Embraer announced this morning that it is undergoing a restructuring to overcome issues related to both the pandemic and the Boeing partnership collapse.  The company stated it is making a 4,5% adjustment to its global workforce, which corresponds to approximately 900 employees in Brazil. The objective, says Embraer, is to ensure Embraer’s sustainability and engineering capacity. 

Embraer notes that “The pandemic particularly affected Embraer Commercial Aviation, which experienced a 75% reduction in aircraft deliveries during the first half of 2020 as compared to the same period last year. The situation worsened as a result of the duplication of structures associated with the carve-out of the company’s commercial aviation business in preparation for the partnership which was terminated at the initiative of Boeing, as well as the expectation that the air transport sector will not recover in the short- or medium-term.” 

Like other OEMs, Embraer undertook a series of voluntary measures to encourage people to separate from the firm and also offered collective vacations, reduced working hours, furloughs, paid leave. Three waves of voluntary dismissal plans (VDP) were undertaken. These VDPs saw 1,600 people take offers.

Based on the announcement our assessment is:

  • This process is no surprise as all OEMs are doing this type of adjustment – Airbus and Boeing losing vastly greater numbers of skilled people
  • It is probable the adjustments announced are not the last.  If the air travel market does not recover within the next six months, we could see more adjustments.  However, we are seeing a recovery in China and the critical market for Embraer is the US.  Within the US we can see that the E175 is arguably the most economically effective aircraft with the right capacity and range profile for pandemic levels of travel demand. The only constraint in greater use of the E175 is the scope clause.
  • Embraer is telegraphing an expectation of slow recovery – which may be a recognition that the slow recovery in the US has a big impact on Embraer.  The company needs to be able to break into the Chinese market, where it faces airlines forced to buy local.  However, Chinese OEMs do not offer a better regional aircraft than the E175, and most certainly not better than the E175-E2.  The latter could be a compelling aircraft for China’s recovering airlines. Moreover, in the absence of the Boeing deal, China and Embraer could exploit a mutual set of interests.  If both sides could work out a deal, the Chinese air travel market would get a boost at the regional level (CAAC Rule 96) and Embraer could see a marked change in its fortunes.
  • It looks like the main area of job cuts will be in admin from duplication – they are protecting engineering for example.  The engineering and production teams are world-class and talent that must be held on to as long as possible.  Had the Boeing partnership gone through, the administration duplication would have been necessary, but it no longer is necessary.
  • Even with a 75% reduction in deliveries,  a 4.5% reduction in people is below what might have been expected and was enabled by 1,600 people taking VDP.  This may be in part because of the company’s strong corporate culture (“The company recognizes and appreciates the commitment of those professionals who are leaving the organization”).  Embraer remains a highly attractive employer in Brazil because it is unique in the country as a source for high-tech and skilled employment.  This translates into a workforce that is going to be flexible in order to keep their jobs and the company as sustainable as possible.
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