Slump in share values threatens Boeing-Embraer deal

The coronavirus crisis has seen share values in the aerospace sector tumble drastically, and a combination of cash problems at Boeing and a huge drop in Embraer’s share value has left the 2017 deal for Boeing to acquire an 80% stake in the commercial arm of the Brazilian planemaker on a knife edge.

The situation has not been helped by the fact that while Brazil’s anti-trust watchdog dismissed prosecutor’s objections to the deal, it has yet to win approval from the European Union. On Wednesday of this week, shares in Embraer fell 14%, giving it a market value in the region of US$1.3 billion, having fallen by two thirds when the Boeing deal was first announced.

However, the deal with Boeing was for the purchase of an 80% stake in Embraer’s commercial unit for US$4.2 billion and while Boeing may now look to reduce their offer, Embraer shareholders currently have little room to maneuver, while Embraer itself plans to share a US$1.6 billion special dividend with its shareholders from the transaction’s funds.

According to Reuters news agency, after allowing for taxes, the plan would place Embraer’s commercial arm led by John Slattery in a new Boeing-led venture competing with Airbus’s A220 and retaining US$1 billion of net cash for Embraer’s remaining defense and private-jet units. According to analysts, Embraer’s poor market value threatens to upend those calculations, barring an unlikely decision to forego the special dividend or saddle the old Embraer with debt.

Embraer does not appear to have a Plan B if the deal with Boeing goes south, and though the world’s third-largest planemaker is confident it could survive alone, it now faces even stiffer competition as a consequence of the Airbus-Bombardier tie up. While Embraer was keen to promote its E195-E2 in England this week, Brazil’s Azul SA, Embraer’s best customer, made it clear last week that owing to the coronavirus outbreak, it would be looking to delay certain orders for jets.

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