November 26, 2012 / 11:30 AM / 5 years ago

Brazil jetmaker Embraer mulls building ships in shift to defense

* Wins $403 mln contract to monitor Brazil borders

* Company sees defense as source of steady growth

SAO PAULO, Nov 26 (Reuters) - Embraer SA, the world’s largest producer of regional aircraft, is considering entering the shipbuilding business as it seeks to tap a boom in military spending in Brazil expected for the coming years, a spokesman said on Monday.

The company, based in São José dos Campos, Brazil, later in the day will announce a contract with the Brazilian army to help implement a border surveillance system, said the spokesman, confirming an earlier report in the O Estado de S. Paulo newspaper.

The contract, worth 839 million reais ($403 million), will be signed between the army and Embraer defense system units Savis Tecnologia e Sistemas and OrbiSat. The entire program could cost more than 12 billion reais.

“The company is still modeling the shipbuilding program,” the spokesman said. “We do not have a timetable yet for the announcement of a partner in that program or a timetable for it.”

The plan, which represents “a business opportunity,” still requires discussion and approval within the company’s board, the spokesman added.

“If we manufacture planes, why not ships?” Estado quoted Luiz Carlos Aguiar, who heads Embraer’s defense and security unit, as saying in an interview.

The news comes as slow global demand for air travel makes it difficult for the company to sell regional and executive jets, which account for about two-thirds of its revenue. Defense has provided Embraer a lifeline in recent months as Brazil builds up its armed forces to protect the nation’s sizable energy, water, forestry and food resources.

At present, Brazil spends about 1.6 percent of its gross domestic product on defense; other countries, including Russia and the United States, spend more than 4 percent, according to the Stockholm International Peace Research Institute.

Embraer wants to tap a program to renew Brazil’s Navy patrol vessel fleet that could cost $844 million. So far, seven of the 27 vessels in the program have been ordered.

The company expects security and defense to generate a quarter of total revenue by 2020, up from an estimated 14 percent last year and less than 5 percent in 2006.

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