Airbus And Boeing - Who Will Dominate Commercial Skies?

The battle between Airbus and Boeing to reign over the commercial aerospace market is far from over. As analysts predicted this past October, Boeing (the world’s largest aircraft manufacturer and an American company) is indeed pushing to strengthen its partnership with Brazilian aircraft manufacturer Embraer. In December 2017, the two companies discussed a potential combination and many are speculating as to what this combination shall entail.

However, the potential combination is not as simple as it seems. Any transaction of this nature has political implications and would be subject to approval firstly by the Brazilian government and regulators, the two companies’ boards, and Embraer’s shareholders. The Brazilian government’s golden share in Embraer means that it has veto powers over the creation of and/or changes in military programmes involving Brazil or otherwise and change in a controlling interest in the corporation, amongst others.

Boeing has a long-standing relationship with Brazil spanning 80 years beginning with the first delivery of F4B-4 fighters in 1932. Since the 60’s, Boeing has been selling commercial aircraft to Brazilian airlines and it was a natural progression for Boeing to establish an office in São Paulo in October 2011. Boeing and Embraer’s collaboration is nothing new and in June 2012 the companies signed an agreement to work on the KC-390 aircraft programme by sharing technical knowledge and evaluating markets for medium-lift military transport opportunities. More recently in 2016, the companies collaborated in the Boeing ecoDemonstrator programme by conducting tests on an Embraer E170 aircraft to reduce environmental impact and increase aircraft efficiency and performance.

Embraer is a proudly Brazilian company and an important player in Brazil’s defence industry therefore Brazil is treading cautiously as it would be ceding significant control to a foreign company. The partnership will focus on the commercial sector only as the Brazilian defence ministry wishes for its defence programme to remain independent. In January, Brazilian Minister of Defence, Raul Jungmann, held a meeting at his office in Brasília with representatives of Boeing to discuss the company’s partnership with Embraer. Jungmann was in favour of a partnership between Boeing and Embraer, but maintained that the Brazilian company’s shareholding control is a matter of national sovereignty and will not be transferred or negotiated.

A commercial aerospace partnership with Embraer would give Boeing a broader portfolio of aircraft and a leading share of the 70 to 130+ segment, creating stiff competition for Bombardier’s C Series programme, which since last October is now backed by Boeing’s European rival Airbus. Colin Bole, Senior Vice president for commercial aircraft at Bombardier, is of the opinion that talks between Boeing and Embraer on joining forces are an acknowledgement that Boeing does not have an answer to the C Series and that there is nothing in the 737 family that properly addresses the 100 to 150-seat category. It will be interesting to see how the competition plays out in the coming months.

 

Written by Sylvia Caravotas (Satovarac Consulting) for OIDA


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