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Cablegate: Sao Paulo Key Economic Developments, January 16-30, 2010

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DE RUEHSO #0084/01 0351332
ZNR UUUUU ZZH
R 041329Z FEB 10
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 0343
INFO RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHAC/AMEMBASSY ASUNCION
RUEHBO/AMEMBASSY BOGOTA
RUEHBR/AMEMBASSY BRASILIA
RUEHBU/AMEMBASSY BUENOS AIRES
RUEHCV/AMEMBASSY CARACAS
RUEHLP/AMEMBASSY LA PAZ
RUEHMN/AMEMBASSY MONTEVIDEO
RUEHPE/AMEMBASSY LIMA
RUEHRG/AMCONSUL RECIFE
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSG/AMEMBASSY SANTIAGO
RUEHSO/AMCONSUL SAO PAULO
RULSJGA/DEPT OF TRANSPORTATION WASHINGTON DC

UNCLAS SAO PAULO 000084

SIPDIS
SLUG FOR TDA AND USTR

E.O. 12958: N/A
TAGS: ECON ETRD EINV ENRG BR EAIR EIND ATRN
SUBJECT: SAO PAULO KEY ECONOMIC DEVELOPMENTS, JANUARY 16-30, 2010

REF: SAO PAULO 42; SAO PAULO 652; SAO PAULO 728

1. (SBU) SUMMARY: This cable highlights economic, energy and
science and technology developments in the Sao Paulo Consular
District for the period January 16-30, 2010, not covered by broader
reporting. Significant developments during the period include:
Embraer adjusting to slower global demand, Brazil's auto sector
expecting strong domestic growth through 2014, and public forums
begin for bullet train project. END SUMMARY.

Embraer Charts Course for Slower 2010

--------------------------------------

2. (SBU) Coming off a record number of aircraft deliveries in 2009
(ref A), Embraer faces a significantly slower 2010 as the global
demand for regional commercial aircraft, executive jets, and
military trainers remains soft. Embraer dismissed 4,000 workers in
2009 as it noticed a slowdown in new export orders, 90 percent of
its business, and is now looking at additional measures to solidify
its business as previous growth areas such as executive jets have
dwindled. Embraer has been particularly affected by the economic
slowdown in the United States which represents 43 percent of its
market. Weaker U.S demand and thinner global profit margins led
the company to slip from Brazil's second largest exporter in terms
of revenue to third place in 2009.

3. (SBU) During a January 27 visit to the company's San Jose dos
Campos manufacturing facility, Embraer Director for External
Relations Jose Serrador Neto told Econ/Pol Chief and Econoff that
the company aimed to weather 2010 without further major cuts in the
hope of aircraft demand returning in 2011. In the meantime the
company is looking for new efficiencies such as implementing
just-in-time inventory practices and aggressively seeking out new
productivity gains. For example, after hiring a Japanese
consulting firm to evaluate the company's organizational practices,
Embraer recently made adjustments to its final assembly hanger
operation that cut work time in the last step of manufacturing from
22 days to 11 days. The company is also planning to develop new
aircraft models to expand its product line. On January 30 Embraer
announced plans to develop a 122-seat version of its current top
regional jet the E-195 by 2016. The new aircraft would be the
largest ever build by the company. According to the Executive
Vice-President, Muro Kern, the main purpose is to boost Embraer's
manufacturing expertise, rather than to directly compete with
Boeing or Airbus, which lead the market segment for aircraft with
150 or more seats.

Auto Sector Likely to Continue Growing

--------------------------------------

4. (U) According to a recent study by PriceWaterhouseCoopers, if
domestic auto sales continue to grow at rates similar to those
registered over the past six years Brazil will have one car for
every 5 people by 2014, the highest rate ever, and a 31 percent
increase from the current rate (Ref B). In 2010, domestic auto
sales are expected to reach 3.4 million units, or 9.3 percent
greater than 2009. According to Jackson Schneider, President of
the National Association of Vehicle Manufacturers, the study
underscores the fact that Brazil will continue to be an attractive
market for international vehicle companies, as Brazil's middle
class continues to expand and demand new vehicles.

Public Forums Begin for Bullet Train Project

--------------------------------------------

5. (SBU) On January 27, the first of three programmed public
audiences to discuss planning for the high-velocity train (ref C)
to connect Sao Paulo and Rio de Janeiro took place in Sao Jose dos
Campos, an important high technology, aerospace and engineering
center located along the anticipated rail corridor. Two more
meetings will be held in Aparecida (SP) and in Barra Mansa (RJ) in
the next few weeks. The three cities are competing to have
stations in the USD $20 billion project as well as one planned
maintenance hub for the entire system. While the high-velocity
train program has been subject to several delays and more than 50
different potential routings have already been proposed, Sao Jose
Mayor Eduardo Cury told Econ/Pol Chief and Econoff his city was
competing hard for a station and the maintenance hub. Cury said
that S????o Jos???? dos Campos could provide the third highest number
of
passengers in Sao Paulo for the system after S????o Paulo city and
Campinas. The Mayor also expects that a station and a maintenance
hub would further reinforce Sao Jose's existing industrial network
and growing technology park.
White

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