[ERJ-145 — one of Embraer Company’s bestselling medium haul passenger aircraft]
Twitter has been justifiably agog with the news of Dr RK Tyagi, former Chairman, HAL, writing to minister for civil aviation Hardip Puri, urging him quickly to get the Indian government to bid for control of the Embraer Company of Brazil for as little as $5 billion, Boeing having withdrawn from its 80% stake in it worth $4.2 billion. This Brazilian firm specializes, among other things, in producing various bestselling passenger aircraft (such as 30-110 passenger carrying E2 and ERJ-145 series of single engine, single aisle, transporters) which can also converted to maritime reconnaissance, aerial early warning, cargo, and VVIP flight missions. In fact there are already a number of these aircraft flying in India. Just to provide perspective: India has failed to manufacture any such plane despite a number of underway projects over the past 30 years to design and produce them. Acquiring Embraer will thus vault India into the front ranks of aircraft producers.
In his letter dated 27th April 2020 to Puri, Tyagi mentions that the projected demand by 2035 in India for these types of aircraft is between 350 to 500. So it makes ample economic sense to grab Embraer at this time, and act fast to do so before “other other players, potentially China, enter the scene and pitch for the Embraer stake”. He adds that “Apart from the possibility for phased manufacturing in India, there is also the potential to attract OEMs (Original Equipment Manufacturers) of aircraft engines, wheels and braking and landing gears, avionics, etc to set up MRO (Maintenance and Repair Organizations)/manufacturing in India since the scale and size of the business are potentially sustainable. It will also add to indigenous design and engineering skills.”
Tyagi recommends that (1) “the extant opportunity be [expeditiously] seized”, (2) “An interim Expression of Interest” be “communicated to the Government of Brazil to bid time”, and (3) “India actively considers acquiring a 51% stake into Embraer either through a SPV (Special Purpose Vehicle) created by equity participation by Hindustan Aeronautics Limited acting alone or in partnership with the private sector.” Private sector participation by such Indian firms as L&T and/or Mahindra, or Godrej Aerospace makes ample sense in terms of spreading the risk and distributing the benefits, such as transfer of technology and skills, of this acquisition. Indeed, Indian twitterites have been besides themselves enumerating the immense possibilities of such a deal. Such as producing the Tejas LCA in Embraer production facilities to sell in the promising Latin American market.
In case, his acquisition idea finds favour with the Modi government, Tyagi suggests constituting “a small team of policy/industry experts”, and ends his letter with a warning: “This may be once in a lifetime opportunity for us” and hence, by implication, not to be missed. It is copied to defence minister Rajnath Singh, PK Mishra, principal private secretary to the PM, and Amitabh Kant, ceo, Niti Ayog.
What are the chances this proposal for securing controlling shares in Embraer will be entertained by the Modi government, and these four notables — Messrs Puri, Singh, Mishra and Kant will succeed in speedily getting the Prime Minister’s and, more important, Finance Ministry’s approval and release of the necessary funds, and that in the meantime MEA is tasked to discuss the topic to the Bolsonaro government in Brazil and prepare the politico-economic ground for such Indian investment, and to seek his help in keeping out other potential bidders, especially China? President Jair Bolsonaro, after all, was wined, dined and feted as the chief guest at the Republic Day parade this year and will have warm memories of his Delhi sojourn and, if properly approached, would be receptive.
One wishes though that the Modi regime had by now articulated a strategic vision such as the one proposed in my ‘Staggering Forward’ book of a smaller geostrategic grouping of BRIS (Brazil, Russia, India and South Africa) derived from the purely trade and economically oriented BRICS. An Indian majority stake in Embraer would fit nicely in a BRIS schemata. Any which way, this deal justified by the Indian government, the right touch may be provided by Modi broaching this topic directly and personally to Bolsonaro in a phone call, leaving their respective government functionaries to work out the details.
So what’s the proverbial fly in the ointment? Well, Puri, a former diplomat, Mishra and Kant are all civil servants used to working in a certain leisurely bureaucratic style and pondering procedural hurdles at length, rather than getting on with it and showing some urgency in cutting through the red tape. The mind boggles at the potential of this transaction and how Embraer in the Indian fold would turbocharge Modi’s so far idling ‘Make in India’ policy and programme, generate huge employment, and keep the immense Indian wealth that has to-date been frittered away in arms imports, within the country.
Is all this enough for these durbans (gatekeepers) to Modi to get their political master to act without losing time? And if adequately briefed, will Modi have the foresight to pilot the Embraer company acquisition through the bureaucratic thicket that is the Government of India? Time will soon tell or, as is more likely, when newspapers report that China has already grabbed Embraer even as Delhi is still at the starting gate mulling over the matter!