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fox1 · Guest

Source: Airwise

Brazilian aircraft maker Embraer has suspended deliveries to US
Airways, calling the airline's request for bankruptcy protection an
event of "serious consequences" that could affect its production
targets this year and next.

But Embraer, the world's fourth-largest manufacturer of commercial
aircraft, is sticking to its goal of delivering 160 small and
mid-sized planes this year, a spokeswoman for the company said.

US Airways on Sunday filed for Chapter 11 bankruptcy protection for
a second time in two years. According to court documents filed in
the United States, it owes Embraer USD$1.47 billion for future
aircraft commitments.

"Deliveries are temporarily suspended while Embraer's negotiations
with US Airways and the main financiers continue," the spokeswoman
said.

Analysts said the filing may lead to deferrals or cancellations of
plane deliveries, but not necessarily. US Airways' first Chapter 11
filing did not affect its USD$2.1 billion order for 85 of the
70-seat 170 aircraft signed in May last year.

In a letter sent to staff on Monday, Embraer President Mauricio
Botelho described the US Airways Chapter 11 filing as "an event of
immediate and serious consequences for Embraer."

He said: "Our deliveries to US Airways, which total 22 Embraer 170
planes so far, are temporarily suspended until the new scenario is
clear. As a result, it can be expected that our production targets
for 2004 and 2005 will be affected."

The US Airways situation could not be considered an exception, he
said, noting that other airlines had yet to overcome the
industry-wide crisis that began in early 2001 and gathered momentum
with the September 11 attacks.

In a statement, US Airways said, "Embraer has been a great business
partner and we will continue to work with them."

It said it had told labor leaders it would be bad for employees if
it had to file for Chapter 11, and added, "We will adjust our
business plan accordingly, but our ability to grow is going to be
limited."

EMBRAER STOCK SUFFERS

US Airways' financial difficulties have cast a cloud over the
multibillion-dollar orders it made for planes built by Embraer and
its Canadian rival Bombardier.

Bombardier said on Sunday its total aircraft deliveries for the
current fiscal year would not be affected by US Airways' filing for
bankruptcy protection.

Luiz Caetano, an analyst at Banco Brascan, said Embraer was due to
deliver 30 planes to US Airways in 2005 and its target to deliver
170 planes next year could be affected if the US airline did not get
financing.

Adilson dos Santos, director of the union representing Embraer
employees at headquarters in the city of Sao Jose dos Campos, said
there had been little impact on the work force so far since the US
Airways bankruptcy filing.

"I have been in contact with Embraer. For now, the only measure
taken relating to workers is the end of overtime," he said.
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