October 26, 2010 Aero Club of Washington Luncheon

Remarks by Frederico Curado, President and CEO of Embraer

I am honored to be given the opportunity to join you today and share some thoughts and views about our industry.

Aviation has fascinated men and women all over the world for over a century. Since the pioneer days of the Wright Brothers and Santos Dumont, the ability to fly crafts which are heavier than air has never lost its place in the hearts and minds of people and, for many, there is still a degree of glamour associated with flying. Today of course, aviation is more than just a passion; it's a major global business. It plays a unique role in the economic development of the world, both directly as a capital and labor intensive industry, and indirectly as a main provider of mobility and connectivity of people, all essential elements of any business activity. The last thirty years have witnessed profound changes in the aviation industry and aviation has, in turn, profoundly changed the world, arguably being the most important single contributor to the astonishingly dynamic globalization process, "shrinking" the planet, bringing people together faster and safer, and also taking a significant share in the movement of cargo around the globe.

Although still protected and regulated, the aviation industry has, over the last three decades, been under a gradual liberalization in many regions of the world, a process that has fostered competition to unprecedented levels. As a result, this fierce (and some would say unreasonably fierce) competitive scenario has reduced air fares so significantly that hundreds of millions of people who would not even think about buying an airline ticket back in 1980 are now frequent travelers.

Furthermore aviation has become quite competitive to other modes of transportation and is an absolute leader in terms of safety. The last three decades have also witnessed a major consolidation of manufacturers of both civil and defense aircraft. The demand for large amounts of capital associated with investments in industrial capacity, research and development, along with the requirements for skilled labor, and sophisticated planning and logistics have been a key driver of this process.

Airlines, on the other hand, have rapidly proliferated with deregulation, arguably exceeding a rational balance between demand and supply, leading to massive losses and several bankruptcy processes. More recently, however, one can see a clear trend towards consolidation and more rationalization, which ultimately shall lead to a healthier industry.

Looking ahead, the challenges for the next 30 years are neither simple nor small. Chief among them is environmental protection. While civil aviation represents no more than 2% of global CO2 emissions, it nonetheless receives a disproportionate share of criticism. Of course, for the future of our planet and generations to come, as an industry we must and will take responsibility for our contribution to global warming. The fact that current jet airplanes burn some 75% less fuel then the ones some 20 or 30 years ago proves that the aviation industry has never refrained from investing and seeking step function improvements.

On the other hand, because of that great progress, the next leap forward will certainly require disruptive technologies, which in turn will demand significant resources devoted to R&D and innovation. New engine technologies, new aircraft configurations, new materials and biofuels are some of these new frontiers. The use of biofuels, in particular, has probably the highest potential for material reductions of CO2 emissions, at the same time it helps mitigating fuel prices volatility and enhances energy supply security.

Several years ago Embraer embarked on a small experiment when we converted our popular crop-duster Ipanema into a 100% ethanol powered aircraft. Today, we are setting our sights much higher. We are a founding member of the Brazilian Alliance for Aviation Biofuel, which promotes public initiatives that foster the development of bio-based aviation fuels. Here in the US, we are also proud to be participating along with AIA - the Aerospace Industries Association - in the FAA’s Civil Aviation Alternative Fuel Initiative.

One specific project in which we have embarked involves two Brazilian companies - Embraer and Azul Airlines, and two US companies - General Electric Aeroengines and California-based Amyris. Together we are working to develop a sustainable bio jetfuel using sugarcane, similar to what we did with our Ipanema, and planning to perform a demonstration flight in the first half of 2012, using a 50% blend on one of Azul's EMBRAER 190 aircraft.

A second major challenge to the aviation industry is infrastructure, which has kept an uneven pace with the expansion of traffic and aircraft fleets, creating some bottlenecks and bringing inefficiencies to the whole system. New airports, modernization of existing facilities, and integrated air traffic control systems are fundamental for the future. Initiatives such as SESAR, in Europe, and NEXTGEN, in the United States, are examples of correct strategies to address these requirements and critical to accommodate the increased growth and demands that are stressing current systems. I understand that there is the possibility that in the very near future the US Congress will pass NEXTGEN legislation. Many of us hope that is the case, given the fact that this legislation will go a long way to improve safety on the ground as well as in the air, and to help reducing CO2 emissions.

A third long term challenge for our industry is the establishment of a level playing field regarding Governmental subsidies and incentives to commercial aircraft programs. We are all following the current disputes between the US and the EU in the World Trade Organization, and as many of you might remember, Brazil and Canada had their own dispute some years ago, with both countries having adjusted their support programs for full compliance with the recommendations and framework of the WTO. More recently, the ASU - Aviation Sector Understanding has established clear rules for the Export Credit Agencies of the US, Europe, Canada, Japan and Brazil determining their financing offers (although not a member of OECD, Brazil is a signatory of the ASU).

Therefore, it is of paramount importance that the nations which are now endeavoring to penetrate in the commercial aircraft business - China, Japan and Russia - abide by these international regulations and competition framework, avoiding a recrudescence of what has already been accomplished by other countries.

Since many of you have asked, I want to conclude by taking a few minutes to give you an update on some of the latest developments at Embraer. We had a positive order book activity coming out of Farnborough and our family of E-jets continues to attract the interest of carriers around the world. In addition, our executive jets are enjoying a increasingly encouraging customer acceptance and much of this success is attributable to the strategies behind the categories in which we chose to compete. On the Defense side, we continue to expand our activities and portfolio of products and services. Our most recent aircraft is the KC-390, a twin-jet, mid-size cargo and tanker aircraft, aimed at military transport and air to air refueling, with capacity for up to 23 tons, and which entry into service is expected for around the middle of this decade.

In closing, I have to highlight Embraer's long and successful history of partnership with the United States. The US is the largest market for our civilian products and it is also our largest source for the equipment and components that go in our airplanes, from aerospace companies located in no less than 20 states throughout the country. In the last 7 years alone we have purchased close to US$ 10 billion in goods and services from the US, representing the equivalent to some 7,000 jobs in the country. We are proud that Embraer’s Super Tucano was recently used by the US Navy to study the feasibility of using small, turbo-prop powered aircraft in irregular warfare, through a program called Imminent Fury. We certainly hope that other US services will consider the Super Tucano in the future, just as a number of other nations have done, making it the only true clean sheet designed counter-insurgency aircraft operating in theater today.

We recently celebrated the 30th Anniversary of the establishment of our US headquarters in Ft. Lauderdale, Florida, and our investments in infrastructure continue to move forward to meet the challenges of the 21st century. Since 1979, we have expanded our presence in the US, having added facilities in Tennessee, Arizona, Connecticut and Minnesota, with almost 700 employees. Very shortly, we will open our first manufacturing facility in the US in Melbourne, Florida, where we will build the Phenom executive aircraft and create jobs in an area which is being significantly affected by the upcoming retirement of the Space Shuttle program. Our investments in Melbourne will also include Embraer's worldwide customer design and delivery center, dedicated to the full range of our Executive Jets, creating additional economic development multipliers for the region. The entire operation will be fully functional in 2011.

Ladies and gentlemen, we at Embraer continue to be passionate and positive about the future of our industry. Aviation will continue to be in the forefront of technological development, and generating direct and indirect benefits to our global society, way beyond what the Wright Brothers and Santos Dumont could ever have imagined. I would like to thank the Aero Club again for the privilege of joining you here today.

Thank you very much.