Bloomberg News

China Plant Gives Embraer Asia Jet-Sales Boost: Corporate Brazil

June 24, 2012

China Plant Gives Embraer Asia Jet-Sales Boost

Sao Jose dos Campos, Brazil-based Embraer hired Hong Kong-born actor Jackie Chan to peddle the brand and show off his personal Legacy jet, which has the Chinese symbol for “dragon” on its tail, at air shows throughout Asia. Photographer: Munshi Ahmed/Bloomberg

Embraer (EMBR3) SA’s bid to sell more business aircraft in Asia is taking off after the Chinese government gave the world’s fourth-biggest plane maker approval to manufacture the jets there.

The company said in a June 21 statement it signed an agreement to build its Legacy 600/650 business jet at its plant in Harbin, China, which has been shuttered since the second quarter of 2011. Embraer said later that day it scored orders for the jets from China’s ICBC Financial Leasing Co., which bought five Legacy 650 with the option to purchase five more.

“China is where every business jet manufacturer is trying to grow -- the potential demand there that can be unlocked is quite sizeable,” RBC Capital Markets LLC analyst Rama Bondada said by phone from New York. “They’re ahead of the pack now.”

Embraer and bigger rivals Airbus SAS, Boeing Co. and Bombardier Inc. (BBD/B) are looking to Asia to help boost sales. Embraer estimates China’s market for business jets will grow 10-fold in the next decade to 635 planes, while Bombardier sees the nation’s business-jet fleet rising to 2,470 by 2030 from 150 in 2010.

Plane makers are shifting their focus away from Europe, where demand for the jets is slowing. European revenue made up 35 percent of Embraer’s first-quarter total, the most of any company in Brazil’s benchmark Bovespa index, according to data compiled by Bloomberg. Embraer’s regional-jet orders in Europe dwindled to five in the period, down from 20 a year earlier.

‘Karate Kid’

Embraer shares have climbed 14 percent this year, more than twice the 6.9 percent gain of Airbus’s parent company, European Aeronautic Defence and Space Co. Chicago-based Boeing is down 2.9 percent in New York Stock Exchange trading, while Bombardier, based in Montreal, dropped 2.5 percent in Toronto. Brazil’s benchmark Bovespa fell 2.3 percent in the period.

Sao Jose dos Campos, Brazil-based Embraer hired Hong Kong- born actor Jackie Chan to peddle the brand and show off his personal Legacy jet, which has the Chinese symbol for “dragon” on its tail, at air shows throughout Asia. Chan, the star of the “Rush Hour” and “The Karate Kid” movies, became the first Chinese customer to get a Legacy 650 in February. The 600 model has a list price of about $30 million.

Boeing’s Chinese ventures have helped it capture 53 percent of the local aviation market in China, the second-biggest worldwide for new planes behind the U.S., Boeing China President Marc Allen said this month.

Bombardier is transferring most of its commercial-aircraft sales staff outside Canada in a bid to capture growing demand for jets and turboprops in China, the Middle East and Africa, Mike Arcamone, who runs the commercial aircraft unit, said in a June 19 interview in Montreal.

Change of Plans

Embraer had initially targeted the Harbin plant to be converted to produce E-190 commercial jets. It was forced to scrap that plan when Chinese regulators turned down the proposal on concern there wouldn’t be enough demand for both the Brazilian aircraft and the ARJ21 being developed by Commercial Aircraft Corp. of China.

As part of the deal announced last week, Embraer will build the Legacy jet in a joint venture with Aviation Industry Corp. of China. In April 2011, the Brazilian aircraft manufacturer said it plans to make as many as 20 Legacy planes a year there.

“If they didn’t start manufacturing business jets there, someone else would have,” said RBC’s Bondada.

To contact the reporter on this story: Jose Sergio Osse in Sao Paulo at josse1@bloomberg.net.

To contact the editor responsible for this story: Helder Marinho at hmarinho@bloomberg.net.


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