Embraer Plays By the Chinese Rules- And Wins

| About: Embraer S.A. (ERJ)

Brazil’s Embraer-Empresa Brasileir de Aero.(NYSE:ERJ) is using an interesting tactic to get the Chinese to buy their jets.

The General Administration of Civil Aviation of China [CAAC] had apparently been sitting on an order for some Embraer regional jets. Embraer, which had built a factory in Harbin with the expectation that China would be a gigantic market for regional jets, was finding things a bit rough going for its China operations, as the Harbin plant was apparently all but idle.

So the guys at Embraer decide to make it known that they’re going to shut the doors in Harbin due to a lack of orders.

This clearly struck someone in the civil aviation bureaucracy as a bad idea. It would have been a step backwards in China’s efforts to attract foreign airframe manufacturers (and build its own airframe manufacturing industry), and it would destroy the rationale for local player AVIC to develop its own regional jet.

So, next thing you know, Embraer scores an order for 100 of its puddle-jumpers from HNA Group, the parent company of Hainan Airlines, Xinhua Airlines, Chang An Airlines, Shanxi Airlines, Yangtze River Express, and bizjet operator Deer Jet.

Without arguing the merits of the deal for HNA (frankly, I think they’d be better off putting their money into larger planes), you have to give Embraer a ton of credit for playing the game by Chinese rules in China - and winning.