Boeing, Embraer Tie-Up or Takeover? Latest Updates!
This potential-deal talk between Boeing and Embraer is considered to have emerged as Boeing’s move against the Airbus-Bombardier joint venture that Boeing strongly opposed.
What could be the benefits to Boeing or Embraer from this deal?
Embraer’s stock took a hit after the news of Airbus-Bombardier deal surfaced. Thus, clearly for Embraer, this tie-up with Boeing might help it better fend off the increased competition against the Airbus-Bombardier combination that directly rivals its line of smaller commercial aircraft market segment.
Similarly, Boeing sees Airbus’ move to tie-up with Bombardier as a potential threat against its already weak foothold in smaller regional-jet market segment. For Boeing to potentially enhance its prowess in this market segment against Airbus-Bombardier combination there’s no other suitable partner than Embraer.
There’s also another argument hinting at Boeing’s interest in Embraer’s defense segment.
The US has its own sophisticated high-end fighter jets such as Lockheed Martin’s F-22 Raptor, that’s used in serious missions.
Lockheed Martin has strong foothold in high-end fighter jets and is claiming major defense contracts whereas Bowing’s F/A-18 Hornets and F-15 Eagles are struggling to some extent.
However, there’s a potential market grab at the low-end fighter jet segment.
For minor threat missions, the US Air Force also buys low-cost weapons. For one such defense contracts in 2013, Embraer along with US defense contractor Sierra Nevada had won the Pentagon contract to build 20 Super Tucano turboprop light attack fighters for $427.5 million, which is roughly the price of just one F-22 Raptor.
Thus, Boeing might see Embraer’s Super Tucano low-end fighter jets as a way to still grab a good chunk of Air Force’s spending on light attack fighter jets, while avoiding stiff completion with Lockheed martin on the higher-end.
Although, Boeing’s grab of Embraer’s defense segment seems highly unlikely, a tie-up could still potentially benefit Boeing in the long run.
How big might be the deal?
Embraer is the third largest commercial jet manufacturer in the world (by revenue), only behind Boeing and Airbus. In the civilian aircraft segment, it mainly manufacturers 70-100 seat regional jets.
Neither Boeing nor Embraer have officially disclosed any potential price for this deal. However, media reports citing ‘Dow Jones sources’ have surfaced, which claim that Boeing has informally agreed to pay $28 a share for Embraer which makes this offer roughly 30% premium to Embrarer’s mid-December share price.
What are the hurdles?
There are reports of the Brazilian government resisting against the Boeing-Embraer deal as the government reportedly does not want to hand over the sovereignty of Embraer to Boeing, as Embraer is one of the major defense manufacturers for Brazil.
The Brazilian government has ‘golden shares’ aka veto rights regarding the strategic decisions made for Embraer. Thus, Brazilian government’s approval is a must for this deal to go through.
So, a potential tie-up or takeover?
As I already mentioned, it is highly unlikely that the Brazilian government will agree to handover the control of Embraer to Boeing.
However, Boeing executives are trying to meet and assure the government regarding the sovereignty of Embraer’s defense business. One possible idea that has surfaced in the media is that Boeing might suggest creation of a separate subsidiary constituting Embrarer’s defense operations.
Thus, the most possible outcome would be a tie-up between Boeing and Embraer where Boeing might takeover the civilian aircraft segment, while creating a separate subsidiary for the defense operations, over which the Brazilian government will still have its control.
