Boeing-Embraer partnership seen as bid to fend off rivals Potential tie-up called ‘next best thing’ to massive Airbus-Bombardier deal
A tie-up with Brazil’s Embraer SA could put aerospace giant Boeing Co. in a better position to compete with the blockbuster partnership between Airbus SE and Bombardier Inc., analysts following the aerospace industry say.
Boeing and Embraer confirmed that the two companies were engaged in talks about “a potential combination” on Thursday, adding in a joint statement that “there is no guarantee a transaction would result from these discussions.”
The conversations about a potential deal come two months after it was announced that Airbus — Boeing’s primary rival — would be acquiring a majority stake in Bombardier’s CSeries program.
That partnership was largely seen as a blow to Boeing, which is in the midst of a trade dispute with Bombardier over a CSeries sale to Delta Air Lines Ltd.
“We frankly think that Boeing is reacting to the strength of the rationale behind the AirbusBombardier deal and is aiming for the next best thing,” Credit Suisse analyst Robert Springarn wrote in a note to clients Friday.
Boeing ’s chief executive Dennis Muilenburg had brushed off the deal in October, saying that the company doesn’t plan on changing its strategic path forward.
However, with Embraer’s narrowbody E-Jet being a competitor to the CSeries, a joint-venture could improve Boeing’s ability to compete with the new AirbusBombardier partnership.
“Such a transaction could make sense, given that it would add regional jets to Boeing’s portfolio and allow it to compete in a more direct manner with Airbus-Bombardier in the small narrowbody market,” JP Morgan analyst Seth Seifman wrote in a note to clients.
“A combination would also suggest that Boeing sees potential for the small narrow-body market, which we view as a plus for both Bombardier and Embraer.”
Boeing may face resistance in the pursuit of a full takeover after Brazil’s President Michel Temer said Friday that a change of ownership was not under consideration by the government, the Financial Times said.
The Brazilian government owns a special class of golden shares in the company which secure it veto rights.
“A 100 per cent takeover is all but impossible, as the Brazilian government would almost certainly veto that option with its ‘golden share’,” Springarn wrote.
What’s more likely, according to Springarn, is a partnership where Boeing takes a majority stake in Embraer’s commercial aviation division, although he says it would be different from the Airbus-Bombardier tie-up.
“While we expect airframers to consolidate given the economic and geopolitical realities of the industry, a Boeing/Embraer tieup does not match the potential of Airbus-Bombarder, due to a less complimentary product portfolio,” Springarn wrote.
But some are not convinced that a partnership with Embraer is the best move for Boeing.
Cannaccord Genuity analyst Ken Herbert wrote in a note to clients on Friday that while the news that companies have held talks was not surprising, he views an eventual transaction as unlikely and does “not see the benefit for Boeing aside from a defensive move.”
“While we believe Boeing is feeling pressure to respond to the Airbus-Bombardier agreements and wants to accelerate its services business growth, we are not convinced Embraer is the best fit or use of capital for Boeing,” Herbert wrote.