Boeing Reportedly In Talks To Acquire Embraer

We’ve seen consolidation in the airline industry, we’ve seen consolidation in the hotel industry, and now it looks like we’re seeing some consolidation in the aircraft manufacturing industry.

In October we learned that Bombardier plans to sell a majority stake in the CSeries program to Airbus. For those of you not familiar with the CSeries, it’s the super popular and attractively priced new jet from Bombardier. It’s a bit smaller than a 737, so has a unique place in the market for airlines looking for a 100-150 seat jet. Presently the CSeries program is owned by a combination of Bombardier and Investissement Québec, and when this deal goes through around the middle of next year, Airbus would own 50.01% of the C Series project, Bombardier would own 31% of the project, and Investissement Québec would own 19% of the project.

It looks like talks for this were happening for a while, though the timing of this was especially interesting, given that we had learned that Boeing had filed a complaint with the US Commerce Department, asserting that the CSeries program was being illegally subsidized by the Canadian government, so that they could essentially dump their planes in the US. The Trump administration sided with Boeing, and as a penalty proposed a duty of ~300% on US airlines buying this plane.

So Airbus taking over this project is a way for them to potentially get around these tariffs, as the plane could be produced in the US. We still don’t know for sure if that will actually happen, or what it means for the tariffs, but that’s how things are looking in general.

Obviously Airbus acquiring a majority stake in this project is huge news, as it gives them a competitive advantage over Boeing, which doesn’t produce a comparable plane.

Not surprisingly, Boeing isn’t sitting still here. According to the WSJBoeing has held talks about possibly acquiring Brazilian aircraft manufacturer Embraer, which produces similar sized jets to Bombardier. Apparently they’re now trying to see if the Brazilian government would approve such a deal, according to sources familiar with the situation. Boeing is apparently willing to pay a big premium for this, as Embraer’s stocks have shot up, and the company has a market value of 3.7 billion USD as of today.

While Boeing’s smallest new jet is the 737, which has the capacity for 150+ people, Embraer produces planes like the Embraer 195, which seats around 110 people, and is comparable to the CSeries aircraft. At this point the technology of the plane isn’t as cutting edge as the CSeries, but presumably the goal here would be for Boeing and Embraer to work together to create a real competitor to the CSeries, which they haven’t done until now. So they could do to the Embraer jets what they’ve done to 737s, with the introduction of the 737 MAX.

I’ll be very curious to see how this unfolds, especially in light of the current situation between Boeing, Bombardier, and Delta (Delta’s CEO says the airline will take delivery of the CSeries planes but won’t be paying the tariffs, so…).

What do you make of the prospect of Boeing taking over Embraer?

Comments

  1. US Commerce department already decided (yesterday) to add the 292% tariff to C Series no matter where they are built. Still has to pass the US Trade panel. Great move from Boeing .. I wonder if this whole thing was planned like this from the beginning. .. if C series can’t make a hold in the market , that leaves the Embrier the only plane with 100-150 market…

  2. No way Brazil will sell. Embraer was created as a protectionist measure and is a point of pride within the country.

  3. This undermines their whole case that the C-series was unfairly competing against their 737 because Boeing are basically admitting that they don’t have a plane to compete with the C-series; hence the takeover. They really are just digging a deeper hole.

  4. Seems unlikely Brazil would allow this, but their politicians are pretty easy to… Influence. And Boeing is pretty good at influencing. TBD.

  5. @JJJ: I think you forgot that this is Brazil.
    Mensalão, Lava Jato, etc etc.
    Boeing can give a cr*pload of money to the government and they would sell it before you could say “pindamonhangaba”.
    They don’t even need to pay that much of money, since “USA is the best”. Boeing just need to promise that they will keep jobs, invest a lot of money, and it’s done. Then one year later, they change everything and bye bye Embraer.
    This is more possible.

  6. This won’t happen, it would be against the law actually. The Air Mail Act of 1934 prohibits common ownership of airlines and aircraft manufacturers.

    General Motors (who, along with Ford, made airplanes at the time in 1934) was forced to divest Eastern Air Transport, which was renamed Eastern Air Lines.

    United Aircraft and Transport Company was broken up into three companies: Boeing, United Aircraft (today’s United Technologies) and United Airlines.

    So unless a new act of congress passes we won’t be seeing a merger anytime soon.

  7. I’m not sure I’m following @Matt If Delta wanted to buy Embraer , than it would make sense that it is against law. Unless I’m miss understanding something @Matt said.

  8. @endre

    The Department of Commerce upheld the C-Series tariff, subject to the upcoming ITC ruling as you mention. But they did not assert anything about the proposed Alabama production line. If final assembly takes place in Alabama, it’s not an imported plane, and tariffs do not apply.

  9. Now we know why Boeing went after Bombardier ; to protect Embraer their potential takeover object which is Bombardiers worldwide competitor. Announcing this just after the US decision is especially sleazy. The decision should be immediately rescinded.

  10. Well, Temer, The President announced yesterday that it will never be sold under his administration. So I doubt this will happen.

  11. @flieger

    But what’s your take on the C-300? Best plane in the sky? Rather fly a rehashed DC-9?

    The whole sleazy process of screwing Bombardier was to take control of the US regional marker.

    And since they can’t seem to design anything good enough to compete they use Trump and sleazy US Dept of Commerce clowns to restrict the competition.

    I hope this blows up in their face.

    From now on “it it’s Boeing, I ain’t going”

  12. @Flieger,

    Why do you dislike the E-Jet (or like the 717) so much? I have nothing against the 717, but the E-Jet is more comfortable (at least in JetBlue’s configuration) with no middle seats.

  13. Done deal.

    Reuters: Embraer CEO says talks with Boeing are in final stage: report.
    https://www.reuters.com/article/us-embraer-m-a-boeing/embraer-ceo-says-talks-with-boeing-are-in-final-stage-report-idUSKBN1JU2WL?il=0

    Bloomberg: Embraer Jumps on Report Brazil Allows Boeing Deal to Proceed.
    https://www.bloomberg.com/news/articles/2018-07-04/embraer-jumps-on-report-brazil-allows-boeing-deal-to-proceed?utm_source=google&utm_medium=bd&utm_campaign=Markets&cmpId=GP.Markets

    cnbc.com: UPDATE 2-Boeing to buy control of Embraer’s $4.75 bln commercial jet unit.
    https://www.cnbc.com/2018/07/05/reuters-america-update-2-boeing-to-buy-control-of-embraers-4-point-75-bln-commercial-jet-unit.html

    Small-mid size planes and a whole bunch of cheap engineering talent.

Leave a Reply

Your email address will not be published. Required fields are marked *