Embraer’s Eve will have four major business areas

Conheça a Eve, a marca de 'carros voadores' da Embraer | CNN Brasil

Eve, Embraer’s urban air mobility company, will operate in four major business areas and not only in the production and marketing of its electric vertical take-off and landing vehicle (eVTOL). On its way to being listed on the New York Stock Exchange (NYSE), it will operate in support and services, operations, and air traffic control, with the development of management software for the so-called flying cars.

“All the numbers available point to a large market. This is what attracted Embraer and led it to incubate this project in EmbraerX,” said Tuesday the Eve CEO, Andre Stein, at the Credit Suisse 2022 Latin America Investment conference.

According to the executive, this is a market of more than $750 billion by 2040, considering the urban air mobility ecosystem. For Eve, the initial conservative projections suggest potential revenue of $4.5 billion by 2030, with a 15% market share.

Launched as an independent startup in October 2020, Eve is in the process of merging with U.S.-based Zanite Acquisition, in a deal that values it at $2.4 billion. The deal was announced at the end of 2021 and is expected to close in the second quarter of 2022.

According to CFO Eduardo Couto, Eve plans to be listed at Nyse as of the second quarter. “This is a relatively new operation for Brazilian companies, mixing M&A with a traditional IPO,” he said.

Eve is joining an already listed company, which has about $237 million of cash. Another $305 million in new money will come into Eve’s cash reserves from the deal, so that after the merger the company will have raised more than $500 million to develop its project. Embraer will be the controlling shareholder, initially with an 80% stake in the company.

According to Mr. Stein, the decision to launch Eve as a company independent from Embraer will maintain the agility characteristic of startups while providing access to the resources and structure of a global leader, in this case the aircraft manufacturer. “Eve will be able to seek new partnerships very freely, and even new investors, which would not be possible as a division of Embraer,” he said.

With 17 announced partnerships and 1,735 aircraft in its order backlog, valued at $5.2 billion, Eve keeps plans to certify its eVTOL in 2025 and put it into commercial operation in 2026. The gross margin of the operation is expected to be around 25% and the EBITDA margin between 15% and 20%.

Four companies that are developing flying cars are already listed on the NYSE. But Eve’s management believes that its project is differentiated, given the size of the current order portfolio, the diversity of clients and the aeronautical knowledge of the partners, especially Embraer.

According to the executives, Eve also offers greater certification capacity, in the wake of Embraer’s accumulated experience with regulatory bodies and the close relationship between the National Civil Aviation Agency (Anac) and the FAA, the U.S. authority. According to Mr. Stein, the plan is to certify eVTOL first at Anac and then seek FAA validation. “Brazil has the potential to be one of the pioneers,” he said.

For Embraer’s Vice-President of People, ESG and Communication, Carlos Alberto Griner, electric propulsion corresponds to one of the main solutions for reducing the environmental impact of aviation — particularly in regional aviation, a market in which the Brazilian company stands out globally. “These changes will start with regional aviation. And Eve will revolutionize the market,” he says.

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Factory-gate inflation hit a record high of 28.39% in 2021

The so-called factory-gate inflation in the country, without taxes and freight, hit a record for the second consecutive year. This is what the Brazilian Institute of Geography and Statistics (IBGE) reported yesterday when announcing the Producer Price Index (IPP), the official indicator that measures price evolution in this segment.

According to the institute, the IPP fell 0.12% in December, down from 1.46% in November, favored by price drops in the mineral extraction industry, especially iron ore, in that month. However, the negative rate in the monthly evolution was not enough to prevent a record high of 28.39% in the annual IPP for 2021 – the most intense in the historical series that began in 2014, and well above 2020 (19.40%).

Several factors led to the result, according to the manager of analysis and methodology of the IBGE’s Coordination of Industry, Alexandre Brandão. Besides the appreciated dollar, he recalled, which makes imported inputs for production more expensive, raw materials commodities also became more expensive in 2021 due to a higher demand than supply. This was the case of iron ore, crude oil, chemicals, and food. All those factors in a pandemic scenario led to the disorganization of the industry’s global input chain, not yet completely fixed, observed the specialist.

When questioned about the possibility of a continued high in the indicator this year, the manager recalled that the IBGE does not make forecasts. However, he admitted that most of the reasons that led to the record high IPP in 2021 were not completely resolved at the beginning of this year. “The environment hasn’t changed much from the end of the year to here,” he acknowledged. “But we have to wait and see what will happen [with the IPP].”

When talking about the trajectory of the indicator, Mr. Brandão recalled that the IPP for the industry is formed by two indices: the transformation industry and the extractive industry. The transformation industry inflation rate was 0.63% in December, compared to 1.89% in November, while the IPP for the extractive industry was down 12.77% in December, after a retreat of 5.21% in November.

With the December performances, the factory-gate inflation for the transformation industry closed in 2021 with an increase of 29.24%, compared to a high of 18.18% in 2020. The IPP for the extractive industry, on the other hand, rose 13.83% in 2021. In 2020, the increase in the extractive industry was 45.35%.

Although both the extractive and transformation industries have contributed to the increase of the IPP in 2021, the latter had a larger impact in the formation of the spike of prices calculated by the indicator, said Mr. Brandão. He informed that the annual factory-gate inflation of the transformation industry also hit a record last year. “The prices of the transformation industry represent around 95.12% of the total indicator,” he recalled, adding that the strong weight, along with expressive high, drove the record IPP.

Among the segments that rose the most in price last year, the specialist cited oil refining and biofuels. “This segment had a price rise of 69.72% last year,” he added. The specialist commented that the area was strongly influenced by upward fluctuations in the price of a barrel of oil – which makes related derivatives more expensive, the analyst pointed out.

In practice, noted the specialist, it was not most segments, but those of greatest weight in the calculation of the IPP, which had a significant increase last year. In 2021, eight out of 24 activities of the extractive and transformation industries closed higher than the previous year. Besides oil refining, other highlights cited by Mr. Brandão were the price increases last year in food products (29.24%), other chemicals (64.09%), and metallurgy (41.79%). “The increases in these four [segments] explain most of the rise in the year [of the IPP],” he summarized.

Source: Valor International

https://valorinternational.globo.com

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Guedes confirms a moderate tax reduction is on the table

Paulo Guedes — Foto: Divulgação
Paulo Guedes — Foto: Divulgação

The Minister of Economy, Paulo Guedes, said Tuesday that the federal government is considering a moderate reduction in some taxes. Among them are those levied on diesel and the Tax on Industrialized Products (IPI). Guedes also criticized the idea of creating a stabilization fund for fuel prices.

“We are studying which taxes could be moderately reduced,” he said in a virtual event promoted by Credit Suisse.

Valor published on Tuesday that the government was evaluating to zero the IPI tax rate. At the event, Guedes was asked about the topic and the Proposed Amendment to the Constitution (PEC) of Fuels.

“It has always been part of our program that increases in tax collection would be transformed into tax simplification or reduction,” he said.

The minister pointed out that last year the collection grew by almost R$300 billion compared to 2020, of which R$100 billion were permanent gains.

“If they don’t want to make a overhaul of the Income Tax, this increase in collection will not be in the hand of a fat State,” he said.

According to Mr. Guedes, to reduce taxes, the federal government could give up, for example, 10% to 20% of the structural revenue growth. In this case, the primary deficit would grow from 0.4% of Gross Domestic Product (GDP) recorded last year to something around 0.6% to 0.7%, in his calculations.

According to the minister, the IPI reduction would serve “to benefit the industrial sector, mass consumption” and “reduce the incidence of taxes on the most fragile”. The collection on diesel is around R$ 18 billion per year.

“We could reduce this a little too,” he said.

In the case of the reduction of taxes on gasoline, Guedes was less favorable. According to him, it might not make sense to adopt a measure similar to a gasoline subsidy “if we are moving towards a green economy.”

He also said that “we are already starting to signal that we are going to reduce indirect taxes as well.

At the event, the minister was asked about the proposal to create a stabilization fund for fuel prices and sharply criticized the idea, considered by him to have little chance of success and to be expensive.

“More than 80 percent of [fuel] price stabilization funds in other countries have gone wrong,” he said. “Those that are alive cost the population a lot.”

Mr. Guedes pointed out, for example, that the first proposal on the subject indicated annual spending in the region of R$ 120 billion, “three times what the Bolsa Família was.” To him,

“It is easier to eradicate poverty than to subsidize gasoline.”

The minister also said that a possible second term of President Jair Bolsonaro (PL) would bring changes in fiscal policy. He said that the existence of so many fiscal rules is “unfortunate,” but said that now they are necessary because of the rigidity of the Budget.

“Is it necessary to have five, six, seven rules? I don’t think so,” he said. “As long as we don’t unbind, untie and deindex the Budget these rules are going to continue as containment, which is regrettable.” According to him, in a second mandate, “we would remake this logic of the Budget.”

For Mr. Guedes, the country is going through an “irreversible transition” and that “happens in many dimensions” towards a less centralized economy and with greater participation of the private sector.

(Lu Aiko Otta and Edna Simão contributed to this story)

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High long-term rates jeopardize confidence in Brazil

After three and a half years, Brazil is expected to have again a double-digit basic interest rate (Selic), after the first meeting of the Central Bank´s Monetary Policy Committee (Copom) in 2022, this Wednesday. The prevailing expectation in the market is that benchmark interest rate Selic will rise to 10.75% per year and will not stop there.

The Central Bank has been raising interest rates since March in order to contain inflation, which last year reached 10.06%, the highest rate in six years and well above the target (3.75% or 5.25%, when considering the tolerance limit). The Selic rate, which also indicates the cost of financing the federal government in the market, is set by Copom to, in the short term, contain or stimulate demand and, thus, control inflation in accordance with the target established for each year.

At this moment, amid uncertainty about how far the interest rate hikes promoted by Copom will go, there is growing concern in the market about the behavior of long-term interest rates, which roughly reflect the confidence of economic agents and investors in the capacity of the National Treasury to pay the public debt. Long-term rates traded on the stock exchange on interest contracts maturing in three years or more are above 11% per year.

These rates punish the lives of families and companies much more lastingly, since they make long-term credit more expensive, as if there were a bet that, even after the monetary tightening in force, the interest rate will remain high for many years.

In practice, this movement has an even more harmful effect on the economy than the monetary tightening itself, which is already a source of concern for economists. The rise in the Selic has as a consequence a cooling of consumption, either because credit becomes more expensive, or because it creates a stimulus to savings. It also leads investors to migrate to fixed income, which explains part of the fall in share prices in the second half of last year.

Higher long-term rates amplify this contractionary effect and can make it more lasting and widespread. Future rates make financing lines for infrastructure projects more expensive, whose term is also longer, even generating supply risks ahead. This long interest rate, which indicates some kind of distortion and a lot of uncertainty about the future of the economy, can even alienate investors and make projects with extended horizons unfeasible.

At the same time, those fees can bring down the value of companies, as the valuation is calculated taking into account the long fees. “The discount rate was higher, which means that the value projected for companies becomes lower when it is brought to present value,” defines Igor Lima, partner and manager at Trafalgar.

Fernando Honorato — Foto: Ana Paula Paiva/Valor
Fernando Honorato — Foto: Ana Paula Paiva/Valor

For Bradesco’s chief economist, Fernando Honorato, what explains this pressure on long-term interest rates is the fiscal risk, which has grown again in recent months. He recalls that a series of improvements in the fiscal framework, carried out from 2016 onwards, allowed the forward interest rate curve to undergo an adjustment and reflect more clearly the conditions of the economy. In addition to the spending cap, the change in the dynamics of the credit market, with the reduction in the supply of lines subsidized by public banks, and the creation of the Long-Term Rate (TLP) contributed to this adjustment.

For him, it is this risk that explains the real interest projected by long-term NTN-Bs, which today is around 5.6%, much higher than what was seen before the pandemic, of 3.5%. “I consider the increase in the premium of longer fees to the changes that have taken place in the spending cap,” he says.

The effects of the long-term interest rate and the tighter financial conditions create a “very negative” scenario for economic activity, warns the chief economist of ASA Investments, Gustavo Ribeiro, who projects a retraction of 0.5% in the GDP this year.

Another aspect to be noted is the cost of public debt, which is at the center of the debate and is a major source of uncertainty for investors. At this point, observes Sérgio Goldenstein, chief strategist at brokerage Renascença, the Selic has a more direct impact on the debt stock. Also, the 36.8% slice of post-fixed securities (R$2.1 trillion), the amount of R$1 trillion in repo operations is adjusted by the Selic. The effect of the long-term interest rate will be felt, therefore, in the rolling over of the public debt.

This year, the total domestic securities debt due is R$1.16 trillion and, if the current pattern is maintained, around 40% of this volume will be made through prefixed securities or NTN-B, but at higher rates than in the last three years. “The market has a limited capacity to absorb fixed-rate risk and the investor appetite has been limited by the dynamics of the curve,” says Mr. Goldenstein. “And for the curve to ‘close’, political and fiscal uncertainties have to diminish and the disinflation process needs to consolidate.”

Mr. Ribeiro, with ASA Investments, also notes that, in addition to domestic issues, the country must also deal with external factors, at a time when the future of monetary policy in the United States is being debated. The strong speech adopted by the Federal Reserve since the beginning of the year has promoted a rise in global interest rates, especially in developed markets, which supports the prospect of a higher neutral interest rate.

“We have had a major inflection in global assets, with the Fed pricing in interest rate hikes since the turn of the year. We have seen more hawkish signals from the Fed and is highly possible that an interest rate hike does not happen in March. In addition, the earnings reports reduction will also start earlier, generating a significant change in market pricing,” says Mr. Ribeiro. For him, the scenario became “less positive rather quickly” and affects not only Brazil but several countries.

The chief economist of Truxt Investimentos, Arthur Carvalho, also evaluates the repricing of the U.S. monetary policy as an additional factor of pressure on assets in emerging markets. For him, however, “given the size of the movement of the American real interest rate of ten years, which went from -1.1% to -0.6%, I think that the Brazilian long-term interest rate reacted lightly”.

Source: Valor International

https://valorinternational.globo.com

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Household consumption intention rises 1.1% in January

Improvement in informal work led to increase; 47.2% expect to consume less

01/02/2022

Consumption grows, but inflation worries — Foto: Marcello Casal Jr./Agência Brasil

Consumption grows, but inflation worries

After two months of decline, the Household Consumption Intention (ICF) indicator of the National Confederation of Commerce of Goods, Services and Tourism (CNC) rose 1.1% in January compared to December, to 76.2 points, and reached the highest level since May 2020 (81.7 points).

In practice, income from work supported consumption at the beginning of 2022, as well as the emergency aid, amid an environment of still pressured inflation, said CNC economist Catarina Carneiro Silva. For her, the indicator may continue to rise, even in the midst of the challenging inflation scenario.

Ms. Silva recalled that there were signs of improvement in job openings, at the beginning of the year and at the end of 2021, in the informal market. This improvement allowed the consumer to sustain consumption at the beginning of 2022, which led to an increase in the index.

According to Ms. Silva, the majority of respondents (47.2%) expect to consume less in the coming months. But this share was below that observed in December (48.3%) and lower than the share seen in January 2021 (55.4%).

Source: Valor International

https://valorinternational.globo.com

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Telecoms regulator approves Oi’s mobile sale to rivals Vivo, TIM, Claro

Deal closed for R$ 16.5 billion will have conditions and depends on antitrust watchdog Cade

01/02/2022

The board of directors of the Brazilian Telecommunications Regulatory Agency (Anatel) approved unanimously on Monday the purchase of Oi’s mobile services operation by the consortium formed by telecoms Vivo, TIM and Claro. The agency established conditions for the transaction, such as compliance with the General Plan of Universalization Goals (PGMU) and ending, in 18 months, with overlapping frequencies. The asset was sold in a judicial auction for R$16.5 billion.

Oi stated, in a material fact notice, that the sale of these assets represents an important step in the amendment to the company’s judicial recovery plan.

According to the company, the effective conclusion of the transaction is subject to the fulfillment of certain conditions established by Anatel and still needs to be approved by antitrust regulator CADE.

Emmanoel Campelo — Foto: Divulgação/Anatel

Emmanoel Campelo — Foto: Divulgação/Anatel

The trial of the case had started last Friday with the reading of the opinion of rappourter Emmanoel Campelo, but the voting did not start because colleague Vicente Aquino requested more time to study the matter.

On Monday, the request for prior consent of the transaction was approved with the vote of Mr. Aquino, who presented only some wording adjustments and additions to the conditions and determinations (competition remedies) proposed by Mr. Campelo. The adjustments were accepted by the rapporteur himself and the directors Carlos Baigorri and Moisés Moreira.

One of the changes is related to the guarantee of compliance with the General Plan for Universalization Goals (PGMU IV, 2018), which is now assumed by the three purchasing operators.

Mr. Aquino said that, with the suggested wording adjustment, it will be possible to guarantee the offer of “internet connection with 4G technology, or higher, via industrial exploitation and wireless access arrangement” in the locations covered by the plan until the end of the fixed telephony concession (STFC) term.

The problem, according to him, is in the reference to the obligations of OI S/A, which is the concessionaire of (STFC) and responsible for the PGMU IV. With the concern of protecting small providers, Mr. Aquino recommended that the maintenance of the wholesale product offers, through a national roaming agreement, be submitted by the three Oi competitors to Anatel´s Superintendence of Competition. The idea came from the technical area, was presented by Mr. Campelo and, on Monday, it was approved after undergoing adjustments suggested by a colleague on the board.

“I consider this determination commendable. National roaming is extremely important for regional providers and for new entrants who do not yet have their own networks across the country,” said Mr. Aquino. According to him, this allows customers of small providers, who have just entered the mobile telephony market, to make calls when leaving their State of origin.

Mr. Aquino also defended “isonomic and non-discriminatory” treatment should be applied to the modality of mobile virtual network operator (MVNO) – which is the offer of mobile telephony by those who do not own the network, but “rent” the infrastructure of a large operator.

On Friday, Campelo demanded that the three telecom companies present a communication plan aimed at Oi’s customer base that will be absorbed after the transaction. According to the counselor, the communication plan for users will ensure the broad right to portability and prohibits automatic migration and imposition of contractual burden but does not rule out the possibility of additional measures by Anatel, and will be monitored by the agency’s Superintendence of Consumer Monitoring, with support from the National Consumer Defense System, of the Ministry of Justice.

The Neo Association, which brings together internet and pay-TV providers, such as Brisanet, Algar, and Sercomtel, reported that “it was already waiting for approval and that the biggest battle will be at CADE.”

According to Neo, although any interested party in the process can still file an appeal for annulment of the decision at the agency, the association will now focus on actions for CADE to adopt stricter measures to ensure competition in the sector. The smaller providers believe they will be harmed by Oi Móvel’ sale.

Ademir Pereira, a partner at Del Chiaro Law Firm and Neo’s representative at CADE, considered the conditions “insufficient”. Neo defends the alienation of part of the operator’s assets, which could be done with regional spectrum slicing.

The president of Copel/Sercomtel, Wendel Oliveira, regrets Anatel’s decision. “I see it with concern, there is a problem with competitiveness, which will certainly be affected,” he said.

The president of the Federation of Call Centers, Telecommunications and IT Network Infrastructure Installation and Maintenance (Feninfra), Vivien Suruagy, said that the entity was satisfied with the approval of the transaction and that this is important to preserve Oi and maintain jobs.

Source: Valor International

https://valorinternational.globo.com
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Government revives discussion on end of Industrialized Products Tax

Measure could work as a counterpoint to salary readjustments in the states and to contain inflation

02/01/2022

Part of the Economy minister Paulo Guedes’ agenda, the elimination of the Industrialized Products Tax (IPI) on all products, except cigarettes and alcoholic drinks, returned to the discussions of the economic team. This time, it came to be examined as a potential counterpoint to the plans of some governors to grant salary hikes to the civil service and also as a measure to help contain inflation.

According to a person close to Mr. Guedes, this would be a structural reduction in prices in general. Possibly, adds this source, it would have a more lasting effect on inflation than a cut in fuel taxes, easily outweighed by a rise in the price of barrel of oil or an appreciated dollar against the real. For people close to the economic area, however, the opinion of president Jair Bolsonaro on this alternative is not yet clear.

The discussion takes place amid Bolsonaro’s signal that he will send a proposal for a constitutional amendment (PEC) to Congress that allows for the reduction of federal and state taxes levied on fuel and energy. The idea, however, already faces resistance from governors and depends on congressional approval.

IPI is not levied on these items. It is charged on industrialized products, from automobiles to food. In addition, it would be reduced by decree. It would not depend on approval by the Legislature, nor would there be any risk of the proposal being modified and receiving additions that are foreign to its objective, turning into a “Christmas tree” bill.

A reduction of the IPI would affect the plans of governors and mayors to increase spending because 50% of the income from this tax and from the Income Tax are transferred to states and municipalities through Participation Funds. In January alone, the transfers came close to R$19 billion.

In the opinion of a person close to Mr. Guedes, cutting part of this revenue would be a signal for the governors to hold back salary increases. The minister has warned about this, although the president himself has promised readjustments to civil servants in the area of public security, his electoral base, and to raise the salary floor for teachers.

Unlike the elimination of taxes on fuel, a general cut in the IPI would not go against the requirement of the Fiscal Responsibility Law (LRF) of adopting measures to compensate for the loss of revenue, says the economic area source.

This interpretation is confirmed by the Senate analyst and specialist in public accounts Leonardo Ribeiro. “The rule in Article 14 [of the LRF] does not require compensation if the reduction in rates is of a general nature, without differential treatment,” he said.

The effect on prices, however, is uncertain, warns Juliana Damasceno, economist with Tendências and researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). This is because there is no way to assure that the cut in the IPI will be passed on to the consumer.

In the economist’s view, companies may not reduce their prices because they understand that a tax cut at a critical moment in public accounts is not sustainable and will turn into a new high in taxes in the future.

Speaking about fuel, specifically, she said that the prices charged today by Petrobras are already out of step with the international prices. Even so, there is enormous pressure on prices. “The source of the problem is not being attacked,” she said. Reducing taxes, as the president wants, will have little effect on fuel prices, given the way they are defined.

The reduction of fuel taxes, if it happens, will be restricted to the federal sphere, commented the chief economist at MB Associados, Sergio Vale. States will hardly reduce sales tax ICMS.

Source: Valor International

https://valorinternational.globo.com

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