German flag carrier, Lufthansa, has brought their last Boeing 747 out of storage from Twente Airport to be returned to…
Looking Forward: Embraer’s Uncertainty Continues Weeks After Boeing Fallout
Last month it was reported that the deal between Boeing and Embraer had fallen apart. It wasn’t a tiny agreement, but rather a huge joint venture worth over $4 billion. The venture was a strategic play by Boeing and Embraer to compete against Airbus in the small aircraft market after the European manufacturer had taken a stake in Canadian manufacturer Bombardier and began marketing its CSeries line of aircraft as the Airbus A220 family
This deal was being worked out for several years until it collapsed. Embraer had some harsh words for Boeing, accusing them of making “false claims” in order to get out of the deal in addition to saying Boeing had an unwillingness to move forward with the deal due to their financial condition and reputational problems.
Boeing, in return, said that it was Embraer that had failed to fulfill preconditions of the deal. Embraer is moving forward with arbitration proceedings to claw back tens of millions of dollars it has spent on the deal. Embraer had separated its commercial unit and had also spent $30 million on a new headquarters for the part of the company that would remain after the deal had closed.
Go Bigger or Smaller?
It’s no secret that it’s Embraer that’s going to suffer more from this than Boeing will. Embraer was banking on the Boeing venture for its future. There really isn’t much of a future for the aircraft manufacturer moving forward unless it finds another joint venture with someone or decides to expand into either larger or smaller aircraft manufacturing. Another joint venture seems unlikely given that Airbus has already sided with Bombardier, and Embraer would face extremely stiff competition in both the larger and smaller jet markets.
However, Embraer is optimistic that smaller jets might be the better way to go. Given the tremendous decline in demand and an expected slow return of commercial travel demand, smaller jets might just be the solution.
Outside of that hope, there really isn’t much in store for Embraer. It faces a huge disadvantage playing against huge global aircraft manufacturers. The acquisition deal by Boeing had been a necessary move for Embraer in the middle of lots of consolidation in the aircraft manufacturing industry. And while the Brazilian company has maintained a solid foothold on the market in the past, it will become even harder to survive as a smaller fish in a sea containing even more predators.
No Chinese Money
Originally, there was hope that Chinese investors would come to rescue the struggling manufacturer. But recently, both before and during the COVID-19 pandemic, Chinese investors have had to keep cash in their wallets rather than in their investments.
And in addition, there really hasn’t been a successful takeover of a large aviation company by the Chinese yet. Companies like HNA Group, which owns Hainan Airlines and over a dozen other carriers, have faced debt repayment and cash flow issues stemming from their airline investments. That means that conglomerates that had been sniffing around Embraer have likely become more skeptical of the potential to make money in the commercial aviation industry.
Plus, buying a foreign aircraft manufacturer would be a slap to national pride. President Xi Jinping has included aircraft manufacturing in his “Made in China 2025” plan to vault the Chinese economy into higher-value and technologically-advanced areas of competition with the U.S. and other countries. And for investors to pour Chinese money into Embraer would likely remove them the ruling party’s good graces.
The Commercial Aircraft Corporation of China, a state-owned aerospace manufacturer that is China’s first foray into the industry, has made several attempts at building commercial aircraft. But largely, that has resulted in several test aircraft that are amalgamations of stolen intellectual property and obsolete, poorly-designed tech. China buying a foreign aircraft manufacturer might signal to the rest of the world that the country is admitting it can’t build its own aircraft well, making it a step the government is unlikely to take.
But even if the Chinese showed interest in Embraer, it likely wouldn’t go very far due to the Brazilian government. Run by President Jair Bolsonaro and nationalistic party Alliance for Brazil, the government has spearheaded a very internationally-independent image. Selling one of the most well known Brazilian companies — one that also happens to be the nation’s largest defense and aerospace company — to communist-run China seems to be the antithesis of Bolsonaro’s messaging.
Embraer is at a pivotal point in its history when it comes to its commercial aviation division. The decisions it makes now as to its future will make or break it. And at the moment, if the company even has a viable path forward, it’s unknown what exactly that could be.
- Opinion: A Look at Emirates’ Skywards Loyalty Progam - October 23, 2021
- Opinion: Qatar Airways’ Privilege Club Has A Lot of Potential - October 10, 2021
- Tata Group Likely to Win Bid for Air India - October 2, 2021
On Monday, Air France's brand new Airbus A220 rolled out of the paint shop sporting a sleek, elegant look. The…
Although the economic and mobility effects of the COVID-19 pandemic were felt especially in Brazil, one of the worst-hit countries…