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Brazilian regional jetmaker faces 10% not 50% tariffs

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US airlines dependent on Embraer's ( ERJ ) E175 jet

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Embraer ( ERJ ), Brazil, US carriers had all lobbied Washington

By Gabriel Araujo, David Shepardson and Lisandra Paraguassu

SAO PAULO/WASHINGTON/BRASILIA, July 31 (Reuters) -

E mbraer dodged a bullet on Wednesday when U.S.

President Donald Trump excluded aircraft from the steeper

tariffs he imposed on many Brazilian goods, sparing the

planemaker from a potential pandemic-like hit to its revenue.

Embraer ( ERJ ) and its U.S. partners had argued that the 50%

tariffs threatened by Trump earlier in July would cause

disruptions to deliveries and local businesses, and that the

Brazilian firm's jets are essential to regional flights in the

United States.

U.S. airlines privately urged the Trump administration to

exempt Brazilian aviation exports from the higher tariffs, four

airline industry officials told Reuters. Regional carriers Envoy

Air, Piedmont Airlines and Republic Airways wrote to the

Commerce Department raising concerns.

Meanwhile, Embraer ( ERJ ) CEO Francisco Gomes Neto rushed to meet

with several senior Trump administration officials. Those

included Commerce Secretary Howard Lutnick and Treasury

Secretary Scott Bessent, he told newspaper Valor Economico.

The main arguments were simple: Embraer ( ERJ ) employs thousands of

people in the U.S., and airlines in the world's largest aviation

market have no clear substitute for its E175 jetliner.

The plane is the only jet currently being produced that

meets the scope clause in labor contracts restricting planes

heavier than 86,000 pounds and with more than 76 seats from

being flown on regional routes.

Embraer ( ERJ ) has about 200 pending E175 deliveries to U.S.

carriers, including American Airlines Group ( AAL ), SkyWest ( SKYW )

, Alaska Air Group ( ALK ) and Republic. U.S. clients

also buy 70% of its executive jets.

SkyWest ( SKYW ) warned in a call with analysts last week that it was

not willing to pay a 50% tariff on new aircraft deliveries and

planned to work with Embraer ( ERJ ) and other partners to delay them

until the situation was resolved.

Alaska also said it could consider deferring deliveries.

After relief came on Wednesday, analysts labeled Embraer ( ERJ ) the

main beneficiary of Trump's exemptions, a decision that pushed

its Sao Paulo-traded shares up more than 20% from their

Wednesday lows.

"Given this news, we expect Embraer ( ERJ ) shares to reach new

all-time highs," JPMorgan said in a note to clients.

US TIES

Gomes Neto said earlier this month that if they went ahead,

the tariffs' impact on the company could be similar to that of

the COVID-19 crisis, when Embraer's ( ERJ ) revenues fell 30% and it

reduced its workforce by around 20%.

The planemaker was the biggest concern of the Brazilian

government as Trump threatened the levies. A source familiar

with the matter told Reuters ahead of this week's announcement

that government officials had asked Washington to exclude

Embraer's ( ERJ ) aircraft from the 50% tariff.

Embraer ( ERJ ) sought to convince the Trump administration that a

reprieve would also be beneficial to the United States. The

company stressed that it has roughly 3,000 employees and final

assembly lines for executive jets in the country, its No. 1

market.

A large portion of the parts Embraer ( ERJ ) uses on its aircraft

comes from the U.S., including General Electric ( GE ) engines.

The company estimated earlier this month that between this year

and 2030 it may purchase $21 billion worth of U.S. products.

Embraer ( ERJ ) in a statement on Wednesday cheered Trump's

decision, saying the move confirmed the positive impact and

strategic importance of its activities for the Brazilian and

U.S. economies.

It will, however, remain subject to the wider 10% duty

imposed on Brazilian products in April. The firm indicated that

tariff was harmful, but manageable, and has pledged to keep

advocating for a return to a zero-tariff policy.

SkyWest ( SKYW ) noted that the actual levies on the E175 would be

between a third and a half of that 10%, because of the

jetliner's U.S. components.

American Airlines ( AAL ), a major client, last week expressed

optimism that the situation would be resolved. CFO Devon May

told Reuters in an interview last week that a 50% tariff rate

did not make sense.

"I think the administration understands the importance

of Embraer ( ERJ ) to the North American carriers and to our economy, so

hopefully we get to a better spot there," he said.

"We've made sure that the administration and Embraer ( ERJ ) know

our interest," CEO Robert Isom told a call with analysts.