US tariffs could have pandemic-like impact on planemaker Embraer, CEO says

Audio By Carbonatix

Enlarge

By Gabriel Araujo

SAO PAULO (Reuters) -The 50% tariff that U.S. President Donald Trump plans to impose on Brazilian exports starting in August could hammer the revenue of planemaker Embraer like the COVID-19 pandemic did, its CEO warned on Tuesday, flagging risks to U.S. partners.

Francisco Gomes Neto told reporters the tariffs would amount to a trade embargo on the regional jets it supplies to U.S. airlines and could trigger order cancellations, deferred deliveries and tough consequences for Embraer’s U.S. suppliers.

Sao Paulo-listed shares in Embraer, which had risen 3% earlier in the day, seesawed during his remarks, lost the gains before ticking back up 0.6%. They have fallen around 10% since Trump announced the tariffs, but are still up 33% so far this year.

The U.S. is the main market for Embraer, the world’s third-largest planemaker after Airbus and Boeing, with U.S. clients buying 45% of the firm’s commercial airliners and 70% of its executive jets.

Analysts had warned that the Brazilian planemaker would be one of the most affected by the tariffs.

“Given the relevance of this market, we estimate that if this (tariff plan) moves on at this magnitude, we will have an impact similar to that of COVID-19 in terms of the decline in the company’s revenue,” Gomes Neto said.

In 2020, when the pandemic ground air travel to a halt, Embraer’s revenue plunged around 30% from the previous year.

Gomes Neto emphasized that the tariffs would also hurt U.S. suppliers of components such as engines and avionics.

“It’s a lose-lose situation,” he said.

Aircraft are among the top U.S. imports from Brazil, along with oil, steel, coffee and orange juice.

Embraer forecast the levies would generate an additional cost of around $9 million per airplane exported to the U.S., with potential impacts totaling around 2 billion reais ($360 million) this year.

Shipments of E175 narrowbodies, a workhorse of U.S. regional aviation, would become “unfeasible” by the tariffs, Gomes Neto noted, adding that no order had been canceled so far.

“It’s a very new situation, so everyone is trying to understand this process and working toward reaching a solution within the deadline,” the CEO said.

In March, Embraer’s E175 backlog included 90 firm orders from American Airlines, 40 from Republic, and 16 from SkyWest, which placed a fresh order in June for another 60 jets.

($1 = 5.56 reais)

(Reporting by Gabriel Araujo; Writing by Andre Romani; Editing by Brad Haynes, Kylie Madry and Richard Chang)