image Week of May 17, 1999

Bombardier vs Embraer: The Trade Dispute Continues

Although it's been more than a month since the WTO made its ruling in the Bombardier vs Embraer dispute, the disagreement between the two rival manufacturers continued to be evident at RAA.

The two competitors were situated right next to each other in the exhibit hall, but fortunately the fueding between Embraer and Bombardier was limited to words during the conference.

Both companies said that appeals to the WTO have been filed, but the appeal process is expected to last through the summer. Conspicuously absent from RAA this year were the CEOs from the two manufacturers. Both Mauricio Botelho of Embraer and Bombardier's Mike Graff were represented by upper level executives who addressed the press and met with delegates.

The most bitter point of contention appeared to be over exactly when Brazil's ProEx program will affect Embraer regional jet financing. Embraer insists that if they lose their appeal, then only ERJs delivered after December (when the WTO makes it final ruling) will be affected.

"The WTO decision will not affect orders and optioned aircraft not delivered," said Gilberto Galan, Embraer director of corporate affairs. "Until December, we can use ProEx the same way. The WTO has never made retroactive decisions."

However, Bombardier's vice president and general manager of structured finance Dick Sloan said the WTO decision to end the use of ProEx could in fact be retroactively applied to Embraer aircraft that have already been delivered.

"By the end of November, we think ProEx will no longer be applicable, which means we will finally be on more favorable footing," Sloan said.

But Galan insists that completed aircraft deliveries using ProEx financing are legal and binding contracts made between the Brazilian government and the operators and therefore cannot be altered retroactively.

"There would be legal penalties if the Brazilian government didn't honor its contracts," Galan added. Although he conceded that after December the company may have to make changes to future contracts, Embraer is very optimistic it will win the appeal.

"Even if the WTO maintains its decision, we're quite confident there is a way to adjust ProEx to meet WTO requirements and Embraer's need to be competitive in sales financing," Galan said.

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