Embraer suspends plans for US factory
Reuters | Jan. 13, 2006
Brazilian jet maker Embraer said on Friday it had suspended plans to build a factory in Jacksonville, Florida, after the US Army canceled a contract for a new spy-plane program.
Embraer, short for Empresa Brasileira de Aeronautica, was a key member of a consortium led by defense contractor Lockheed Martin that in August 2004 won an USD$879 million contract to develop the new spy plane, known as the Aerial Common Sensor.
But the program's future was thrown into question in September, when the army determined that the Embraer jet -- a modified version of its 50 seat commuter plane -- was too small to carry all the required technology.
To salvage the contract, Lockheed offered four alternative aircraft, including a larger regional jet made by Embraer that has yet to be tested by the military. But on Thursday the army terminated the contract, which was potentially worth USD$8 billion over several years.
The decision was a blow to Embraer's plans to break into the lucrative US defense market. The company had planned to assemble the planes in Jacksonville where it was preparing to turn a disused military base into a factory.
Embraer said it would now put those plans on hold, at least until it obtains another Pentagon or Homeland Security contract in the United States.
"Embraer still considers the Cecil Commerce Center, in Jacksonville, Florida, as the chosen site for its defense initiatives in North America," the company said in a statement.
The cancellation of the Pentagon contract comes as Embraer finds itself in an unwanted spotlight over the potential sale of surveillance planes to Venezuela. The Venezuelan government has expressed interest in buying Super Tucano patrol planes from Embraer, the same model that the Colombian military recently agreed to purchase.
But Brazilian officials and Venezuela's President Hugo Chavez have said that the United States was trying to block the sale since the planes included US technology. Chavez, a former paratrooper who staged a failed coup in 1992, has tense relations with the George W. Bush administration.
The United States also tried to stop Spain from selling military planes to Venezuela on similar grounds. But on Friday the Spanish government said it intended to go ahead with the deal without Washington's support and would sell 12 transport and maritime surveillance planes to Venezuela.
Chavez said this week he would wait to see if Brazil could solve the problem over the Embraer planes. If not, he suggested Venezuela could buy similar aircraft from China.
Embraer, the world's fourth-largest producer of commercial aircraft, has declined to comment on the potential deal with Venezuela.