Embraer, Brazil’s iconic plane maker, turns 50

. Aug 19, 2019
embraer bandeirante Embraer Bandeirante

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Good morning! The 50-year anniversary of Embraer, one of Brazil’s most-emblematic companies. New revelations suggest Operation Car Wash could have committed crimes. How Amazon municipalities are throwing money away. (This newsletter is for platinum subscribers only. Become one now!)

The 50 years of Embraer

Brazil’s planemaker Embraer

celebrates its 50th anniversary today. The company was founded on August 19, 1969, amid the military dictatorship&#8217;s project to build a &#8220;great Brazil.&#8221;&nbsp;</p> <p><strong>Why it matters. </strong>As the crown jewel of the Brazilian industry, Embraer is Brazil&#8217;s biggest exporter of added-value products and trails only behind Airbus and Boeing in planes sold worldwide—with 8,000 models. But the company also faces a challenge: after selling its most profitable division—that of commercial jets—what will be of Embraer, now that it is concentrated on producing military and executive planes?&nbsp;</p> <p><strong>History. </strong>The company was created by chance. In April 1969, then-president Humberto da Costa e Silva had to make an emergency landing in São José dos Campos, where the Technological Institute of Aeronautics is located. Air Force Colonel Ozires Silva used the 40 minutes he had with the president to lobby for Brazil&#8217;s need to produce the Bandeirante airplane—developed in 1968 by the Brazilian Air Force. The president liked the idea, and Embraer came to be that very year.</p> <p><strong>Privatization.</strong> Embraer became privately controlled in 1994, after an initial public offering which raised roughly USD 118m for 78% of shares. The government, however, kept a golden share status—meaning that it had the final say in strategic matters.</p> <p><strong>Future.</strong> Last year, Embraer sold its commercial jet division to Boeing in a deal worth USD 4bn. Sector experts say that the merger with the American giant was inevitable after Canada&#8217;s Bombardier was taken over by Airbus. &#8220;It was that or getting left behind,&#8221; says Satoshi Yokota, a now-retired Embraer engineer. The company recently launched the 12-seat Praetor 600, a super-midsize jet, and signed a deal with Israel&#8217;s Elta Systems to develop an airborne early warning and control aircraft.</p> <hr class="wp-block-separator"/> <h2>New revelations create more embarrassment for Operation Car Wash</h2> <p>Operation Car Wash prosecutors informally asked auditors of the Federal Revenue Service for access to sealed tax information without a court order—according to the most recent <a href="https://www1.folha.uol.com.br/poder/2019/08/lava-jato-driblou-lei-para-ter-acesso-a-dados-da-receita-mostram-mensagens.shtml">revelations</a> by <em>The Intercept</em> and <em>Folha de S.Paulo</em>. The evidence was obtained through a leak of private messages exchanged by Car Wash prosecutors over the recent years. The report led Supreme Court justices to raise the tone of their criticism towards the probe—instead of misbehavior, they are calling their actions &#8220;criminal.&#8221;</p> <p><strong>Why it matters.</strong> The revelations come at a moment when both Congress and the federal government are working to asphyxiate institutions that ensure accountability—albeit at different ends. While lawmakers have recently approved a bill criminalizing several of the investigative tactics used by Operation Car Wash, President Bolsonaro is moving to interfere in the operations of the Federal Prosecution Office, the Federal Revenue Service, and the Federal Police—with the intent of narrowing their margins to hold politicians accountable. Such revelations give these moves momentum.</p> <p><strong>Rebellion.</strong> Federal prosecutors, tax auditors, and federal marshals are disgruntled with the president&#8217;s political interference. They have sent not-so-veiled threats to Brasília that, should Mr. Bolsonaro continue to impose his will, the reaction will be swift and hard. It is worth mentioning that the president&#8217;s son, Senator Flávio Bolsonaro, is under investigation for possible money laundering, as are members of First Lady Michelle Bolsonaro&#8217;s family.</p> <hr class="wp-block-separator"/> <h2>How Amazon municipalities throw money away</h2> <figure class="wp-block-image"><img src="https://brazilian.report/wp-content/uploads/2019/08/Amazon-deforestation-Brazil-Bolsonaro-1024x647.png" alt="Amazon deforestation Brazil Bolsonaro" class="wp-image-22005" srcset="https://brazilian.report/wp-content/uploads/2019/08/Amazon-deforestation-Brazil-Bolsonaro-1024x647.png 1024w, https://brazilian.report/wp-content/uploads/2019/08/Amazon-deforestation-Brazil-Bolsonaro-300x190.png 300w, https://brazilian.report/wp-content/uploads/2019/08/Amazon-deforestation-Brazil-Bolsonaro-768x485.png 768w, https://brazilian.report/wp-content/uploads/2019/08/Amazon-deforestation-Brazil-Bolsonaro-610x385.png 610w, https://brazilian.report/wp-content/uploads/2019/08/Amazon-deforestation-Brazil-Bolsonaro-460x290.png 460w, https://brazilian.report/wp-content/uploads/2019/08/Amazon-deforestation-Brazil-Bolsonaro.png 1230w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure> <p>Municipalities in the Amazon region could raise up to six times more money in taxes if their land evaluations were updated regularly, says the Imazon Institute (Amazon Institute of People and the Environment). Today, the nine states of the Amazon region raise a combined BRL 240m a year in property taxes—an amount that should be closer to BRL 1.5bn.</p> <p><strong>Why it matters.</strong> Property taxes are federal—but the government created a program to transfer revenue to municipalities in exchange for enforcing land laws and updating property values. In the Amazon region, only 38% have joined the program. The extra revenue could help sustain local economies (the North region is among Brazil&#8217;s poorest) and could act as a deterrent to deforestation.</p> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>Energy. </strong>The privatization of Eletrobras, Brazil&#8217;s energy company, might not happen this year unless Congress approves a provisional decree set to expire on Wednesday. The bill foresees BRL 3.5bn in compensation for Eletrobras for debts contracted by its subsidiaries. Without that, the company would have its bottom line compromised, scaring investors off. If Congress doesn&#8217;t approve the decree (which is likely) the government would have to push through a regular bill, which would take much longer to pass.</p> <p><strong>Argentina.</strong> Alberto Fernández, who is favorite to win Argentina&#8217;s presidency in October, tried to diffuse the tension between his candidacy and the Brazilian government. While talking about renegotiating the terms of a recent deal with the International Monetary Fund, Mr. Fernández said he will preserve the Mercosur free-trade bloc.</p> <p><strong>Education.</strong> Facing a financial crisis and severe budget cuts, the Education Ministry is lobbying to get part of the BRL 2.5bn recovered by Operation Car Wash (money that had been siphoned through corruption schemes). The move would need authorization from the Supreme Court—which has previously opposed the idea of creating a fund with the money.</p> <p><strong>Exports.</strong> Brazilian fruit exports are up 21% this year in volume, and 15% in revenue—reaching USD 384m over the first half of 2018. In partnership with government agencies, producers are trying to break into new markets in the hopes that the strategy will push the sector above the USD 1bn threshold. Today, 75% of Brazilian fruits go to Europe and the UK, and 12% to the U.S.</p> <p><strong>Ambassador Eduardo.</strong> President Jair Bolsonaro plans to name his son Eduardo (a congressman) to the position of ambassador to Washington D.C. But getting him confirmed by the Senate won&#8217;t be easy, as a recent poll among senators suggests. Of the 81 members of the upper house, 30 say they will vote against Eduardo Bolsonaro, 15 said they will vote to confirm him—with 35 members choosing not to answer.

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