Embraer's China Plant Needs Permission From Beijing

Brazilian aircraft maker says it is still awaiting Beijing's permission to assemble a more advanced plane in China that would keep its joint venture in the country open.

ZHUHAI, China (AP) -- Brazilian aircraft maker Embraer says it is still awaiting Beijing's permission to assemble a more advanced plane in China that would keep its joint venture in the country open.

The president of Embraer China, Guan Dongyuan, refused to say outright that the Harbin Embraer venture would be shuttered if permission was denied to shift production from the ERJ-145 jet which seats about 50 to the larger and more advanced ERJ-190.

But he made clear that a decision hinged on what Beijing says, with the last ERJ-145 due to roll off the production line next year and no new orders received for the plane. Embraer executives say that even if permission is granted, they still need one year or more to retool the plant and can't afford to wait much longer than that.

"The ERJ-145 really faces some challenges, especially in terms of new orders, new demand," Guan told The Associated Press on the sidelines of the Zhuhai air show in southern China. "We are still in the process of waiting for the final position of the government."

Embraer sees a market for the ERJ-190 in China, but could fall afoul of the country's own ambitions in the large commercial aircraft sector. The plane would compete directly with the soon-to-be launched ARJ21, a 70- to 110-seat regional jet for which state-owned maker Commercial Aircraft Corporation of China Ltd., known as Comac, already has 240 orders including options.

A refusal to allow Embrear to upgrade its plant to the ERJ-190 could be the first indication that competition is sharpening between new Chinese players and their long-established competitors. Comac is in the process of finalizing the design of the C919, a 150-seat single-aisle commercial jet that would compete directly with the Boeing 737 and Airbus A320. It claims to have received 100 orders for the plane.

Sales of the ERJ-145 in China have already suffered from higher fuel taxes levied on small aircraft, a move seen as protecting Chinese planes such as Comac's ARJ21 that fit into slightly larger size categories shielded from the higher rate.

Embraer jet sales have stalled in recent years as European and U.S. airlines have cut purchases due to the financial crisis and rising fuel costs. The Harbin factory was set up to serve as a foothold for the Asian market, and especially fast-growing China.

Regardless of a decision on Harbin Embraer, Guan said the company was happy with the seven-year-old joint venture, which has delivered 38 ARJ-145s to Chinese customers. In all Embraer has delivered 77 of 105 firm orders to Chinese customers.

Guan also emphasized that the Harbin plant accounted for only a part of Embraer's business in China, which also includes the manufacture of aircraft components.

"I know our business is growing in China and we have a lot of confidence," he said.

More in Operations