Will there be saudade if Boeing buys 51% of Embraer?

Does Dennis Muilenburg know what saudade mean?

The Boeing CEO should, or at least people around him must acquaint their boss with saudade, given that the company he leads is said to be keen to buy 51% of Brazilian aircraft maker Embraer.

Saudade is not easily translated into English, but to a Brazilian and of course, to a Portuguese, it’s a word that evokes a sense of yearning, a longing for a thing or a person.

Embraer’s employees – in São José dos Campos and around the world – are currently deep in saudade, not knowing what to expect or what will become of the company, the world’s third biggest plane-maker.

We know Boeing is after Embraer following Airbus’ 50.01% acquisition of Bombardier’s C-Series programme, the C-Series Aircraft Limited Partnership or CSALP. Apparently Airbus got it for almost nothing.

It would appear Muilenburg and his team realizes there is a significant (and potentially lucrative) market in the regional aircraft (100-130 seat) market.

It would also appear both Airbus and Boeing understand that in the near future there will likely be less orders for their A320 and B737 family of planes, respectively, judging from the backlog both manufacturers have.

That leaves the regional plane segment as the new battleground between the two giants.

“Not a must do” or till cash do us part?

Boeing and Embraer management have given vastly differing clues on how the talks are going.

Muilenburg said the deal, while desirable, is “not a must do“. Embraer CEO Paulo Cesar, on the other hand, said it would be good not just for the company but for Brazil.

Another very senior Embraer executive told us there were many aspects to the potential collaboration, not just nuts and bolts. Critically, he added, the financial figures have not been fully discussed, or even talked about in great depth.

What is a fair valuation, then? What’s Embraer E2 series worth to Boeing, for example? The military programme, it has been reported, will be kept entirely in Brazilian hands.

Various numbers have been bandied about since the talks were made public, ranging from USD3 billion to USD4 billion. That’s peanuts for Boeing. Embraer is worth a lot more than that.

The US giant anticipates total revenue of between USD96 billion and USD98 billion this year. Operating cashflow will rise to USD15 billion. And Boeing’s shares are soaring through the roof. Muilenburg’s compensation reflects that: in 2016 his total pay was USD15 million.

In São José dos Campos, Embraer employees aren’t as well paid as their Seattle counterparts. But what they lack financially, they make up in artistry and passion – check out the fantastic hand painted livery of the 190-E2 aircraft recently exhibited at the Singapore Airshow – executed by an Embraer worker named Clodoaldo Quintana.

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The bottom line is, what can a Boeing-owned Embraer do that the Airbus-Bombardier partnership can’t, or won’t? We know Embraer does very well in the US; in fact much of its revenue is derived from North America. But what about in Asia Pacific, where the markets are more complex and more challenging?

Here, in this region, we feel the Airbus CSALP venture might have the upper hand because: (a) the CS aircraft are seriously good, and appeal to many Asian airlines, (b) Airbus traditionally has a more imaginative approach to pricing its aircraft (read whatever you want into that), and (c) Bombardier has sold more airplanes in Asia than Embraer – whether those planes (turboprops and jets) made money to the airlines that bought them is another debate – but the Canadians have a pretty strong track record.

There is a chance the deal might not happen but one gets the impression Embraer’s management wants it to happen. Will Embraer be severely disadvantaged if the deal doesn’t go through?

Not necessarily. The E2 series has solid potential, provided Embraer plays its cards well and reads the market (especially in Asia) astutely. It needs to take a leaf from Brazil’s other great export – its football. Joga bonito, Embraer!

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