Embraer available, will India grab it? Nah!

Embraer ERJ-145 series - program supplier guide

[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the Indian government to bid for control of the Embraer Company of Brazil for as little as $5 billion, Boeing having withdrawn from its 80% stake in it worth $4.2 billion.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!

About Bharat Karnad

Senior Fellow in National Security Studies at the Centre for Policy Research, New Delhi, he was Member of the (1st) National Security Advisory Board and the Nuclear Doctrine-drafting Group, and author, among other books of, 'Nuclear Weapons and Indian Security: The Realist Foundations of Strategy', 'India's Nuclear Policy' and most recently, 'Why India is Not a Great Power (Yet)'. Educated at the University of California (undergrad and grad), he was Visiting Scholar at Princeton University, University of Pennsylvania, the Shanghai Institutes of International Studies, and Henry L. Stimson Center, Washington, DC.
This entry was posted in arms exports, asia-Pacific/Indo-Pacific, Asian geopolitics, China, China military, civil-military relations, Culture, Decision-making, Defence Industry, DRDO, Geopolitics, Great Power imperatives, India's strategic thinking and policy, Indian Air Force, Indian ecobomic situation, Latin America, MEA/foreign policy, Military Acquisitions, Military/military advice, society, South Asia, Technology transfer, Weapons. Bookmark the permalink.

32 Responses to Embraer available, will India grab it? Nah!

  1. rk says:

    Has India ever declared aeronautics manufacturing a national priority area?

  2. PRATIK KUMAR says:

    Thank u sir for this wonderful article. I was exactly looking about such an article. In fact in your previous post I asked the same question about Embraer’s case where I also wrote that India must grab this opportunity and so just wanted to know your views in this regard. Since you have written a whole article so I got more than what I wanted. Thanks a lot once again sir..

  3. vivek says:

    why can’t govt force indian private companies like tata or l&t take to part in this bid?

  4. Surinder Jeet says:

    A timely advice of wisdom and a poignant reminder of reality of deadwood Indian bureaucracy who are more disablers rather than enablers.

  5. V.Ganesh says:

    Even if Modi were to call Bolsonaro and tell him of the GoI’s interest in buying Embraer, why would the latter agree? He’d be driven by Brazilian nations interest because here’s a chance of a Brazilian company which makes jets for both the civilian and defense sector, so wouldn’t he be interested in ensuring it remains in Brazilian hands irrespective of him being the chief guest of this year’s Republic Day function? Right?

    • He’ll be more interested in retaining the employment and Modi will have to make India’s case in terms of strategic partnership of the BRIS kind for the transaction to make sense to Brasilia.

  6. V.Ganesh says:

    What if Modi decides to not buy Embraer and sets a side the USD 5 billion for post-Chinese Corona Virus financial package or for that matter sets it aside for the IAF for it to buy its 126 fighter jets?

  7. Swanand D says:

    Brazilian President was the chief guest at the Republic Day parade this year and India has recently provided Brazil with hydroxychloroquine as well. How helpful are these things in materializing acquisitions like this, if at all one happens?

  8. Kuldeep says:

    Hello sir , willing to know your views on recent interview of Former Chinese General Qiao Liang on Tiawan ?

    Our former NSA Menon also expressed his concerns on this article

      • Kuldeep says:

        What’s the intent behind US’ support of Taiwan except to hurt China in international forums (Ex WHO, UN)? And why is our Foreign Office afraid to notify Taiwan and not respond to Chinese spokesman criticizing India media outlets for interviewing the Taiwan representative in Delhi?

      • America is gearing for a Cold War with China and Taiwan is a means of starting it. This is good for India that US and China are busy fighting each other. It is tragic Delhi is so frightened of upsetting Beijing by formally recognizing Taiwan. We should do so because India will find no stronger strategic partner in China’s backyard than Taiwan (and Vietnam).

  9. PRATIK KUMAR says:

    Hi Bharat sir,can you please clear up some confusion. Couple of years ago there were reports that India did not have enough money to raise a Mountain Strike Corps (MSC) against China. But there is 17 Corps of Indian Army — the first MSC. So what about the fund issue?
    Thank you

    • XVII Corps is the 1st and so far only MSC. In the initial two years of the Modi govt, finance minister Arun Jaitley deprioritized funds (Rs 64,000 crores) needed for raising this Corps saying the country had no money. Then Dok La happened in 2017 and the money was not only found but the Corps raising fast-tracked!

      • PRATIK KUMAR says:

        Thank u very much sir. Just one more thing, Is XVII Corps completely raised or something more needs to be done? And can it go for offensive attack on Tibet region or more MSCs (or IBGs) are needed? I think u have talked about 3 MSCs sir??

      • IBGs revolve around armour in the plains. XVII Corps is not fully raised yet. And attack is an attitude of mind, honourable exceptions among Indian generals apart, the Indian army brass has not cultivated against China.

      • ARINDAM BORA says:

        Mr. Karnad Sir if I may and I know you are not a votary of a conflict with Pakistan, still I would like to ask about your comparative assessment of the Indian and Pakistani Armed Forces. Now, don’t misunderstand me Sir, I may not have a positive view of that country but I am no baiter either. I have always disliked the disproportionate amount of attention our media, military and public discourse gives to Pakistan. However what I would like to know is can the Indian forces achieve a decisive victory over them in a week to ten days, as envisioned by both the CDS and our honorable PM. Or would a victory require far longer than that and consume far more resources?

      • India’s mil capabilities are not able to overwhelm Pakistan. Actions such as Cold Start, I have argued in my books, is a non-starter in the main because such an operation will only achieve very shallow penetration because the Pak armoured and mechanized forces are sufficient to ensure that, and even manage incursions across the border into India. At the core of both Indian and Pak orbats is that owing to “voids” in logistics sustained action to decision by either country is not possible.

      • ARINDAM BORA says:

        What is the the most likely route of such an counter incursion by Pakistani armored forces into Indian territory? The Chhamb sector and the desert perhaps. What’s the Indian IBGs’ most likely advance routes, sir?

        If we do not have a decisive conventional edge over them then Sir, why does the PM talk about achieving a decisive victory in seven days (General Rawat talks of 10 days)? To rattle them perhaps. However the contours of this ‘decisive victory’ are not clearly defined.

        And if I may, again, why is Karnad Sir so soft on Pakistan. Your position on the issue is well known but does Sir ever consider repositioning himself on the let’s say the more mainstream side of this debate. I mean do you take into account their ideological hatred of India, delusional but persistent attempts to gain parity and resist India’s rise in the international system, the various proxy wars being waged against us, especially in the Kashmir Valley, becoming a PRC satellite etc..

      • Will not dilate on avenues of ingress, etc. Pakistan is a small weak state on India’s flank that both friend and foe utilize to contain India. For this reason and because of the geopolitical fact of life that India cannot become great without having a pacified neighbourhood, and coopting Pakistan is what India should do. It helps that it is eminently co-optable. Besides it does not in any sense pose a military threat. The political mainstream you refer to is based on relentless animosity which India cannot afford when there is China to deal with. Sure, it uses terrorism against India, but perhaps India is also indulging in the same — Balochistan, etc. My point is this underhanded stuff can proceed in parallel until the benefits from transacting normally with India begins to be seen by the Pakistani people, govt and army as serving their interests better.

      • ARINDAM BORA says:

        Leaving the Indian mainstream aside, will the Pakistanis accept it? Their’s is an ideological hatred of India. No amount of trade, commerce and people-to-people contact can change their fundamental Weltanschauung ,which is rivalry with and hostility to India. Even if there is some rapprochement, as usual sooner or later they will conduct a terrorist attack and the process had to be scuttled.
        From their perspective any negotiated settlement will have to settle the Jammu & Kashmir dispute. And India cannot and should not change it’s official position. Also now that they are so beholden to the PRC, the later would not want to lose it’s strategic proxy against India.
        Moreover, Paksiatn cannot be trusted.
        Are the details of likely routes of ingress and our advance detailed in your books? Which book should I buy to learn about them?

      • Not if PoK, etc are inherently part of the final settlement along the lines that Musharraf had proposed and Manmohan Singh had almost accep

  10. PRATIK KUMAR says:

    Thanks a ton sir!!

  11. Jnaneshwar says:

    Sir, why would Embraer partner with India, India has nothing to offer in terms of technology?

    • Please read the post: We have the combat aircraft design (Tejas), something Embraer hasn’t been able to do.

      • Jnaneshwar says:

        I thought the joint venture between Boeing and Embraer was for commercial airliners. I remember reading that Boeing would buy 80% stake in the commercial aircraft division of Embraer.

      • The Embraer-Boeing deal was for the kind of medium range, single aisle, passenger aircraft the Brazilian company specialises in.

  12. Capt Aditya Sarin says:

    Tyagi himself has been a lousy manager of investments in HAL, his huge mistake still looks over LCA complex. How do we expect someone from Pawanhans and HAL background to even talk about commercial aircraft strategy and business?
    This guy is just a ppt man, grown with UPA hand.

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