secure some share in the and also control of industry. In order to achieve these targets trade union adopted methods of negotiations, strikes, and boycotts [1].

So it was not only valorous but also had strong possibility to refute his proposal. And so did happen. But Botelho had strong position and he wanted trade leader's to share their thinking with his turnaround plan where one of the terms was laying off further 600 workers. As because the large part of lying off taken over the early 90's, trade leaders would not accept further layoffs. Beyond doubt it was the hardest part of the turnaround plan. Botelho believed that more job cut would increase the productivity in that situation and that might have come from his prior experience. That strong resolution to his belief made him induce, trade leaders. He could dogmatically impose his beliefs. But he didn't have to do that because of his promise of building the workforce after turnaround achieved.

Wage cut

Another proposal of him was 10% cut of wages because the company was in negative profit zone; he wanted to reduce variable cots like wages. Union leaders accept this rule to be equitable. That's why this rule was considered for all the employees with Botelho himself.

How much this wage cut was impacted in productivity is not a matter of consensus. There could have both positive and negative impactions in individual performance. For an example: If a person's wage was 1000 Brazilian real, after reducing 10%, he would get 900. He might have used to maintain with this range of wages. After reducing wage to 900 could make his mind erratic because he would need to think about how to recover the extra 100. This might have degrade his performance. But if the company was in lying off roll depending upon performance as well, the person's mental and physical health would get collapsed [3]. This had definitely raised the chances in reducing performances. So, all the employees were affected by this change.

Lessen Overtime (Employees)

Lessening overtime was better idea to have reduced variable costs. Though overtime normally placed to meet the schedule of a workflow to finish a project in an industry, most of the time it was found expensive and not productive as per expectation. Research [4] shows scheduled overtime puts negative impacts. So the employees those used to get overtime earlier may have been affected by this change.

Significance of manufacturing regional jets

Botelho choose to make the company as customer oriented and wanted the future hands from the home country that would be cost effective later on. But the most promising one I guess was to survey sixty airlines. That raw data helped him analyze and find out the future prospect and set his target by finding the gap in the aviation market.

It was a positive sign of him that rather than compete with other companies from the beginning, he wanted to know the market needs for that time. After extrapolated that gap in the market he sat his mind to that streamline. That's why keeping the regional jet project alive he cancelled all other projects even though it was a very risky move and that's what expedited the turnaround strategy.

Even though this survey showed the pathway for future market, some other problems were in exists. Some of them were.

Unaware about regional jet market could be emerged.

Presence of other leaders in that particular market already

Had no prior experience in making those regional jets.

Didn't have enough money to launch a new project.

Though turboprop was cheaper to build and company leaders might have chosen that for its low manufacturing cost, they were eventually making problems bigger with losing markets as well as financially also. Botelho didn't see any profitability letting turboprop project alive.

Somehow he understood the next decades were the market of regional aircraft in that market. Numerous businesses were emerging with the beginning of fabulous telecommunication and internet technology at that time [1991-2005]. Businesses were expanding. The executives, business personals would need to travel more and more than ever and on. But that was not that all for him. This demand of the market at that time was analyzed by scrutinized survey result of the market. Because of this that could have one of the incomparable reasons why his attention was focused on the regional jet. He was insightful in his view. He arbitrarily could choose this project without analyzing but without market demand this ERJ-145 would also have failed.

But this regional jets span was large also, starting from 50 seats to 130 seats. 50 seats market was dominated by bombardier and was continuing from 1989 [Table 1]. Boeing and Airbus were producing and competing 130 seat segments. So there was a big gap between 130 seat and 50 seat market. This was the huge potential market to catch for that time. But Botelho didn't have any project in his hand that could directly jump to that of 70 seat segment.

Table 1: Embraer and Bombardier's product based on seat capacity [6], [7]

He had only the ERJ-145 of 50 seats producing project at that time. But fear was that Bombardier was the leader of that 50 seat range with CRJ-100 and CRJ-200. So he had to continue with ERJ-145 with tremendous risks for short term recovery. The only potentiality was that the demand of that jet was still in the market. Low labour cost and government subsidiary/ backing, financially was added.

This was the initial recovery phase. By this time financial crisis was removed a bit. Having been confident with the regional product, Botelho guided the company with the middle ranges of 70 -110 seat segment on late 1999. In this segment Airbus and Boeing had some product but they had almost same avionics and engineering as larger planes and were not that cost effective. This was the massive turnaround step of botelho for his company. Since then Embrier continued dominate the market, being a company of a developing country [Fig2]. The key factors were low price, home engineering hands, low labour costs, government subsidiary, and right market analysis.

But the 50 seat crafts game was not finished, because bombardier was experiencing with its 50 seat product more than 6 years when ERJ-145 was launching. So at that time Bombardier could lessen their product's price to continue the base of their market. And they did so. Later on Bombardier continually decreased [7] their price against the price Embrear [8] and this is clear from the table2.

So it is a clear picture that 50 seat capacity based aircrafts market still captured by Bombardier [Fig 2], mostly because of its low price and advanced technology. But 70-90 capacity based aircraft was in competition until 2005 between them. 7], [8]

T3.B, T4: Compare and Evaluate Models Relevant to Change with resistances

The process of privatising a public company can be expected to result in the replacing of a predictable, benign and protected environment with one of ruthless business practices. Growth, productivity, quality, efficiency, innovation and rapid development are some potential positive effects of conversion, but the potential bad effects can include efficiency-driven downsizing, unemployment, creative restrictions and loss of ethos, some of which Embraer did suffer after privatisation, but could have suffered so much worse, and for longer, without the leadership shown by Botelho.

Botelho immediately humanised the new management regime by his use of an absolutely honest approach; efficiency measures and an ultimatum on wage freezes had to be imposed for the sake of survival, but it was accepted as a one for all policy across all levels. Exposing his books resulted in the early establishment of trust, getting buy-in from his workforce's puppet masters, including the future instigators of any industrial action. The policy would have been particularly effective in a nation such as Brazil, where workers are less intransigent and more likely to stay as long as they are treated fairly (presumably they had more to risk than their European and North American counterparts by striking in the first place).

Such behaviour made Botelho credible and believable when he promised to re-employ after recovery. The effects of establishing credibility must have been felt long after the initial privatisation, so would have proved a worthwhile investment of management effort. All the more valuable was his confidence in releasing his plans to an outside consultant. Botelho also directed lots of his early effort into instilling revised business acumen. This adaptation from public to private business will need such areas to be addressed as a priority, since publicly-owned organisations generally do not have to consider fierce competition.

An admirable early stance against inappropriate engineering solutions such as the Vector risked going against the cultural grain, and of upsetting areas of the web of culture at Embraer. But the fact is that too often engineers design things which are actually solutions waiting for problems. A public institution is much more likely to display this behaviour, which could ruthlessly be described as misappropriation of resources, than a private company. The Vector gave him a convenient and obvious lever for change and evidence that organisational unfreezing could proceed ready for change. Botelho's insistence on the display of succinct reminders of failure is a clever and wide-reaching reminder of the company's new strategic focus; almost a twisted version of corporate symbolism and from that point a constant reminder of the need to evolve and never to go back. To the customer necessity, not capability is the mother of invention.

Botelho's decision to train his engineers in marketing made more than just financial good sense. As current employees they would know the company much better than new marketing personnel, and were an established part of the company's family and culture, with influence on their own wider loyalty groups. He could also be assured that as engineers-turned-marketers, which he had influenced himself, they were more psychologically likely to do his bidding as well as owning tacit understanding of the industry and the organisation; of obvious use to competitors. Replacing such a large proportion of the workforce at this time would also have produced an organisational shock, at a time when the company was already in a state of flux. Establishing training in business administration and general education for his workers would prove a sound financial investment too, with the added benefits of appearing benevolent whilst actually investing in the future workforce; it is likely that the educated were from the surrounding area and were actually gatekeepers for his next working generation. What seemed like a series of benevolent acts actually safeguarded his present and future pool of workers and made the company an asset to Brazil and the surrounding social infrastructure. This could be considered as a long-term reward system.

Low risk

Medium risk

Existing product

New product

Existing market

Market penetration

High risk

Passenger jets

Product development

New market

Market development


Figure 1: Ansoff's matrix for Embraer's entry into passenger jets.

Adapted from an original diagram by I. Ansoff (1965).

Botelho then undertook the radical change of manufacturing direction and concentrated business effort on the regional ERJ-145. His rationale was purely business-driven. The company had not made many jets, and its competitor Bombardier had cornered the market, but the facts remain the facts; for 6 years the ERJ-145 had been showing commercial potential and the company had no other projects likely to yield a profit. The company's specialist products - turboprops - were unpopular. It simply does not matter how good a company is at producing unpopular products, because nobody will buy them. Therefore there was no choice but to pursue it. An analysis using Ansoff's matrix at Figure 1 demonstrates this choice as medium-risk, although at the time it must have felt significantly higher.

This decision was to prove fundamental to the future success of Embraer. There are other factors, such as Bombardier's inability to meet demand and the growth of low-budget airlines, but the most significant one was this decision. It seems apparent that without his leadership and decisiveness the company would not have returned to profitability in 1997 and would therefore probably not exist today. This ability marks the boundary between being a leader and a manager.

Norms - the zone of comfortable debate

Values - the zone of uncomfortable debate

Organisational paradigm - the zone of no debate

Botelho spent his time here, hence had no requirement to penetrate

Botelho could penetrate here, communicate here and even interpret across the layers

Botelho could penetrate here, communicate here and even interpret across the layers

Figure 2. Botelho penetrating the cultural onion at Embraer.

Adapted from a diagram by Trompenaars (1996).

Botelho already had a natural ability to penetrate the outer layers of the cultural onion; his background gave him a conscious and sub-conscious understanding of the organisational culture at Embraer. He was a native of the company's host nation, had worked in skilled sectors of industry in Brazil and had been the Executive Director of Bonazo before his appointment at Embraer. He could not only communicate with all of the echelons but could also translate for them. Some of the theory calls it being bilingual, and there does not appear to be a better way to describe it. He could penetrate the norms and values layers of the organisation, and did not need or want to penetrate the paradigm layer because he was already within it. A pictorial interpretation of this is shown in Figure 2.


A useful mechanism for further discussion of Botelho's methods is the tension of relationships put forward by Trompenaars and Hampden-Turner, which Botelho eased as discussed below:

Rules v relationships

Botelho bended hierarchical rules and business norms by engaging with the unions and exposing management information, in turn placing out the foundations of trust and sincerity upon which he could build working relationships.

Group v individual

He hoped that the gatekeepers he engaged with early on would have the foresight and leverage to communicate his message; that the group would have to be more important than the individual until recovery. This showed integrity and credibility, and he later re-balanced the scales.

Lack v show of emotion

He could perhaps have pushed his plans in isolation and still achieved success with a longer, more difficult route to the same destination. But he went against established thought and engaged with his lower echelons; a move that could be described as a well-placed show of emotion.

Specific v diffuse relationships

Regarding cultural anthropology, Brazilians sit towards the specific end of the spectrum, no quite as open as the US but with less privacy than the Chinese or Germans. Botelho's strategic openness reflects this view.

Achievement v privilege

Botelho invested in the education of his workforce. Again, this gave the company advantages and is not entirely benevolent, but such decisions would ease important tensions. The development schemes for the community will also have indicated long-term social commitments. In summary, the initial turnaround was undoubtedly due to Botelho's inspirational leadership and well-placed strategic effort.