Boeing/Embraer Talks Leave Open Questions on Bizjets

A potential tie-up between the Boeing Company and Embraer could provide benefits to the Brazilian manufacturer’s business jet and military lines, but whether they would be included in any teaming agreement remains in question, analysts said.

The Boeing Company and Embraer last week confirmed they are engaged in talks over some sort of combination, but stressed “there is no guarantee a transaction will result from these discussions.”

Boeing/Embraer talks do not come as a surprise, given the looming alliance of rivals Airbus and Bombardier on the C Series. A pairing of Boeing and Embraer would enable Boeing to go head-to-head with the C Series. Noting a lack of overlap between the current Boeing and Embraer lineup, Teal Group’s Richard Aboulafia said a “joint venture would offer upside to Boeing’s current businesses. The [Embraer] E-175/190/195 family would be a terrific complement to Boeing’s large jetliners.”

Embraer’s business jets and military aircraft may also be of interest to Boeing, Aboulafia said, adding, “Boeing’s global sales, marketing, and support presence, and of course its aggressive supply-chain management methods, would be very useful to Embraer and these products.”

With Embraer completing work on the KC-390, E-2 jetliners, and Legacy 450/500 business jets, the company has “a lot of experienced, relatively low-cost engineers looking for something to do. And Embraer has no clear path for new product development,” he also added.

But Embraer’s product lines are a lower-margin business than any of Boeing’s jetliner products, Aboulafia said. “Embraer builds great business jets, but it entered the market during a very tough decade and has had to discount heavily to capture any kind of market share,” he noted.

Rolland Vincent, president of Rolland Vincent Associates, questioned whether Boeing would have interest in the Brazilian airframer's Executive Jets division given its lower-volume production and asked, “Could the…division somehow be excluded from the deal, or find itself in an alignment with Gulfstream?”