Many experts and analysts are wondering about the future of aviation as the entire industry tries to adapt to overcome the current situation. But at Brazil’s Embraer, thoughts are more focused on the immediate future as its merger with Boeing collapses. What can, and what will, Embraer have to do to weather this storm?
With Boeing blaming Embraer’s failure to meet certain conditions and Embraer blaming Boeing’s move as a reaction to its own financial difficulties, the reasons for the merger’s failure may not become apparent for a while. But while trying to battle out the legal details of who is to blame, Embraer has to take urgent action and decide what it’s going to do next. Judging by how the deal fell apart, it’s very unlikely Boeing and Embraer will try again.
Embraer doesn’t seem to have a plan B. Several late-night board meetings have not provided any additional reassurance for Embraer employees beyond a short statement from the chief executive saying, “Our history of over 50 years is lined with many victories but also some difficult moments. All of them were overcome. And that’s exactly what we are going to do again.” But reassuring investors is critical.
So far, the manufacturer has said it has identified US$1 billion in savings for 2020 and is being forced to look at its operations. The airline needs to raise some serious cash to help it get through arguably the most challenging period in aviation history.
Over 90% of workers at the main factory in Brazil have already been furloughed. Staff were expected to work on future Boeing projects, which have now vanished with the deal. Whatever the future for Embraer is, unless it can find some support from elsewhere, it’s going to be a much smaller operation than before.
Government support and political problems
But it isn’t over just yet for Embraer. They have not yet asked for a government bailout but have said that they are open to other sources of financing. Having said that, they believe Boeing is responsible for collapsing the deal. Embraer is no doubt hoping to receive compensation after announcing that they will be pursuing legal action. However, shareholders have already come forward to say that Embraer will need government support.
While Embraer is currently in talks with several Brazilian aviation and automotive companies, they could also turn to China. According to Reuters, China were strong contenders for the A220 program and are always looking to invest and strengthen its aviation and aerospace industry. A partnership with China could be just what Embraer is looking for.
However, to make it a success, Embraer would need to go against its politicians. Brazilian government officials have repeatedly attacked China and blamed them for the virus outbreak. As the Brazilian Government has the power to veto certain strategic decisions, political problems may be ruining Embraer’s chance for funding.
A positive outlook
If Embraer can get some financing in the short term, then its regional jets may be its savior. As the virus outbreak forces international flights to come to a halt, domestic and regional routes are crucial to survival. Embraer specializes in regional jets, so refocusing on these may just see them through. So far, Embraer hasn’t had any order cancellations due to the virus outbreak.
If Embraer can get some funding, to keep it going through the virus, then they are in an excellent position to negotiate another deal. Perhaps with a Chinese company. Cost savings, investment worries, and a relatively new chief executive means it’s going to be a tough few years for Embraer.