TAX NEWS - 2010

Embraer to sell tax-free debt to fund plant

Embraer sought tax exemption in U.S. to build plant

SAO PAULO, June 28, 2010 -- Embraer, the world's third-largest aircraft maker, plans to sell tax-free bonds to finance the construction of a $41 million plant in the United States, in a bet on a recovery in demand for executive jets, Brazilian newspaper Valor Economico said on Monday.

The Brazilian company asked the U.S. government for tax exemptions as part of a government program to stimulate industrial conglomerates and revive the economy, Valor reported. The construction of the plant was announced in 2008, when the U.S. economy slid into its deepest recession since the 1930s.

The newspaper did not elaborate on terms of the issuance or a timetable for it. Tax-free bonds, which exempt investors from federal income taxes, often pay lower coupon interest rates than other corporate bonds.

The company has been diversifying into executive aviation as a way to counter the tumble in demand for bigger, regional aircraft. The company is confident the U.S. government will back the plan, Christopher Appleton, a senior Embraer executive in the United States, told Valor.

The plant could be built in Melbourne, Florida, according to Valor. Construction costs have declined, too, because of the recession, allowing Embraer to spend the same planned budget to build a plant 25 percent bigger, Valor reported.