SAO PAULO - Brazil's Embraer and India's Mahindra have signed a preliminary agreement to collaborate on securing orders for the C-390 Millennium military transport aircraft from India's Air Force, the companies said on Friday.

The Indian market is seen as key for Embraer's defense unit as it looks to expand its presence abroad with more sales of the C-390, which has been selected by South Korea, Brazil, Portugal, Hungary, the Netherlands, Austria and the Czech Republic.

The memorandum of understanding signed between Mahindra and Embraer at the Brazilian Embassy in New Delhi is aimed at winning orders for the aircraft under the Indian Air Force's upcoming Medium Transport Aircraft (MTA) procurement project, they said in a statement.

The move, JPMorgan analysts said in a note to clients, "increases the likelihood of the C-390 being selected", adding it could result in an order of between 30-60 aircraft.

Embraer shares rose more than 2.5% on the news, making it one of the top gainers on Brazil's Bovespa stock index, which was down 0.2%.

Next steps include contacting the local aerospace industry to start developing an industrialization plan for the project, Embraer said.

"India is a key market for Embraer," the head of the company's defense and security unit Bosco da Costa Junior Costa Junior said.

"It has a diverse and strong defense and aerospace industry and we have chosen Mahindra as our partner to compete together in the MTA program."

The MoU was signed between Embraer and Mahindra Defense Systems, a subsidiary 100% controlled by Mahindra, which focuses on armored vehicles and security-related products.

(Reporting by Gabriel Araujo and Steven Grattan; Editing by Jan Harvey)