Boeing’s new partnership with Embraer faces an investigation by the European Commission. Boeing is looking to take majority control of Embraer’s E-Jets, however, this venture is under scrutiny even before taking off.
The US and Brazilian manufacturers were hoping to join forces to compete against Airbus’ Bombardier partnership. The three companies are the only large-scale aircraft producers in the world and, if the partnership goes through, this will bring competition down to two. Boeing plans to hold 80 percent of Embraer’s commercial stock while the South American firm maintains independence in military operations.
The partnership was formed in February earlier this year, with a deal expected to close in early 2020. However, antitrust legislation may impact the manufacturers’ proposals. Sam Chui reports that the European Commission has opened up an investigation into the project. The EU governing body has opened up the case following concerns over competition as both firms manufacture similar-sized airliners.
Boeing and Embraer both make lines of aircraft that hold between 100-150 seats. Therefore, without strong competition, the partnership can create a duopoly within this market. This could create an even tighter industry with the two companies dictating operations and prices.
Embraer has built over 1,500 units of its E-Jet family. These narrow-body airliners were first introduced in 2004 and have become popular with airlines on every continent. One of the biggest markets for the E-Jets is in the United States.
SkyWest Airlines initially ordered 100 of the aircraft type in July 2013 and have placed a further seven orders in July this year. United Airlines also placed a sizable order for Embraer’s E175 jets this summer. The carrier has made 20 firm orders with an option for a further 19 in a deal set to be worth $1.9bn.
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The newly named, Boeing Brasil-Commercial partnership would see Boeing invest $4.2 billion for trading to commence. Despite concerns, the partners claim that the operation will increase value for both airlines and passengers. With Boeing still facing huge issues following the grounding of the 737 MAX, the investment can reconcile the manufacturer’s lost revenue.
The Independent reports that the firm made a $3.4 billion loss in the second quarter of this year thanks to these groundings. This is a complete opposite of the $2.2 billion it made in profit during the same period for the previous year. Boeing has set aside $4.9 billion for compensation to airlines unable to operate its jet.
The venture with Embraer is the perfect opportunity for the aircraft powerhouse to remain in control of its financials heading into the next decade. Ultimately, the two groups will be hoping that the investigation does not drag out too long, with plans to operate from early next year.
Do you think that the Boeing and Embraer partnership will have a negative impact on the market? Let us know your thoughts on the venture in the comments.