Embraer is that rare inspirational success story for a new entrant in the global aviation market. It was created by the Brazilian air force in 1969, nearly collapsed under state ownership, survived a painful transition to the private sector, and then conquered the regional-jet segment with the E-Jet family in the mid-2000s.
Along the way, this rare example of a globally competitive Brazilian manufacturer also transformed business aviation and took on Lockheed Martin's iron-fisted grip of the segment for tactical military transports.
The foundation of the company's success is its $3.37 billion commercial aviation business, now set to transform into a joint venture in which Boeing will take an 80% stake, after the two companies agreed the general terms of a deal. Embraer's Executive Jets and Defense & Security businesses will remain firmly under Brazilian control.
If the deal is finalised within 18 months, some may lament the loss of Embraer as an independent supplier of regional jets. But they would be wrong to do so.
In many ways, Boeing's proposed acquisition of a controlling stake in Embraer's hard-won commercial business is the best thing that has ever happened to the pride of Brazil's manufacturing industry.
The market has changed in the two decades since Embraer introduced the 50-seat ERJ-145. Consolidation has led to the rise of super-suppliers constructed to maximise leverage against Airbus and Boeing. Bombardier and Embraer both faced the prospect of negotiating with suppliers five to 10 times larger than themselves, to feed a regional and small narrowbody market that is tiny in comparison with the narrowbody operations at the big two.
Last September, Bombardier called it quits on the CSeries programme. Three months later, Embraer entered into negotiations with Boeing.
The difference between those two deals is striking. Forced to negotiate from a position of weakness, Bombardier gave away a majority stake in its flagship CSeries to Airbus after a decade of investment.
By contrast, Boeing has proposed to pay Embraer $4.75 billion for an 80% stake in the commercial aircraft division. In addition, Embraer becomes a leading candidate for engineering and structural work on existing and new programmes. It also gains access to Boeing's robust sales, marketing and services network. And the deal keeps Embraer intact to continue competing in the business aviation and defence markets. A successful outcome, it seems.
Source: FlightGlobal.com
