After Boeing and Embraer announced the end of their joint venture plans to cooperate on commercial aircraft yesterday, it was clear that Embraer felt it was wronged. Although indicating that it would seek damages, the Brazilian aircraft manufacturer was keen to partner with the American giant to sell its E2 jets as the A220 gains in popularity.
The end of the deal
Embraer claims that Boeing wrongfully terminated the joint venture agreement to get out of its financial obligations with the deal. These obligations have their origins from before the MAX crisis and current global downturn. However, Boeing says that Embraer did not meet some of the conditions leading to termination. Neither party offered more details, but Embraer is claiming for damages– most likely in the form of monetary compensation.
The E2 is not selling well
At the end of 2019, an Embraer report showed that the E2 family had not sold well. The larger E195-E2 had 165 firm orders with 47 options and seven deliveries. Meanwhile, the E190-E2 had 27 firm orders with 61 options and 11 deliveries. This left Embraer with a backlog of 192 E2 regional aircraft at the start of 2020 compared to the 185 order backlog of E175s and E190s. However, there were some orders not logged in that report– such as KLM Cityhopper's E2 jet orders. This would increase the backlog slightly.
Meanwhile, per the latest Airbus report, there were 94 A220-100s and 548 A220-300s on order. Both the E2 and A220 compete in the 100-130-seat market, which presents a significant problem for Embraer. There are over four times as many orders for A220s than E2s.
This is one reason why Embraer was looking forward to cooperating with Boeing. Boeing has more relations with existing customers and could lean on them to order E2 jets and take a slice of the profit. This would benefit Embraer greatly.
If sales do not improve, we think a major overhaul of Embraer's management team could be in the books to give the manufacturer some new visions and structures to help promote the lagging E2 sales.
Could Embraer develop a new turboprop?
Previously, Embraer and Boeing appeared to be studying a new turboprop aircraft. A new turboprop would have made a splash in the market and could replace some aging planes.
Embraer could still go ahead with the design. The manufacturer does have a history with turboprops with both the EMB 110 and EMB 120 Brasilia. However, both of those jets were designed, built, and sold in the 20th-century. A revamped version of those planes likely wouldn't sell well. Instead, Embraer would have to develop a brand new turboprop. Of course, this is easier said than done and would require a huge investment.
Nevertheless, a new endeavor like this could be the way to go if the company wants to keep itself known in the passenger aircraft market. Embraer's specialty is regional jets. Therefore, a new turboprop would add to its portfolio and support the company's place in regional jet manufacturing.
A shift to defense and private jets
Two other big arms for Embraer are defense aircraft and private business jets. If the E2 continues with flat sales and a new turboprop design proves unfeasible, then Embraer's team will likely shift its focus to its defense and private jet divisions and seek to maintain profits.
Defense contracts can be lucrative for aircraft manufacturers. A major customer for Embraer is the Brazilian Air Force. Working directly with the Brazilian government, Embraer could move forth with new defense aircraft designs with guaranteed orders from the government.
Overall
Embraer's E2 jets are not selling well, and it does not appear that sales will improve any time soon. Moving forward, Embraer has several paths it can take. But, for now, the manufacturer must secure cash flow and design a product that will see guaranteed sales and long-lasting appeal.
What do you think Embraer should do next? Let us know in the comments!