Market ‘speaks’ as Embraer ends jet production in China

At the Beijing General Aviation Show last year Embraer’s China chief, Guan Dongyuan, was asked whether the company would stop assembling jets in China. His response was that Embraer wanted to “let the market to make [sic] the decision.” With the announcement on Wednesday this week that Embraer is to cease assembly of its sole China-produced jet, the Legacy 650, it would seem that the market has spoken.
With the delivery of the last Legacy 650 in March, this news brings to an end the thirteen-year relationship Brazil’s Embraer has had with the Aviation Industry Corporation Group of China (AVIC). Legacy jets were produced in China in partnership with Harbin Aviation Industry and Harbin Hafei Aviation Industry, both subsidiaries of the state-owned group, AVIC. Originally they produced the ERJ-145 regional jet, but lack of demand saw production swith to the Legacy 650 in 2012. According to Embraer chairman, Frederico Curado, “Embraer will continue attentive to the Chinese market, both for commercial aircraft and executive jets,” adding that the company will support existing customers in China and the 166 aircraft in operation via its Beijing office.
Uncertainty over Embraer’s continued presence in China has existed for some time. In June last year it was revealed that a slump in sales had led the company to reconsider its position. Embraer had been facing pressure from two principal directions which had both badly affected sales. With a crackdown on corruption in China under President Xi Jinpeng, purchases which displayed a high level of ostentation were being shunned. In addition, Embraer had failed to negotiate successfully with the Chinese government to reduce the 3% import duty and 17% value added tax which had pushed production costs up considerably. The result meant that the book price of Embraer jets was approximately 20% higher than other manufacturers’ planes the company was competing against, a point Guan was also keen to make at the Beijing air show. He also made it clear this was the main reason so many Chinese clients chose to buy and register jets outside China.