Transaction between Embraer and Boeing is harmful to the country

Written by Herbert Claros

On January 16th, from a meeting between the steelworkers’ unions of São José dos Campos (CSP-Conlutas), Botuvatu (Força Sindical) and Araraquara (CUT), a national campaign was launched against selling Embraer to Boeing. The three unions represent the Embraer workers in the country and as part of the activities, a manifest defending re-nationalization of Embraer was signed.

Different initiatives will take place, like assemblies and mobilization in the factories and cities, conferences, an international seminar and public hearings. On the 17th, the first assembly of the campaign took place with the workers of Embraer’s parent company in São José dos Campos.

The unions sent a letter to the Federal Government demanding a standing against the transaction. However, the government through Temer, the ministry of Defense and the ministry of Treasury, already made statements in favor of the transaction. They say international capital injection in the country is important and they make little critiques to the threat to national sovereignty.

The participation of the workers in this campaign against the selling of Embraer to Boeing is essential, it threatens not only the future of the jobs, but also sovereignty. Embraer was already privatized at a very low price. Even being a private company, it only survived thanks to public resources of the Federal Government through BNDES and tax exemptions like exoneration of the payroll. For example, without state help, several of the airplanes sold today around the world that generate much for the action holders would not have been developed.

This is public money enriching foreign action holders.
Thus, in the meeting to launch the campaign, the three unions affirmed the need to re-nationalize Embraer to actually have a national project, in defense of sovereignty under workers’ control.

About Embraer
Embraer is a transnational Brazilian conglomerate that builds commercial, executive, agricultural and military airplanes, aerial pieces, satellites, frontier monitoring, services and support in the area.

It is the main company of the Vale do Paraiba and the state of Sao Paulo. It possesses several subsidiaries in Brazil (Botucatu, Gavião Peixoto, Taubaté, Sorocaba, and offices in São Paulo, Campinas and Belo Horizonte) and subsidiaries abroad in Portugal, USA, China, Holland, France and Singapore. It is the third greatest exporter of the country and has over 18 thousand direct employees. Its market value is over R$ 4.7 billion.

In 1969, it was founded as a mixed economy society linked to the Ministry of Aeronautics. At the beginning, most of its employees were educated in the Aeronautics Technological Institute (ITA, in Portuguese), which was part of the CTA (Aerospace Technological Center). In a way, Embraer was born within CTA. In 1980, it acquired control of the bonds of the Neiva Aeronautics Industry. During the 1970s and 1980s, the company achieved significant national and international projection with airplanes like Bandeirante, Xingu and Brasília.

After the success with the ERJ Project, Embraer sought niche markets in civil aviation, small and medium port airplanes to attend executive and regional aviation of growing importance in countries with great territories and population like the USA, Russia, China and India. In military aviation with Tucano airplanes of basic training, Super-Tucano of advanced training and light attack and the aircraft fighter AMX.

In a joint project with the Air Force, it developed a transportation and tank airplane, the KC-390, destined to substitute the legendary C-130, Hercules, used for over 60 years. Today, the company is responsible for over 50% of world market of medium size airplanes, those up to 130 places, which guarantee funds for investments in the area of defense. In this segment, it still does joint ventures with Telebras, called Visiona, to develop a Brazilian satellite and sell the security and vigilance system.

Boeing, Americana and Airbus, European, are the giants of the sector, focused on building greater sized airplanes. The main competition for Embraer is the Canadian Bombardier. The remaining competition for Embraer, all with growing selling projections for the following years due to the demand of their own domestic markets, are the Russian aeronautics, which dispute the market with a medium size model, the SU-100 and the MC 21, this one in the range of the Boeing 737 and the Airbus A320; the Chinese industry, with the C-919 in the same range; and the Japanese with the Mitsubishi MRJ 70 and MRJ 90, in the medium size range.

With the acquisition of a share of Bombardier by Airbus, and now with the possibility of selling Embraer to Boeing, a process of capital concentration in search of increase in market value is expressed in the aerospace industry. This typical process of seeking capital appreciation privileges great companies in detriment of the smaller ones and of all the workers. It is necessary to deepen the study on the effects of the great monopolies over the workers. One more fact already demonstrated by the history of mergers and building of monopolies is the frequent dismissal, withdrawal of rights and even shutting down of factories. Corporative “mergers” in aviation industry and monopolies

Corporative “mergers” in aviation industry and monopolies

It is not clear yet the type of transaction being negotiated between the companies. However, a potential union between the companies may create a giant of world aviation, with action in defense and commercial aviation, both in regional and long distance aviation.
These transactions between the great aviation companies bring to light the debate on monopolies on the phase of imperialism. We pointed to this process in the book “A Embraer é nossa” (“Embraer is Ours”), written in 2009.

For some time now, there have been commercial relations between Boeing and Embraer. For mutual agreement in the selling of the KC-390 cargo plane and the development of the biofuel projects. However, the recent negotiations seem more of a reaction to the joining of the respective competitors of Bombardier and Airbus. The European Airbus recently went on to act in the segment of the airships of medium range, by buying the program of regional jets of the Canadian Bombardier C-Series. By becoming partner of Embraer, Boeing could enter the jet market with capacity up to 130 passengers.

Internally, some managers and supervisors say the selling or association with Boeing will be favorable in a growingly competing market. The main argument is that if the company does not join Boeing, it will go after a merger with another company of the sector and it will “isolate” Embraer even more in a segment of the market with on growing competition.

In the book, we already pointed towards the emergence and development of competing companies with Embraer in the sector of regional airplanes. New competitors from China, Japan, Russia and the Canadian Bombardier.

The agreement between Airbus and Bombardier was characterized by market as a bold move. The European company is adopting a controversial program, a part of a company with difficulties, and that had just been accused of receiving US$ 4 billion in undue subsidies of the Canadian government, which earned them over payment in taxes of almost 300% in the American market, after a claim from Boeing.

According to analysts, world tendency is to use smaller and more efficient airplanes, which justifies the movements of both Airbus and Boeing, of seeking to complement the line with the Bombardier and Embraer jets. At the same time, both aviation giants see in the horizon the arrival of new competitors, particularly the Chinese Comac, with its C919 – known as “Chinese Airbus” – and the Japanese Mitsubishi, which despite some setbacks, is preparing to hand in the first MRJ90, of up to 96 places, in direct competition with Embraer.

Specialists in world aviation point to the sector entering a new development cycle. From now, the producers will begin a new round of projects. One of the firsts to announce a new airplane was precisely Boeing. Named NMA, it is the first “clean sheet” project, in other words, from zero. According to rumors of the specialized press, Embraer is to be included in this program, mainly due to its sailing equipment, known as avionics, an area where Boeing does not act. Still, there are no details on the airplane, but it is speculated that the NMA must be a medium to big size aircraft, similar to the A350, but with greater range. It is foresee to reach market in 2025.

A private company with strong injection of public resources

As any airplane building company, Embraer depends of state financial help. In the entire country, Embraer was the main beneficiary with exoneration of payroll. According to calculations by Dieese, only between 2013 and 2015 the company saved over R$1.1 billion with the benefit. One must also take into consideration the loans of the BNDES throughout the two years post-privatization and the help with financing to buy aircrafts. BNDES financed from 2001 to 2016, US$ 14 billion in export of airplanes assembled in Brazil.

The investments in research and development in the area of Defense are much higher. The Ministry of Defense affirms the cargo ship KC-390 only advanced because the government invested R$ 6 billion and still compromised to buy 28 aircrafts. The company also benefits through the transactions in the area of defense like the buying of equipment of frontier vigilance, satellite building through the company Visiona and the building and maintenance of the new fighter jets that are being produced by the Swedish company Saab-Gripen.

The process of denationalization of Embraer
The selling of Embraer to Boeing may also be faced as the consolidation of a denationalization process we have been denouncing for some time.

Since 1999, the union has been denouncing the process of denationalization begun by Embraer. At the time, a French consortium led by the companies Aerospatiale Matra, Dassault Aviation, Thomson-CSF and Snecma, had the intention of buying 20% of the shares of Embraer. The plans did not move forward because the government stood against.

Even without the selling of actions to foreign capital, Embraer adopted the policy of denationalization through transference of a part of production abroad, like in the case of the Legacy and Phenom jets to the United States.

Executive aviation as a whole is being transferred to the USA, the assemblage of the Phenom airplanes 100 and 300 already done in the USA and of some Legacy models.

In addition, Embraer or other companies outside the country and in Portugal today are producing fuselage and pieces previously done in Brazil.

Who are the owners of Embraer
Taking into consideration the owners, we cannot call Embraer a Brazilian company. Embraer is an anonymous society, its actions are pulverized in several investment banks and because of this, the company’s main action holders are the American Brandes fund, with 15% participation, the British Mondrian, with 10%, and an American fund, Black Rock with 5%. Among the national ones, we have the BNDES Participations and the Previ, the pensions fund of the Banco do Brasil, with 5.4% and 4.8% of the shares each.

The corruption cases in Embraer
The company in the last years has been object of investigations in Brazil and the USA on participation in corruption. In October 2016, Embraer announced it would pay a fine of 206 million dollars to Brazilian and American authorities to close the accusations involving corruption in businesses done by the company in Dominican Republic, Saudi Arabia, Mozambique and India.

Besides the fine, the company was forced to hire external and independent monitoring, for up to three years, to accompany the fulfillment of Compliance norms (anti-corruption measures).

The Department of Justice of the United States, which investigates the company since 2010, found evidences of irregularities in four transactions carried out by the company between 2007 and 2011, involving the marketing of 16 aircrafts. Embraer acknowledged these irregularities.

In Brazil, the investigations were commanded by the Securities and Exchange Commission (CVM) and by the Public Prosecutors’ Office (MPF). The agreement with the Brazilian authorities involves the payment of R$ 64 million, stated CVM. The value will be discounted from the US$ 206 million dollars of the payment to the American authorities.

According to the commission, Embraer admitted having paid bribes of US$ 5.97 million to public employees of Dominican Republic, Mozambique and Saudi Arabia, in three purchase and sales contracts of aircrafts of their building, which took place in 2007, 2008 and 2010, respectively.

In Mozambique, they paid US$ 800 thousand to a high representative of LAM airline to guarantee a US$ 65 million sales contract of two commercial jets E-170, in 2008. The Mozambique government controls LAM.

In India, the company hired a commercial representative to act in the sales of military planes to the country, which is forbidden by Indian laws. To hide irregularity, an “ideologically false contract was signed”, CVM stated.

The investigations demonstrated that the summit of Embraer and its president back then, Frederico Curado, had knowledge of the schemes. In a statement with witness immunity negotiated (delação premiada), the manager of the area of defense, Albert Philip Close revealed to the prosecutors details on the negotiations. With more than 30 years de casa he said in a statement to the Prosecutors’ Office of Rio that the summit of the company authorized the payment of bribe to an authority of the Dominican Republic during negotiations to sell eight airplanes Super-Tucanos, between 2008 and 2009.

According to Close, Embraer paid US$ 3.5 million in bribe to the retired Air Force Coronel Carlos Piccini Nunez, who led the area of special projects of the Dominican Army at the time. The contract obtained by Embraer was worth US$ 92 million. The case became known in an investigation by the MP on a contract of Embraer with a company called 4D, of US$3.5 million.

The company 4 D, whose owner was Coronel Carlos Piccini Nunez, was carrying out the negotiation of the contracts. Manager Close states they suspected of the relations of the coronel with the schema and suspended payments. Since the payment of the bribe did not take place, the military went on to harass the employees of Embraer, collecting the bribe by phone and publishing messages on Facebook.

Close stated he then warned his superior, Orlando José Ferreira Neto, executive vice-president of Defense and Security. In the second semester of 2009, two employees of Embraer traveled to Dominican Republic to discuss the contract of the Super Tucanos. They met with a Dominican senator, who according to Close collected the bribe “very aggressively” and threatened to stop them from leaving the country. A person familiarized with the case said to the journal Folha that the senator retrieved the passports of the Brazilians and warned that if the debt was not honored, the employees “would become shark food”.

Close then stated that the Brazilians were scared and were oriented by Ferreira Neto to immediately pay a part of the bribe, US$ 100 or US$ 400 thousand. But Cornel Piccini continued collecting the remaining part.

In September 2009, according to the statement, his boss said the company had decided to pay it all. Ferreira Neto was then a direct subordinate to the president of Embraer, Federico Fleury Curado. For Close, the operation had Curado’s support.

The manager said to have been informed by the chief that a former consulter of Embraer was in charge of making the payments to Piccini. For this, the contract with Embraer was altered by the juridical vice-president of the time, Flávio Rimoli.

Rimoli was vice-president of corporate governance, audit and internal control of the construction consortium Camargo Correa, who created the department after being investigated by the Lava Jato Operation.

In another case, a sales consultant claimed to have paid bribes in name of Embraer and declared to prosecutors of Brazil that the main executives of the company, including president Federico Curado, knew of the bribe scheme, which is related to the selling of military airplanes to Dominican Republic.

The report of the consultant Elio Moti Sonnenfeld was revealed in an official summary of his statements, to which Wall Street Journal had access. Sonnenfeld told the prosecutors he received a commission of US$3.4 million from Embraer and passed it in the form of bribe to an authority in Dominican Republic.

Sonnenfeld affirmed to prosecutors to believe that the decision of paying the bribe in Dominican Republic was supported by Curado, who was president of Embraer since 2007.

A brief introduction on Boeing
The giant of the aerial industry is a North American multinational corporation of aerial and defense development. Founded in 1916 by William E. Boeing, in Seattle, Washington, the company expanded throughout the years, and merged with McDonnell Douglas in 1997.
The merger with McDonnell Douglas took place in exchange of actions for US$ 13 billion and the company remained with the name The Boeing Company. After the merger, McDonnell Douglas MD-95 was renamed Boeign 717, and the production of MD-11 was limited to the cargo plane version. Boeing introduced a new corporate identity with the conclusion of the merger, the Boeing logo became a stylized version of the McDonnel Douglas symbol, which was derived from the Douglas Aircraft logo of 1970.

The company is composed of several business units, which are Boeing Commercial Airplanes (BCA); Boeing Defense, Space & Security (BDS); Engineering, Operations & Technology; Boeing Capital; and Boeing Shared Services Group. Boeing is among the main builders of aircraft in the world and is the second largest company of defense and aerial market of the world. It is the greatest exporter in value of the USA, and its actions are components of the Dow Jones Indices.

The commercial transaction between Boeing and Embraer
As described in the introduction, these companies have not yet disseminated what they are negotiating. We may only trace projections from the statements already given by the companies and the analysts of the sector.
Below, some possibilities of the transaction between Boeing and Embraer:

Sale of the control of Embraer to BOEING – this process has to be taken up to the administration council of both companies and it depends of the approval of the government due to the Golden Share. The business also depends on the approval of the regulation instruments of national and international market.

Sale of the commercial division, preserving the defense and executive area – this hypothesis is possible, but according to analysts, Boeing sees with much interest the defense and military division of Embraer.

One of the problems in this case would be that one of the main sources of financing of the military programs and of executive aviation come from commercial aviation success. In addition, the new fighter of the Air Force, the Gripen, would be prejudiced because the Swedish SAAB has a confidentiality clause agreement of technology transference with Embraer, and not with Boeing, which is a direct competitor with SAAB;

Technological and commercial partnership with BOEING for a specific niche or all segments – by the public statements of the business in the last two press statements and by the commentary of Radio Peão (Worker Radio), this would in fact be the transaction taking place. Embraer and Boeing, for example, could join in a project of a new plain and divide the project, manufacture and sales of this new airplane.

As a specialist of the field said in an article, this “partnership” would be “the joining of the pot of clay with the pot of iron, which would lead Embraer unavoidably to be absorbed by Boeing in little time, unless very restrictive safeguards are guaranteed.”

None of these answers to national interests. Embraer is strategic for the country, and it has full conditions to face any competition if it could place its products in the same financing rates as its competitors do, supported by the development banks of their countries. Thus, it is necessary to broaden the lines of credit of the BNDES for its sales, and specifically so that the renewal of the commercial fleet that provides service in the domestic markets may also be done with aircrafts of the company. This project may only advance if Embraer is a national state company.


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