Boeing agree deal with Embraer
Trade is a hot topic at the minute, with the United States President turning the wick up on a global trade war that has many industries concerned. Long before this growing popularity of international tariffs was a trade dispute between two of the largest airplane manufacturers, Boeing and Airbus, which looked set to leave at least one of them out of pocket.
The dispute had surrounded the smaller commercial aircraft industry, a market both Airbus and Boeing had little interest in competing in. Brazilian manufacturer Embraer and Canadian manufacturer Bombardier both fought head-to-head to service routes requiring aircraft with a capacity of less than 150 seats. This equilibrium was then disturbed by Bombardier announcing the launch of the new C-Class of aircraft, which had capacity similar to some of Boeings smaller aircraft. As you could imagine this didn’t sit well with Boeing, who lodged a complaint with the International Trade Commission stating the Canadian Government had given the brand too much of a competitive edge through financial breaks. Their aircraft could undercut Boeing’s 737 Max aircraft making it very difficult to compete.
The commission sided with Boeing and imposed a 300% price tariff on each aircraft imported into the US. Despite Bombardier’s attempts to overturn the decision, the tariffs remained giving them a difficult route to market. Then in a surprise move, Airbus stepped into the dispute, buying a significant stake in the C-Class program giving Bombardier a way around the issues of supply into the United States.
This deal sent Boeing shopping for a new small aircraft partner, with the obvious choice being Bombardier's main competitor Embraer. Following a long period of talks Boeing has now agreed a deal that will give it control of Embraer's commercial jet business, valuing its operations at US $4.75bn.
Dennis Muilenburg, Boeing chief executive, said: "By forging this strategic partnership, we will be ideally positioned to generate significant value for both companies' customers, employees and shareholders - and for Brazil and the US."
The deal is likely to be completed by the end of 2019, pending all the necessary approvals and will restore parity between Boeing and Airbus. Both manufacturers have ensured that neither can pull ahead in the market, and given the size of both manufactures future orders it seems very unlikely anyone will be able to dislodge air travels ultimate duopoly.