Decision on Embraer Layoffs Due Wednesday

 - March 13, 2009, 12:10 PM
A Brazilian labor court will hold a trial on Wednesday to judge the merits of a union complaint that charges Embraer with illegally laying off 4,300 employees, company CEO Fred Curado confirmed during an interview with AIN today. The court forced Embraer 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 4,300 production workers and managers slated for dismissal, according to Curado.

“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 and we actually already paid everybody who left…It would be very hard not to implement what has already been implemented. So [the lawsuit is] kind of a non-starter.”

Curado also dismissed the notion that the Brazilian government’s so-called “golden share” in the company gives it the right to veto the layoffs. “It’s crystal clear; there’s no gray zone there,” said Curado. “The golden share gives veto power in issues that are clearly outlined in the bylaws. For example, the use of the brand, the social object of the company, the military programs and transfer of technology and a change in the control of the company. There is absolutely no say in, much less veto [power over] any administrative action of the company.”   

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 production this year. Specifically, he said, the company planned to build 115 E-Jets and ERJ 145s combined, 17 Legacy and Lineage corporate jets and 110 Phenom 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 slated for later delivery into earlier positions to fill any gaps this year.

Embraer hasn’t yet received any cancellations from airlines, said Curado, only deferrals that will result in deliveries happening years later than first planned in some cases. 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.”