Rumor: Boeing wants to buy Embraer, faces military objection
Boeing wants to buy Embraer to turn it into a subsidiary but is facing objection from the Brazilian military, Reuters reported on January 19, 2018.
Boeing wants to get the green light for a tie-up with the world’s third-largest plane maker. But the deal is objected by the Brazilian military, which fears that Embraer’s ownership by an American company could affect the country’s defense programs, Reuters is told by sources familiar with the matter.
The news that Boeing and Embraer are looking for a ‘potential combination’ broke out in December 2017. Both companies confirmed the rumors on December 21, 2017. They stated that are “engaged in discussions regarding a potential combination, the basis of which remains under discussion” and noted that there is “no guarantee a transaction will result from these discussions”.
As a response to Airbus and Bombardier collaboration on CSeries, announced earlier in 2017, the talks appeared logical, although unlikely to be carried through.. For instance, Canaccord Genuity aviation analyst Ken Herbert said in a note to investors, "We are not surprised the two companies have held talks, but we view an eventual agreement as unlikely, and we do not see the benefit for Boeing aside from as a defensive move."
Herbert pointed out that while Boeing is likely feeling a pressure to accelerate its Services business growth, “we are not convinced Embraer is the best fit or use of capital for Boeing. Based on ERJ’s most current FY18 guidance, the company is looking for revenues of $5.3B-$6.0B, EBIT of $265M-$360M, and FCF of a negative ~ $150M. We do expect BA will be very active on the M&A front in 2018 and understand the company is staffed up to significantly increase its due diligence efforts”.
On October 16, 2017, Airbus announced plans to buy a majority stake in the Bombardier C Series jetliner program. The CS100 seats 100-110 and the CS300 135-145 passengers, while Airbus’ 126-seat model, the A319, hasn’t seen a sale since 2012, according to Airbus CEO Tom Enders. Boeing, on the other hand, offers the 737-700, which will be phased out with the 737-7 MAX. Poor sales of the 7 MAX prompted a redesign, adding 12 seats. Now, if Boeing / Embraer collaboration comes true, the two manufacturers would have a “leading share of the 70- to 130-seat market” thus posing a tough competition for Airbus/Bombardier.
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