Boeing and Embraer Plucked From the Sky
You can count the major commercial airplane manufacturers on one hand, so when two of them said they were merging, market activity thundered in all directions.
In late 2017, Boeing offered to purchase Embraer for 4.2-billion-dollars, all-cash. Shareholders supported the move, but the European Commission stalled regulatory approval. There was lots of talk about Brussels unfairly protecting Airbus. Things got heated, and President Trump even imposed tariffs on Scotch whiskey and Italian wine.
Amid “bleeding cash,” grounded fleets, thousands of job losses, and two crash scandals, the merger has finally fallen through. Boeing backtracked on its deal to pay billions of dollars (that it no longer has) for Embraer, now only worth quarter of the quote. It’s classic merger and acquisition ethics – never let a promise interfere with a profit!
Embraer will throw the book at Boeing for not keeping to its written word, the two companies firmly rivals again. Investors suspected something like this could happen, but still sold the news and inflicted double-digit damage to both companies’ share prices. A quarter of the Invstr community believes in shorting Embraer, which is pretty rough!
The collapse is significant because more money can be made these days on smaller passenger planes than large passenger planes, and this merger would have given Boeing and Embraer a foothold in the single-aisle market.
Alas, Airbus will enjoy clear skies. It’s developing rapport with big-ticket customers like Delta and United to sell those profitable long-bodies, and looks set to emerge from the coronavirus travel crisis with raised guidance and big expectations. Look out!
