Court rules Embraer layoffs legal

 - April 3, 2009, 10:22 AM

A Brazilian labor court ruled late last month that Embraer would not have to reinstate some 4,300 employees it laid off in February after it found that the company did not violate any of the country’s labor laws. However, the court ruled that Embraer would have to pay the employees’ salaries up to March 13, rather than February 19–the day the company 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.

On February 26, the labor court forced Embraer to suspend its plan to cut 20 percent of its workforce, 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.

“Of course, there are compensations which are clearly outlined and the laws are respected,” he said. “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 that during the first two months of this year the company 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 plans 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 “there’s no question there will be cancelations and deferrals,” said the CEO, who insisted Embraer’s backlog will prove sufficiently large and mobile to move airplanes now scheduled for delivery after this year into vacant 2009 positions.

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 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.

Most of the deferral pressure has resulted from the global credit squeeze, said Curado, adding that Brazilian export development bank BNDES has committed to more than its usual share of financing this year, although not as much as he 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.”