Embraer tie-up could help Boeing in battle with Airbus
‘Aiming for the next best thing’
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 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 talks about a potential deal come two months after it was announced Air- bus — 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 Airbus-Bombardier deal and is aiming for the next best thing,” Credit Suisse analyst Robert Springarn wrote in a note Friday.
Boeing 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 Airbus-Bombar- dier 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 narrow- body market,” JPMorgan analyst Seth Seifman wrote in a note. “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 a change of ownership was not under consideration by the government, the Financial Times said. Brazil’s 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 tie-up does not match the potential of Airbus-Bombardier, due to a less complimentary product portfolio,” Springarn wrote.
Some aren’t convinced that a partnership with Embraer is the best move for Boeing.
Cannaccord Genuity analyst Ken Herbert wrote in a note Friday that while the news the firms have held talks was not surprising, he views a 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.