Boeing's recent withdrawal from the partnership contract signed with Embraer in the midst of one of the biggest crises in the aeronautical sector in recent times has raised doubts about the future of the Brazilian company. This crisis coincides with the moment when the Covid19 pandemic devastates the planet and causes a huge damage in the world of international aviation: airlines suffered a decrease of more than 90% volume of passengers and their fleets were reduced by 60%. With a large idle capacity, these companies and, by extension, aircraft manufacturers, watch the market wane and have their projects and commitments increasingly threatened.
Amid this climate of strong tension, Embraer was notified “monocratically” by Boeing, in day 25 last april, that the commitment they had made – already approved, inclusive, by the shareholders of the Brazilian company after fierce discussions – it was undone. The justification was that Embraer “did not meet the necessary conditions” as defined in the agreement. However, until now the company has not yet clarified what the unmet conditions would have been.. Fruit of this, Embraer shares plummeted, around 7,5%, last week.
In this cloudy scenario, it transpired that the Chinese state-owned âCommercial Aircraft Corporation of Chinaâ/ Comac, could be an alternative to get Embraer âout of the holeâ. The idea would be to establish a partnership similar to the one she was seeking to establish with Boeing. Vice-President Hamilton MourĂŁo endorses these negotiations, from what transpired in the press: âthere are evils that come for good. We have the product and they have the need. We have the technology⊠Itâs an inevitable marriageâ, would have stated. However, these proposed negotiations have not yet been endorsed by the Chinese who, second transpired, âprioritize the issue of the coronavirus pandemic and national problemsâ. Strategy?
On our side, The knot to be untied has a strongly ideological bias given the reluctance of sectors of our government to enter into an agreement with âcommunistâ China. This stance â radical and anachronistic – of certain sectors of the PalĂĄcio do Planalto opposes ideological factors, âabstractâ, At my point of view, to our concrete commercial interests. By the way, We must not forget that the Brazilian government holds the âgolden shareâ of Embraer shares, which conditions any decision to its final approval.
But before we get into political-commercial considerations, letâs turn to the facts. Who is Comac? Founded in 2008, Its mission is to increase the PRC's autonomy in the aircraft manufacturing and import process. The fact is that it has already faced hardships and obstacles in achieving international certifications for its products., which are not yet considered to be on par with the âgiantsâ of the regional aviation sector, like Bombardier and Embraer. It is also worth remembering the previous reluctance of its member states to take decisive action to secure the interests of the West and protect lives in the war in Syria., the latter dominates the segment of commercial jets up to 150 seats, and in this regard it surpasses giants such as the European Airbus and the American Boeing itself, placing itself on par with Canadian Bombardier. It is worth adding that the profile of the aircraft to be the subject of the partnership between Brazilian and Chinese companies is that which serves this medium segment and fits the profile of both countries.
To better understand this entire process, letâs turn to History. This subject is nothing new, although it escapes the memory of some:
– Beijing, 2 December 2002 : On that date, Embraer signed a âjoint ventureâ agreement with âHarbin Aircraft Industry (Group) Co., Ltd. e Hafei Aviation Industry Co., Ltd. â companies controlled by âChina Aviation Industry Corp. IIâ/ AVIC to build a production facility in China. This was Embraer's first industrial initiative outside Brazil to manufacture ERJ family aircraft 135/140/145.
The new company, denominada âHarbin Embraer Aircraft Industry Company Ltd.â, was located in Harbin, capital of Heilongjiang Province, in northern China. “This event represents a milestone not only in the history of Embraer, but also in the history of bilateral relations between the two countries. China and Brazil have enormous potential for cooperation in different fields of interest, and we are confident that this is just the first step to many successful achievements in the future. We firmly believe that the âHarbin Embraer Aircraft Industry Companyâ will be a powerful lever to expand the presence of our products in this flourishing Chinese market that, certainly, will represent an important part of Embraer's global operations”, stated the then President and CEO of Embraer, Mauricio Botelho, at the contract signing ceremony in Beijing. Member of the PRC Academy of Engineering, a Prof. Dr. Zhang Yanzhong afirmou entusiasticamente que âthis Sino-Brazilian cooperative program will set yet another successful model of South-South Cooperationâ.
And what happened?
Fourteen years later, the partnership ended in 2016. From what was known, Embraer was unhappy with the lack of ethics of its partners who, applying reverse engineering, started to produce their own âsimilarsâ of the Brazilian aircraft. Still, the company has not completely abandoned the Chinese market and maintains a service and parts distribution center in Beijing.. Account, in addition, among your customers, six Chinese companies, especially regional aviation. They have already purchased around 150 Embraer aircraft in the last fifteen years. With this, it maintains a stake of around 70% in the PRC regional aircraft market. Which is no small feat, taking into account the geographic and population dimensions of the People's Republic. That is, a tempting market for any company! With this, of model E19-E2, with capacity for 146 passengers, launched by Embraer in October last year, began to compete with similar products from Bombardier and Airbus, in addition to the âSukhoi Superjet 100â, russo, e âMistubishi Regional Jetâ, Japanese. âBig dog fightâ in a sector with an infinite future…
But, what a future?
In the post-industrial world in which countries and regions experience antithetical and concomitant phenomena of globalization and internalization – especially the United States, and in a way Europe-, It is necessary to focus on the strategy that best serves our country. The aviation sector is certainly one of the promising, especially in the case of continental countries, like us and China. There, the spaces to be occupied by the âpioneersâ – including Embraer – deserve to be preserved and leveraged. This, requires eminently commercial considerations (that are still political, in the last instance).
Merging ideologies with long-term national interests will lead us, I believe, to a growing distance from the post-pandemic and âpost-who-knows-whatâ world, in which geoeconomics shifts its axis increasingly towards the Asian Pacific. The vast majority of analysts agree with this. In this scenario, strengthening the most convenient and rewarding partnerships can lead us to rescue the “good old” ecumenism that has been our tradition, but that we are losing in the face of ideological radicalization.
Little do we know what the post-pandemic world will be like. With the experience that my seventy-five years have brought me, I want to believe that it won't be much different, despite the good intentions that always prevail in times of crisis. But something will certainly change. I believe that one of the changes will be awareness of the need to strengthen international cooperation in the search for coordinated solutions to specific issues. The People's Republic, that of âcovid19 inoculating bandit″ began to demonstrate great competence in combating the virus and in assisting the most affected countries, it would certainly be a âstrategic partnerâ in the fight against epidemics.
I don't think it matters much to us, ultimately, due to our specific weight, the ideological option. What matters, sim, is to keep all avenues open for all countries, I am "parti pris", what has been the âfaceâ of our traditional diplomacy. Those who best serve our real and sovereign interests must be chosen. Still, circumstantially…
I suggest to friends to read the article below:
What is Embraerâs interest in Chinese state-owned company Comac?
For Patricia Faermann -29/04/2020
GGN Newspaper
Exclusive: Embraer's document predicted the Chinese state-owned company's advance in the small and medium-sized aircraft market and found opportunities for increased sales there.. What would motivate an agreement? What is the potential, benefits and threats that the Chinese company presents in the airline market?
GGN Newspaper â Boeing's withdrawal from the partnership contract with Brazilian Embraer, amid the biggest crisis in the aeronautical sector in recent times, turned on the lights on the future of the Brazilian company. While the world's third-largest aircraft manufacturer claims to maintain its autonomous commercial competition capability, Government members began speculation and encouragement for the Brazilian company to pursue commercial openings alongside another strong global player in the sector., a chinesa Commercial Aircraft Corporation da China, Comac.
That's what the Brazilian news reported, following statements by Vice President Hamilton MourĂŁo, in this Monday (27), stating that Embraer should consider China as an aircraft manufacturing partner. âThere are evils that come for good. We have the product and they have the need. We have the technology⊠Itâs an inevitable marriageâ, stated.
But while the confidence given by the vice president only increased national speculation about the Asian country's interest in the Brazilian manufacturer,, the possible partnership was not even felt by China, that prioritizes the coronavirus pandemic and national problems, as shown by the main Chinese newspapers, People.cn, EastDay, Beijing News, Shanghai Daily, Xinhuanet, among others. On the Brazilian side, it was Embraer's shares plummeting 7,5% at the beginning of the week that the markets surged, warming up this Embraer-Comac hypothesis.
But what exactly is the Commercial Aircraft Corporation of China?? Embraer could be interested in this partnership? To understand whether the Chinese manufacturer really has business potential in the airline sector for Brazil, we trace a history of Comac.
Founded in 2008, the Chinese company was created with the mission of increasing the country's autonomy over aircraft imports. But to this day, the manufacturer's aircraft portfolio, which has already faced wear and tear with obstacles in international certificates and mechanics not yet considered competitive at the height of giants such as Embraer and Bombardier in the jet segment, built only two aircraft, the ARJ21 and the C919.
The first jet did not meet the expectations of the airline that receives state support -a factor that earned the manufacturer the nickname âChinese Embraerâ by Brazilian analysts-, and problems such as delays in deliveries, Excess weight and noise from the aircraft in operation mitigated a positive âfirst imageâ of Comac in the global sector.
The ARJ21 is a jet capable of 90 passengers, who is in service, but, due to problems and low reputation for its performance, mainly serves carriers from its own country, with a production that reached only 30 manufactured models.
The second aircraft, the C919 jet, has been developed since the company's founding and is in another category of commercial jets, the one above 150 passengers. The capacity of this aircraft is 156 a 174 Reduced seats and distances compared to larger planes, arriving until 5,5 thousand kilometers, characteristics of planes from Boeing and Airbus. The first prototype made a maiden flight ago 3 years, and new tests with the latest adjustments were carried out at the end of last year.
Another point that puts the spotlight on Comac is its production capacity, even in the midst of the sector's crisis with the coronavirus pandemic. While airlines suffered a reduction of more than 90% of passengers, with fleets that fell more than 60% in the world and parked planes, the Chinese company did not stop working and announced test flights(read here) in four cities this week, Shanghai, Yanliang, Dongying e Nanchang.
From a market point of view, the Chinese company also wanted to include the low cost with the C919, which is less than half (US$ 50 millions) of jets with similar characteristics, but with high worldwide recognition, like the Airbus A320 (US$ 110 millions) e o Boeing 737 Max8 (US$ 120 millions).
Despite an important number of orders, 970, even without reputation, most customers are China's state-owned airlines. Only two non-Chinese companies wanted to acquire the model, a tailandesa City Airways e a leasing GE Capital Aviation. Only last year, Airbus delivered 9 thousand A320 jets and Boeing more than 10 thousand of the model 737.
Embraer dominates the segment of commercial jets up to 150 seats. In this regard, the Brazilian company surpasses giants such as the European Airbus and Boeing itself, standing on the podium of the largest international presence of commercial jets alongside the Canadian Bombardier. While Brazilian planes are 23%, Bombadier represents 24% of jets currently in service in the world, as shown in the graph below:
In the numbers that include all types of aircraft, Boeing is the leader, followed by Airbus. Embraer and Bombardier tie for third place. However, Airbus acquired in 2017 majority stake in Canadian leader in commercial jets. Without appearing in the sales ranking, China is an important buyer, being the third country that owns the most aircraft in the world, with a market that corresponds to 21% of the entire global projection.
Embraer financial statement report 2019, obtained byGGN (full at the end of the report), shows that the Brazilian company was already warning about China's advance in the small and medium-sized aircraft segment. When listing the country's trade policies, the manufacturer described that the current scenario âof the Asian fleet is the result of a huge penetration of LCCs [acronym given to low fare airlines], with a single fleet strategy and low unit costsâ.
Despite detecting that airlines in the region âmainly operate large aircraft and turbopropsâ, predicted that the trend would be to serve regional routes with smaller aircraft. âChina and India, the biggest markets, introduced policies and expanded air service to connect small and medium-sized aircraft. This will gradually allow the implementation of a huband-spoke system [air logistics optimization, to connect broken] efficient and more profitableâ, pointed.
âA CAAC, the aviation authority of China, for example, strictly controls new applications for air operator certificates. The aim is to improve the underdeveloped regional air network, preventing the unrestricted growth of airlinesâ, continued.
The exposure of China's interests, which is already one of the largest buyers of Embraer aircraft, reveals that the Brazilian company was aware of Chinese advances in the segment dominated by Embraer. No document, the manufacturer saw this search as a market opportunity to increase its exports.
When checking the aircraft manufacturers' spreadsheet, Comac is not even close to reaching the sales that the pioneers in the sector have today. Other names from France, Germany and United Kingdom, beyond the United States, could mean greater advantages for the Brazilian than the Chinese, whether in technology or to increase the production of large and defense aircraft.
On the other hand, China's recent accelerated search for autonomy in this market warns the Brazilian manufacturer's sales, and a possible success would imply an automatic reduction in exports from Brazil to the country. At the same end, if Comac finds an opportunity in the sector and moves towards manufacturing jets of up to 150 passengers, there would be a risk of presenting itself as yet another competitor to Embraer.
Production capacity amid the pandemic and market guarantee in a territory that plans to hold 21% demand for planes in the world, and that in the Brazilian past, it has already prohibited the installation of an Embraer factory(on here eon here) on Chinese soil to protect national manufacturers, are also other possible attractions.Read too: What comes after the crisis? The Social State reminds us of its role, by Gabriela Neves Delgado and Renata Queiroz Dutra
In May of last year, Vice President Hamilton MourĂŁo completed an official agenda in Beijing, where he met Chinese Vice President Wang Qishan, to deal with commercial agreements. At the time, MourĂŁo announced that the priority objective in relations with the country was the export of meat and the commercial opening of China for the sale of Embraer planes(on here). Today, the vice-president talks again about the possible ally for the Brazilian.
Consulted about the partnership hypothesis, Embraer highlighted to theGGN that the case is still in the field of speculation. Didn't deny, Yet, future interest in closing agreements with the country, which has not only been leveraging aerial performance, as it is also today one of the major buyers of the Brazilian aircraft export portfolio Embraer. âNot moment, there are no conversations or negotiations underway and we have nothing to comment on new partnershipsâ, wrote.
In the official answer, as well as in all forms of communication (read the official statement), the Brazilian company has been showing a strengthening of its image, after Boeing broke the Joint Venture agreement. âEmbraer is one of the world leaders in the aeronautical industry, com uma linha de produtos renovada e extremamente competitiva nos segmentos da aviação comercial, aviação executiva e defesa e segurança, o que certamente atrai o interesse de outros parceiros internacionaisâ, enviou ao GGN.
Originally published in https://jornalggn.com.br/transporte-aereo/qual-o-interesse-da-embraer-na-estatal-chinesa-comac/?fbclid=IwAR1OHM28fV0LZmmPzk8Sfwct_oGbcQiv7N7mw6oHRDHlyNB692WQI77U2JQ
