In a decision that marks a break in the previously cordial relations between the parties, the Brazilian Air Force (FAB) decided to unilaterally reduce the contract for the acquisition of the Embraer KC-390 Millenium multi-mission tactical transport from 28 to 15 units, after negotiations for an agreed contractual modification failed.
According to the FAB, through an article published on the force’s official website and signed by Air Lieutenant Brigadier Carlos de Almeida Baptista Junior, Air Force Commander, «On April 23, 2021, we initiated a complex negotiation process that sought a consensual solution but limited by the legal dictates of public administrative contracting, and that would not cause losses to the company.»
«This process, which was scheduled to conclude last August, was extended several times, in search of a proposal more acceptable to both parties, finally setting November 11 for the conclusion of the process.»
«Despite our history of converging interests and the harmonious work of our negotiating teams, Embraer reported that it did not accept the proposal.»
«Considering Embraer’s decision and the impossibility of continuing the execution of the contract in the current quantities, the Brazilian Air Force, in order to safeguard the public interest, will initiate, within the limits provided by law, the procedures for the unilateral reduction of the KC-390 aircraft production contracts, an unprecedented and undesirable fact in this important and fifty-year relationship.»
For its part, the company issued an informative note to its shareholders in which it indicated that it «became aware on this date of the Federal Government’s decision to unilaterally reduce by 25% the total amount of Contracts 002/DCTA-COPAC/2014 and 10/DCTA-COPAC/2014, entered into in 2014 between the Federal Government, Embraer and one of its subsidiaries. The contracts provide for the supply of 28 KC-390 aircraft by Embraer to the Union.»
«As soon as formally notified by the Federal Government, the Company will seek legal action in connection with the economic and financial rebalancing of the Contracts, as well as evaluate the effects of the reduction of the Contracts on its business and results.»
The company further reaffirmed that «Embraer reinforces its commitment to the KC-390/C-390 Millennium project, a new generation multi-mission aircraft, as well as its belief in the export potential of this product, which brings unique innovations in its category and has already been acquired by two European nations.
Finally, Embraer reaffirms its role as a strategic partner of the Brazilian Air Force in the development and deployment of high value-added technological solutions and products, a partnership established more than 50 years ago.»
This contract reduction is a major blow to Embraer and the KC-390, which is seeking to gain a foothold in a highly competitive market and for which proven solutions are sought. The Brazilian manufacturer’s shares felt the impact, dropping more than 7% on the Brazilian Stock Exchange.
This is a developing story.
