November 10, 2015 / 5:48 PM / 3 years ago

Embraer wary over Quebec funding for rival's jet

DUBAI (Reuters) - A top executive at Brazil’s Embraer expressed concern on Tuesday about Quebec’s decision to pump $1 billion into the struggling airplane project of a Canadian rival, saying planemakers should compete on a level playing field.

However, he said Embraer had not so far raised Quebec’s decision to purchase a near-50-percent stake in Bombardier’s CSeries with the Brazilian government, which has clashed with Canada over aircraft subsidies in the past.

“We don’t know yet the full details about this partnership, so we would like very much to get to know them and we are following this process,” Paulo Cesar Silva, chief executive of Embraer Commercial Aviation, told Reuters at the Dubai Airshow.

“Of course there is a concern, because we want to make sure we are on a level playing field,” he said in an interview.

Canada and Brazil, which compete in the market for small passenger jets, waged a dispute at the World Trade Organization over mutual accusations of aerospace subsidies in the 1990s.

The trade row was dwarfed by a now decade-old subsidy battle between the European Union and United States over support for their respective planemakers Airbus and Boeing.

The WTO faulted investments by France into one of Airbus’s predecessors because they ignored “usual investment practice,” a yardstick likely to determine whether Brazil can successfully challenge Quebec’s recent stake purchase.

“We don’t know the details of the agreement, but it raises worries. It is hard to say at this point if this is an actual subsidy or not,” a government official involved in trade policy told Reuters in Brasilia.

Quebec’s finance minister has said the equity stake is not a subsidy and is “well within permitted standards”.

The agreement for Quebec to put money into the CSeries came after Bombardier failed to strike a surprise deal with Airbus.

Silva said he had been surprised at reports that Airbus had examined an offer from Bombardier to sell it a majority stake in the CSeries. Airbus halted the talks as soon as they leaked.

“It was a different aircraft and had zero commonality, so I really didn’t quite understand,” Silva said, in what appear to be the first public comments by Embraer on the proposed tie-up which took the aerospace industry by surprise last month.

Silva said Embraer’s latest development, the E-Jet E2 program, was “on time and on track”.

Embraer is monitoring a stretched aerospace supply chain but is not facing any disruption, he added.

Brazil’s recession is hurting Embraer’s defense business because of budgets but not its commercial arm, because most of its business jet customers are abroad, Silva said.

He downplayed analysts’ concerns over unsustainable demand for commercial jets after several years of strong orders, but said there were pockets of oversupply in Asia and the Gulf.

(Corrects exec being surprised at Bombardier making CSeries offer to being surprised that Airbus examined offer in paragraph 11)

Additional reporting by Alonso Soto, Allison Lampert, Editing by William Maclean

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