Court Rules Embraer Layoffs Legal

 - March 19, 2009, 8:27 AM

A Brazilian labor court ruled late yesterday that Embraer would not have to reinstate some 4,300 employees laid off in February after it found that the company did not violate any of the country’s labor laws. However, one of the 12 judges that formed the tribunal to hear the collective lawsuit filed by the employees' unions characterized the company’s conduct as “abusive” and the court ruled that Embraer would have to pay the workers' salaries up to March 13, rather than February 19–the day it originally instituted the dismissals. The court also “validated” Embraer’s earlier offer to pay two months’ salary and a year’s medical benefits as severance, a company spokesperson told AIN.   

At press time Embraer hadn’t yet decided whether it would appeal the court’s decision, given that it had already made severance payments that virtually amounted to what it would have paid in salaries up to March 13, according to the spokesperson. In fact, the São Jose dos Campos Metalworkers’ Union reportedly said it would appeal the decision in an effort to have the severance package increased.   

A week after Embraer announced the layoffs, the labor court forced the company to suspend its plan to cut 20 percent of its 21,000-strong workforce after it agreed to hear the collective lawsuit, but not until the company had already let go and paid severance to “the vast majority” of the production workers and managers slated for dismissal, company CEO Frederico Curado told AIN the week before the court decision.

“Brazilian legislation is very clear about the right of any party, either the employer or the employee, to terminate his labor contact,” said Curado. “Of course, there are compensations which are clearly outlined and the laws are respected. That’s what we did …It would be very hard not to implement what has already been implemented. So [the lawsuit was] kind of a non-starter.”

Curado said the company during the first two months of this year has seen more delivery cancellations than firm orders, and that plans call for a 30-percent reduction in airliner production this year. He said the company planned to deliver 115 E-Jets and ERJ 145s combined (compared with last year’s total of 157 E Jets and seven ERJ 145s), 17 Legacy and Lineage corporate jets (compared with a projected 35) and 110 Phenom very light jets. Of all the aircraft types it builds, only the Phenom won’t suffer a drop in production rate projections, even though Curado acknowledged a fair number of cancellations of the very light jets.

“There’s no question there will be cancellations and deferrals,” said the CEO, but, he added, Embraer’s backlog will prove sufficiently large and mobile to move airplanes now scheduled for delivery after this year into 2009 positions left vacant.

Embraer hasn’t yet received any cancellations from airlines, said Curado, only deferrals that will result in deliveries happening, in some cases, years later than first planned. Meanwhile, the Harbin-Embraer joint venture in China continues to operate, albeit at a snail’s pace, conceded Curado. “I hope by the end of the month to have an agreement to resume the normal course of production,” he said. “Right now we have one or two aircraft ready for delivery to Grand China Express.”

Most of the deferral pressure has resulted from the global credit squeeze, said Curado, and that Brazilian export development bank BNDES has committed to more than its usual share of financing this year, although not as much as Curado would like. “We’re trying to motivate them to do more,” he said. “I’d say 30 percent [of Embraer deliveries] is a fairly conservative number.”

Still, virtually all the customers planning for deliveries this year have either secured or expect little difficulty securing the needed financing, said Curado. “We don’t have any wild cards,” he said. “But of course, everybody is living one day at a time…There’s no way a manufacturer can say we are 100-percent certain. We all depend on the banking system.”