Embraer’s China joint venture nearly defunct

 - March 26, 2011, 6:45 AM

Multiple deadlines have passed since Embraer early last year said its Chinese joint venture would cease to exist if it couldn’t reach an agreement with its partners to build E-Jets in Harbin. Today, Harbin Embraer Aircraft remains open, but with enough work to last it until this quarter at the latest. In fact, its backlog consists of just one more ERJ 145, expected to go to Tianjin Airlines some time this spring. Once it delivers that airplane, the factory will close unless the Chinese government intervenes.

Embraer had originally given itself until the middle of last year to reach an agreement with its Chinese partners on adapting its assembly line in Harbin to produce E190s. Any delay, it said, would result in a gap in production. After the summer passed without an announcement, it shifted the deadline to the end of last year. It seems clear now, however, that even if the sides do reach an agreement in the coming months, the plant will lay fallow while workers retrofit new tooling to build the larger E-Jets.

Some three weeks after the year-end deadline passed, Embraer CEO Frederico Curado told AIN that negotiations hadn’t concluded. Since then Embraer has repeatedly declined to comment on the status of the talks.

All signs point to an anemic or non-existent market for Harbin-Embraer ERJ 145s after the joint venture builds its last 50-seat jet this quarter. As the rate of 50-seat jet retirements continues to accelerate in North America and Europe, a robust supply of used airplanes appears likely to satisfy any demand that exists for the relatively fuel-thirsty jets in the rest of the world, including China.

Of course, much of the exploding demand for new 50-seat jets in the 1990s came as a result of scope-clause restrictions negotiated by the pilots of the major airlines in North America. With the subsequent relaxation of those restrictions, regionals in the West gravitated to larger RJs capable of delivering superior seat-mile costs.

Now, as U.S. majors in particular practice exercises in “rightsizing,” they most often target their least fuel-efficient asset–namely, 50-seat jets–for removal from their route networks.

As of last month, Harbin Embraer Aircraft had delivered 39 of the 41 ERJ 145s that filled its backlog during the eight years of its operation. Embraer had delivered five ERJ 145s built in Brazil to Chinese airlines before the first Harbin-made aircraft left the factory, meaning 44 of the 50-seaters had entered service in the country as of last month.

Embraer’s efforts to sell Brazilian-built E-Jets in China have proved somewhat more successful; as of last month 37 E190s flew for Tianjin Airlines, Henan Airlines and China Southern Airlines. Another 28 airplanes remained on back order, meaning Embraer’s order book shows a firm-order total 65 E190s from Chinese customers.

Now flying some 85 airplanes all told, Chinese customers have placed orders for 115 Embraer jets, 100 of which Embraer expects to enter service by year-end. o