Em­braer boss warns bank­ruptcy ahead for air­lines

The high-fly­ing air­craft firm’s boss is happy with an un­cer­tain fu­ture, writes Fearghal O’Con­nor

Sunday Independent (Ireland) - - Sunday Business - Fearghal O’Con­nor Deputy Busi­ness Ed­i­tor

THE Irish CEO of Em­braer’s com­mer­cial jets arm says the air­line sec­tor is in a down­turn that will see a num­ber of Eu­ro­pean air­lines go bank­rupt.

Some less-known car­ri­ers have al­ready gone wal­lop but “we will see more”, said John Slat­tery.

“Costs are go­ing up and fares are go­ing down — clas­sic lead­ing in­di­ca­tors. Man­age­ment teams at air­lines are more fo­cused on fi­nan­cial met­rics than ever be­fore but we will see plenty more bank­rupt­cies.

“As War­ren Buf­fett said, it is only when the tide goes out that you see who is wear­ing their swimwear. The tide is go­ing out now.”

Ac­cord­ing to Slat­tery, the air­line in­dus­try can ac­tu­ally ben­e­fit: “It will lead to fis­cal dis­ci­pline, cer­tain lev­els of con­sol­i­da­tion. Air­lines will go away and very of­ten that is not a bad thing be­cause those that are left are more ro­bust and will be able to im­prove prof­itabil­ity.”

JOHN Slat­tery — the Co Clare­born boss of the com­mer­cial avi­a­tion arm of Brazil­ian air­craft man­u­fac­turer Em­braer — says that he stands at “a mo­ment of in­flec­tion” in a ca­reer that has been on a con­stant up­ward tra­jec­tory. Slat­tery was in Dublin last Fri­day to con­clude a 200-day 68-city world tour with Em­braer’s new su­per-ef­fi­cient Em­braer E190-E2 pas­sen­ger jet, the de­vel­op­ment of which he has led from scratch for the last seven-and-a-half years. He and his man­age­ment team are also on the cusp of bro­ker­ing a his­toric joint-ven­ture deal with Boe­ing that could see the US gi­ant ac­quire a con­trol­ling 80pc stake of the 50-year-old Brazil­ian air­craft-maker’s com­mer­cial avi­a­tion unit, valu­ing it at $4.75bn.

But what ex­actly that mega deal — if ap­proved by the Brazil­ian govern­ment — would mean for his own per­sonal po­si­tion as CEO of that unit and for his fu­ture ca­reer he just does not know.

“Be­ing at the ta­ble with a gi­ant like Boe­ing on the other side ne­go­ti­at­ing with them to cre­ate a joint ven­ture with your busi­ness is in­tel­lec­tu­ally very sat­is­fy­ing. Try­ing to achieve that in a way that is best for ev­ery­one is unique and will be hard to top af­ter this.”

Suc­cess of both the Boe­ing deal — and of the new E2 air­craft — could, ac­cord­ing to avi­a­tion sources, make the Ir­ish­man one of the hottest tick­ets in the wider avi­a­tion sec­tor but also places him at a cross­roads in his high-fly­ing ca­reer

“For sure, this is a mo­ment of un­cer­tainty,” says Slat­tery, who nev­er­the­less has strongly pub­licly backed the deal from an early stage.

“The only thing you can be cer­tain of is are you putting 100pc into ev­ery­thing you do ev­ery­day? If you do that you can go to sleep at night know­ing ‘I’ve done ev­ery­thing I could’. Clearly I am at a mo­ment of in­flec­tion, for sure. But you ei­ther have a phi­los­o­phy where you em­brace change or you are scared of change.”

He ex­pects that the deal could be closed and ap­proved by the se­cond half of next year.

“I have been a strong pro­po­nent of the trans­ac­tion since the get-go. I be­lieve it will be very pos­i­tive for Brazil, for the aero­nau­ti­cal in­dus­try. It will al­low us to sell more air­craft as part of the big­ger Boe­ing or­gan­i­sa­tion. I be­lieve we could po­ten­tially dou­ble our pro­duc­tion.”

Slat­tery de­scribes his pur­suit of the Boe­ing deal as the big­gest thing that has yet hap­pened in his ca­reer. He does not yet know — and is not pre­pared to spec­u­late — where the prospec­tive deal will leave his own em­ploy­ment or ca­reer in a year’s time.

“Boe­ing will de­cide who the man­age­ment team of the joint ven­ture will be should it go through. I have not had that con­ver­sa­tion with Boe­ing. We are still in — al­beit the fi­nal stages — of ne­go­ti­a­tions so my fidu­ciary re­spon­si­bil­i­ties are to en­sure that the Em­braer share­hold­ers get the best trans­ac­tion. As I sit here, per­son­ally it is an un­usual mo­ment in time be­cause I am spon­sor­ing the joint ven­ture — but I can’t speak for my­self and where I will be af­ter the joint ven­ture gets set up. Right now I can’t have that con­ver­sa­tion legally.”

Ul­ti­mately, the man­age­ment team of the new joint ven­ture will be cho­sen by Boe­ing and whether they will back the cur­rent lead­er­ship or bring in their own peo­ple at the top re­mains to be seen.

“I’m sure Boe­ing will make all the right de­ci­sions — they are ex­pert at this — but I just can­not deal for my­self. Below the of­fice of chief ex­ec­u­tive it is clear to me that all of the or­gan­i­sa­tion will be in­vited into the joint ven­ture but I can­not have that con­ver­sa­tion with them. I am com­fort­able that Boe­ing will make the right de­ci­sion. What will be will be.”

So the joint ven­ture — and his own whole­hearted sup­port of it — could ul­ti­mately do him out of a job just at the mo­ment of cul­mi­na­tion of the two big suc­cesses of his ca­reer to date — the launch of a brand new pas­sen­ger jet and the seal­ing of a mas­sive deal to sell Em­braer’s com­mer­cial avi­a­tion unit to its huge Amer­i­can com­peti­tor. “Yes that’s tech­ni­cally pos­si­ble. There is un­cer­tainty be­cause of my fidu­ciary re­spon­si­bil­i­ties, but it is not some­thing that leads to any sleep­less nights. The best thing I can do right now is fo­cus on fill­ing out the back­log for the E2 and then we can worry about what the fu­ture holds.”

That firm’s or­der back­log — a mea­sure of ex­pected rev­enue — stands at 250 E2 jets, worth about $13.5bn. The E-jet fam­ily in to­tal just de­liv­ered its 1,500th air­craft last week. Those num­bers for the third-big­gest avi­a­tion man­u­fac­turer in the world will do Slat­tery’s stand­ing in the highly-com­pet­i­tive in­dus­try no harm at all and will mean that how­ever the Boe­ing deal plays out, his phone is un­likely to stay silent.

“What is im­por­tant to me is to find an align­ment of cul­tural val­ues and I need to be part of a team that has fire in their belly. That prob­a­bly comes from my mother and my fa­ther — great tra­di­tional val­ues and su­per-strong work ethic that I see shared with my brother [Avolon CEO Domh­nal Slat­tery]. Great val­ues and a burn­ing de­sire to win the mar­ket­place de­fines Boe­ing, so if, at some point, that con­ver­sa­tion were to ma­te­ri­alise that would be a con­ver­sa­tion of course I would en­ter­tain. But be­cause I have ro­bust val­ues that is not a con­ver­sa­tion I could en­ter­tain — or that they would want en­ter­tained — un­til af­ter con­tracts are signed. And I don’t know if they will want to en­ter­tain it even then. But I ad­mire the Boe­ing com­pany enor­mously and have done through­out my whole ca­reer.”

That ad­mi­ra­tion started he said, when he and Domh­nal would go with their fa­ther from their home in En­nis, Co Clare to Shan­non air­port.

“We’d see the Boe­ing 747-400s parked there be­fore fly­ing to JFK. Back then it was iconic.”

He be­gan his ca­reer, like his brother, in the leas­ing busi­ness but in­di­cates that he has no in­ten­tion of re­turn­ing to that in­dus­try and that he has never been hap­pier than he has been work­ing in air­craft man­u­fac­tur­ing.

“I have been bit­ten by the OEM [air­craft man­u­fac­tur­ing in­dus­try] bug and it would sad­den me to leave that world be­cause I have found a niche where I feel ful­filled,” he said.

“My jour­ney in avi­a­tion started in the mid-90s as a con­sul­tant and ad­viser to air­lines. Then, of course, with the launch of RBS Avi­a­tion Cap­i­tal and the growth of that I be­came a banker and lessor to air­lines and now, for the last seven and a half years, I have been a man­u­fac­turer sell­ing equip­ment to the air­lines. Through­out that jour­ney, there is no doubt in my mind that the in­tel­lec­tual re­wards of be­ing an OEM are very hard to beat. It is just a very spe­cial re­la­tion­ship with the air­lines and it is very re­ward­ing be­cause we are talk­ing to air­lines con­stantly.”

Slat­tery says the busi­ness is highly com­pet­i­tive: “It is just like in box­ing. There is no prize for se­cond place. When we get into the ring we get in to win. The com­pe­ti­tion is vi­cious. We try not to make it per­sonal but we are re­spon­si­ble for tens of thou­sands of jobs. That’s why — with our sup­port — Brazil opened a panel at the World Trade Or­gan­i­sa­tion against Canada for what we be­lieve were il­le­gal sub­si­dies to [Em­braer com­peti­tor] Bom­bardier and the C-Se­ries.”

Slat­tery was very pub­lic ear­lier in the year about his crit­i­cism of the Cana­dian govern­ment’s sup­port for Bom­bardier’s C-Se­ries jet, be­liev­ing this amounted to un­fair govern­ment sub­si­dies and hit Em­braer’s own sales.

“I just want a level play­ing field. We are not ask­ing the Brazil­ian govern­ment to put eq­uity into Em­braer. We live or die on whether we are mak­ing air­craft sales prof­itably or not.”

Bom­bardier has since off­loaded the C-Se­ries project to Air­bus and Slat­tery be­lieves this marks its exit from com­mer­cial avi­a­tion. Last week Bom­bardier an­nounced al­most 500 job cuts at its Belfast plant, some­thing that did not sur­prise Slat­tery: “When you sit in the seat I sit in you have to look through the global lens. The rules of war have been de­fined by the WTO.”

He in­sists that his loy­alty in these mat­ters has to be to his 18,000 col­leagues in Brazil.

“But if I was in Shorts I would be feel­ing very upset and very bit­ter and the UK govern­ment should be feel­ing very bit­ter about that sit­u­a­tion. The view was that when the C-Se­ries was part of Bom­bardier, these com­mit­ments were be­ing made and in­vest­ments were be­ing made and jobs were be­ing se­cured for the long run and now we find a sit­u­a­tion where that is not man­i­fest­ing. As an Ir­ish­man, when I saw that head­line I felt sick to my stom­ach for those guys be­cause it’s not like this is a part of the world where it is easy to jump from such a highly spe­cialised job. So, as an Ir­ish­man, I felt sick but I wasn’t sur­prised.”

Whether or not, in time to come, Slat­tery will be re­quired to trans­fer his own skills re­mains to be seen but, right now, he is tak­ing huge pride in the E2 project. “This is the achieve­ment of my ca­reer to date. I got to work with the team to develop the busi­ness case, present it to the board, get ap­proval, develop the air­craft, get it cer­ti­fied and bring it into ser­vice. It has been a very spe­cial ex­pe­ri­ence and a huge learn­ing. I hope the fu­ture is full of chal­lenges and ex­cite­ment. What­ever it is I am up for the chal­lenge.”

‘As an Ir­ish­man, when I saw that head­line I felt sick to my stom­ach’

John Slat­tery, CEO of Em­braer Com­mer­cial Avi­a­tion, with the new Em­braer E190-E2 pas­sen­ger jet. Pic­ture by David Conachy

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