Citi Turns 200: Brazilian aerospace giant finds strategic ally

In celebration of Citigroup's 200th Anniversary, we are sharing stories from our rich history here on this blog. The 33rd installment below covers how the bank became a strategic ally in financing overseas sales for aircraft maker, Embraer. Read the 32nd installment explaining how the bank merged with Banamex, here.

Brazilian aerospace giant finds strategic ally

Embraer becomes the world's third-largest maker of commercial aircraft

The Brazilian government engaged in aeronautical research as far back as 1941. However, it was not until 1969 that the country set up an aircraft assembly firm. Founded as a mixed-capital company controlled by the aeronautics ministry, Embraer initially had modest aims. The original plan was for a single hangar, a little over 500 employees, and monthly production of two Bandeirantes, a twin-turboprop light-transport aircraft of which the first prototype, completed in 1968, had taken more than three years to build.

The aeronautics ministry later signed a contract for 80 of the twin-turboprops, paving the way for the first delivery of the Bandeirante to the Brazilian air force in 1973, and the first export of the aircraft to Uruguay two years later. By 1979, Embraer had a marketing and sales subsidiary in Florida that also offered technical support to customers in the region. Over the following decade, a partnership developed with Citibank as Embraer developed other models, set up a subsidiary in France, and continued expanding its client base and working on new aircraft development.

In 1994, privatization took Embraer to a new level in the global aviation business. It soon began exporting regional jets to meet a market need for models flying relatively short routes, particularly in Europe and the United States. Citibank became a strategic ally in financing overseas sales, helping set up international subsidiaries and providing support for cash-management services.

In 2000, Embraer launched a new family of jets, which gained recognition for their flexibility, dependability, and customer value. By 2010, Embraer had become one of Brazil's largest exporters. It had 17,000 employees, and subsidiaries in the United States, France, Portugal, China, and Singapore, as well as six units in its home country.

Today, it is the market leader in commercial jets with up to 120 seats, has 19 percent of new deliveries in the global executive-jet market, and is seeing sustained growth in its defense and security division.

According to Citibank executive Fernando Ayres, Citibank adopted tailor-made approaches as the company developed. "Embraer has suppliers both in Brazil and abroad. The term for which a sale is financed carries interest-rate risks, and the liquidity that the company has within Brazil is subject to foreign-exchange risks and variable interest rates," he said. "During its years of growth, Embraer went through periods when it needed currency-hedging, protection with derivatives to safeguard the operational part. In this context, Citi was a very important player for Embraer, particularly in the treasury area, in the closing exchange rate and derivatives areas, and in international cash management."

Click here for more stories from Citi's history.