UPDATE 1-Embraer picks IAE as engine supplier for cargo plane

Mon Jul 25, 2011 11:40am EDT

* Announcement comes amid worries over commercial aircraft

* Embraer focusing on defense to diversify revenue stream

* Deliveries of V2500-E5 engine expected by 2013-statement (Adds background, share performance in paragraphs 3-5)

SAO PAULO, July 25 (Reuters) - Embraer (EMBR3.SA)(ERJ.N), the world's biggest maker of regional aircraft, chose International Aero Engines as engine supplier for its military transport plane KC-390, signaling that the company is moving ahead in its venture into defense within schedule.

Sao Jose dos Campos, Brazil-based Embraer said in a statement on Monday that first deliveries of the V2500-E5 engine should begin in 2013. IAE is a multinational consortium formed by Rolls-Royce (RR.L), United Technologies (UTX.N) unit Pratt & Whitney and the Japanese Aero Engine Corp, among others.

"The choice of the first suppliers is key for us to start the project in this new, more advanced phase," Luiz Carlos Aguiar, head of Embraer's defense unit, said in the statement.

Embraer is betting on defense as geopolitical events lead Brazil and other countries to beef up security to protect extensive natural resources. Aguiar, Embraer's former chief financial officer, took over the defense unit in December to boost defense revenue from about 10 percent of total sales.

Chief Executive Frederico Curado told Reuters in a recent interview that he wished to see revenue from defense at about 20 percent in coming years.

Still, the engine announcement comes as investors wait for Curado's decision on whether Embraer plans to build a new family of commercial jets. The decision is key because Embraer lacks a comprehensive offering of planes in the large commercial jet market -- which hinders its ability to win orders from airlines looking to buy aircraft of multiple sizes from one provider.

Deliveries of the first defense cargo airplane, known as the KC-390, are expected by the end of 2015, and analysts have predicted prices of between $80 million and $100 million per aircraft.

Voting shares of Embraer fell 1.2 percent to 11.22 reais in Sao Paulo on Monday, while its U.S.-traded shares fell for a second straight session, shedding 0.3 percent to $29.58. (Reporting by Brad Haynes and Guillermo Parra-Bernal; Editing by Gerald E. McCormick and Tim Dobbyn)

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