No Boeing acquisition: what the failed deal means for Embraer

Embraer needs to plan the future of its commercial passenger jet without Boeing. The US group has terminated the contract for the advanced joint venture in Brazil. Embraer must now do without Boeing’s billions and Boeing’s global sales power. What’s next for the Brazilian aircraft maker?

Embraer’s boss Francisco Gomes Neto did not say Monday (April 27) whether his company would need state aid. However, the chances are not bad because Embraer and the state are closely linked: the government is the largest military client and has a veto right over the so-called gold action. Neto said he had reserves of around $ 1 billion in 2020. It remains to be seen if this is enough to survive the crown crisis and the failed Boeing deal.

New partner is an option

The Brazilians have also announced that they will face contractual sanctions against the US aircraft maker. Lawyers and judges will have to answer this question. Meanwhile, Embraer faces the decision to reinstate the outsourced division in the group or to continue it separately. The company has already pushed Boeing Brasil’s outsourcing and readiness to IT systems.

Embraer could now search for a new partner. Brazilian President Jair Bolsonaro said: “Perhaps we will start new negotiations with a new company.” Vice President Hamilton Mourão discussed an association with China, although the Brazilian government has attacked China several times in the Corona crisis.

Interested in China?

Analysts already speculate that Chinese aircraft manufacturers like Comac or Avic could join Embraer. Potential new industry partners could particularly benefit from engineering skills. Low production costs compared to the US. USA And Europe also speak for Embraer.

However, currently there are not many in the industry that can financially support Embraer. Therefore, it is also conceivable for a financial investor from outside the sector to be involved in the manufacturer of the aircraft.

The E2 family is not yet a box office success

The national currency, Real, is at an all-time low. Therefore, a large part of the costs, such as labor costs, are cheaper compared to the competition, which should lead to discounts on the sale of aircraft. However, the new E2 family of aircraft has not been a best seller so far. At the end of 2019, Embraer had open orders for 137 of the large E195-E2, just 16 for the E190-E2, and none for the E175-E2. However, it is unclear how many customers wanted to wait for the joint venture with a purchase and how they will behave now.

Embraer’s boss Neto said the crown crisis had not yet resulted in a cancellation. Furthermore, the success of the E175-E2 depends on whether it will comply with future scoping clauses in the US. USA These are rules that all major US airlines. USA They negotiate with their pilot unions and are also about the size of planes. Whether Mitsubishi will become a serious competitor with its regional jet called Spacejet will also have an impact on sales figures.

Desire for more clients in Asia

Through the partnership with Boeing, Embraer hoped to better position its aircraft in regions that were previously weak in sales. It’s particularly about China and Southeast Asia, said John Slattery, head of Embraer Commercial and proposed head of the now-failed joint venture, in conversation with aeroTELEGRAPH in 2019. “We are not where we want to be yet,” Slattery says.

If Embraer does not find a new partner, it only faces these challenges. So Brazilians can continue to be a successful aircraft manufacturer, benefiting from the fact that the regional aircraft segment could recover faster after the Corona crisis because demand will decrease significantly. However, Embraer’s market share would remain limited and sales of an Airbus A220 would not be matched.

Embraer to build turboprops again?

Perhaps Embraer could also implement its plans to build a turbo pilot again. “I think there is great potential in the turboprop market,” Slattery said last year. The aviator technology available today is around 30 years old. He also alluded to ATR and De Havilland Canada, which currently dominate the market. However, Embraer really wanted to implement the project with its partner Boeing. It is questionable whether he could handle this alone.

Read here what the failed deal means for Boeing.