By Tim Hepher
SINGAPORE (Reuters) – Some of the world’s largest aircraft buyers are calling on the European Union to clarify Boeing’s collaboration with Embraer, fearing that Embraer’s commercial aviation business could cause itself problems after Airbus swallowed its main competitor in regional jets.
Airbus, Europe’s largest aircraft manufacturer, increased its majority stake in the A220 regional jet program – Embraer’s main competitor – on Thursday when Canada’s Bombardier sold the project he had set up.
The deal makes Embraer increasingly exposed despite its long history as an independent manufacturer and increases the pressure on the Brazilian company and US giant Boeing to enter into a similar collaboration, buyers and analysts said.
With its $ 4.2 billion deal, Embraer would transfer 80% of its commercial arm to Boeing. It was slowed down by an EU competition investigation, which is expected to last until the end of April.
The EU fears that the hurricane consolidation triggered by Bombardier’s decision to exit the market for losses leaves airlines with little choice and reduces the number of major suppliers from four to three, and then only two, if Embraer is swallowed ,
In an unusual twist – since buyers tend to prefer a wider choice of suppliers – airlines and lessors contacted by Reuters supported the Boeing-Embraer deal and expressed fears as to whether Embraer could offer an indefinite alternative to a jet that is now a lot larger manufacturers is supported.
“Now you have the heavyweight boxer in the ring with someone who is about seven divisions lighter – there is only one result,” said Aengus Kelly, managing director of leasing giant AerCap, the world’s largest buyer of commercial aircraft.
Kelly asked the European Commission to support the deal.
“I think it’s a must: if Embraer doesn’t, Airbus will likely conquer part of the narrowbody market that will be bad for consumers,” he said in a phone interview.
“It will simply not happen that Embraer is a viable long-term competitor who is alone against Airbus’ power.”
Embraer and Airbus had no immediate comment. Boeing declined to comment. The EU is expected to resume its Boeing-Embraer agreement investigation next week after the process has been halted while data is being awaited, a person familiar with the matter said.
“LEAVE THE FREE MARKET RULE”
While the top aircraft manufacturers have been tested by crises surrounding Boeing’s grounded 737 MAX and a bribery scandal at Airbus, their duopoly on the large jet market is intact, as large displays at this week’s Singapore Airshow show.
In the market for regional jets with 100 to 150 seats, the improved Embraer E2 family and the brand-new Bombardier CSeries, which were renamed Airbus A220, compete just below.
The financial firepower needed to develop a jet proved too high for Bombardier and accelerated matchmaking between Boeing and Embraer. This could be in the cold if it didn’t get under Boeing’s wing, analysts said.
“They would have a future, but it would be increasingly difficult to remain competitive as Airbus uses its muscles to cut costs and prices for the A220,” said Richard Aboulafia, analyst at Teal Group.
“That was always the problem for both smaller jet manufacturers: they could never reconcile costs with the two big ones because they never had the volume to negotiate aggressively with suppliers. That changes for the A220 and must for the E2 change, otherwise you would lose market share, profits, or both. “
If he worries, Embraer’s exuberant commercial aviation chief, John Slattery, did not reveal anything when he marketed the E195-E2 at the Singapore show.
He declined to comment on the impact of the EU review without saying that Embraer would work together.
However, others say uncertainty about the fate of the Boeing deal hangs a sword over the Brazilian aircraft manufacturer.
“Running a lawsuit rather than a business is distracted. Let these two adult players sort it out,” said Martin Moller, founder of the world’s largest regional aircraft rental company, Nordic Aviation Capital, which owns or manages 175 Embraers.
“Let the free market rule. My favorite plane is the right plane for the mission, ”he added.
Although the Boeing-Embraer deal would reduce the number of aircraft suppliers, the airlines say that the unique barriers to entry and the mentality of the winners in aviation mean that playing off the two competitive industry giants in negotiations can bring prices down to a level that is smaller independently Competitors cannot keep up.
“I prefer two players to really compete against each other than two and a half players who don’t,” said Antonoaldo Neves, managing director of TAP Portugal.
The price is not the only factor. Credit costs, maintenance, and performance guarantees are likely to be better under Boeing than Embraer alone can offer, Neves told Reuters.
Not everyone agrees that the deal should come about. Brazilian prosecutors on Thursday asked local regulators to rethink their approval, citing the omissions in the arguments.
(Reporting by Tim Hepher; additional reporting by Foo Yun Chee; editing by Mark Potter)