(Adds executive interview, late government payments)
By Brad Haynes and Alberto Alerigi
SAO PAULO, Feb 3 (Reuters) - Embraer's new military cargo jet flew for the first time on Tuesday and the planemaker is making progress on collecting late government payments in the next few months, the company's defense chief said in an interview.
Brazil's defense ministry has invested heavily in the KC-390 program, covering $2 billion in development costs and signing a 7.2 billion reais ($2.7 billion) order for 28 planes last year.
But a tight federal budget led the defense ministry to push payment on some projects from late last year into 2015, leading Embraer to warn of negative 2014 cash flow.
"We expect that should be resolved in the first months of the year, especially regarding the KC-390, but that didn't affect the timeline of the project," Schneider said.
He added that the first flight of the new cargo jet, the largest plane ever made in Latin America, was "excellent" and lasted about an hour and a half.
The milestone should help move along negotiations with some of the three dozen countries that sent representatives to the October rollout of the first KC-390 prototype, Schneider said.
Argentina, Colombia, Chile, Portugal and the Czech Republic have together expressed interest in 32 of the new cargo jets.
Over the next 15 years, Embraer sees a market for more than 700 planes worth over $50 billion in the segment, as countries look to replace older versions of Lockheed Martin Corp's famous Hercules airlifter.
Embraer shares rose over 2 percent on the Sao Paulo stock exchange on Tuesday.
$1 = 2.7 Brazilian reais Reporting by Brad Haynes; Editing by Chizu Nomiyama