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 WSJ, Boeing 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?