Change in Brazil subsidy plan to hit Embraer sales

Sao Paulo

AZUL, the only Brazilian airline flying Embraer jets, will cancel a 30-aircraft order if lawmakers approve the latest plan to subsidise flights to small cities, airline president Antonoaldo Neves has said.

"If you want to serve regional cities, you need to have small planes," Mr Neves said on Friday as he sharpened Azul's criticism of the programme ahead of a vote this month by Congress. The measure has been altered in a way that no longer benefits Embraer's models.

Closely held Azul Linhas Aereas Brasileiras, which is based in Barueri, Brazil, and Embraer would have been the biggest beneficiaries under the original subsidy legislation. Embraer has estimated it will sell 50 to 80 planes as a result of the government proposal.

Gol Linhas Aereas Inteligentes, Latam Airlines Group's Tam unit and Avianca Brasil have all said they are considering buying Embraer jets ahead of the regional programme. The subsidy plan will provide about 500 million reais (S$252.5 million) a year to promote flights out of small cities, including on dozens of existing routes.

Congress's initial plan would have subsidised 50 per cent of the seats on regional flights, with 60 seats per flight eligible for the aid. Only Embraer's models in the 100-seat niche would have met that threshold. The measure has been changed to drop the 60-seat limit, meaning airlines using bigger jets from Boeing and Airbus could qualify for aid.

Embraer said that it's "fundamental that the regional aviation programme provide incentive for planes of a size adequate to regional routes. The cost of using larger planes on these routes is much higher because they will fly with more empty seats, increasing the need for support to make them economically viable". BLOOMBERG