EADS holds off late Embraer bid

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Parliament approves Brazilian air force decision to award aircraft contracts to European manufacturer

The Brazilian air force is poised to hand two aircraft contracts to EADS despite objections from Embraer, again overruling the native aerospace industry powerhouse on a major acquisition decision. Brazil's parliament has cleared the air force to award contracts for 20 aircraft – 12 EADS Casa C-295 utility transports and eight EADS-modified Lockheed P-3 Orion anti-submarine warfare (ASW) aircraft.

Both aircraft were selected several years ago, but programme funding disappeared before contract award. During the delay, Embraer submitted a new bid for the ASW contract based on a new version of the P-99, a special-mission derivative of the ERJ-145 that did not exist when the original ASW competition was won by EADS. Embraer wanted the bidding reopened after developing a candidate.

When the air force refused, Embraer's parliamentary allies jammed the contract award process by launching an investigation of the original competition for the P-3 modification work, which had pitted Lockheed Martin against EADS. The air force now appears to have won the showdown with Embraer – a company that owes its beginnings to air force contracts. With the parliament's approval removing the last procedural hurdle, contract signings for both EADS awards are expected within a few weeks.

However, Embraer's relations with the air force may take longer to repair after a string of heated battles. Two years ago, Embraer tried a similar manoeuvre to muscle in on a deal for a presidential aircraft already awarded to Airbus for an A321, but the air force refused to consider the alternative based on the Embraer 190. The contract was later dropped for other reasons, but the air force's unflinching tone had been set.

More recently, Embraer's decision to support the Dassault Mirage 2000 bid for the $700 million F-X BR fighter tender ended in disarray, with the air force in February scrapping a prolonged, four-year contest rather than select a winner.

An Embraer executive said at last week's Latin America Aero & Defence (LAAD) show in Rio de Janeiro there is a "wide divergence of opinion" with the air force on the F-X BR contract, but said overall relations with Embraer's largest defence customer remain positive.

STEPHEN TRIMBLE/RIO DE JANEIRO