The ever-growing crises at Boeing need not be repeated. In fact, the dire state of affairs at the company have become so prominent that not only has the saga been dedicated its own Wikipedia page but the firm’s multiple episodes in its season of despair have since become a widespread internet meme. So, we shan’t delve into the well-trodden detail of the heavily documented problems surrounding the world’s second largest commercial plane manufacturer. But it is suffice to say that Boeing is almost certainly suffering its most testing of times in the 107 years of the company’s existence.
Between the infamous 737 MAX crashes, the small issue of doors falling off Boeing aircraft in mid-flight, as well as new probes into its 787 Dreamliner range, and not forgetting the increasingly suspicious events surrounding the untimely deaths of former employees turned whistle-blowers at the company — it is clear that confidence in the company is at rock bottom. In fact, not only has public sentiment taken a nosedive but for the last four financial years Boeing (NYSE:BA) has seen consecutive losses. Meanwhile, its biggest competitor and closest market rival Airbus (PA:AIR) have seen share-price gains over three times that of Boeing.
Despite the fact that Airbus are quite rightly taking significant market interest from Boeing it is pertinent to note that the European behemoth is now facing challenges of its own. Largely, these problems are down to its rapidly increasing success — in contrast to Boeing’s ever-growing crisis of confidence and the loss of its ability to reliably and safely produce aircraft. As a result, the Airbus order book is now looking extremely healthy, to the point of looking too healthy…
And of course, Airbus’ newest narrowbody airframe is not even a design that was developed in-house and rather one that was purchased from the now defunct commercial aircraft segment of Canadian engineering conglomerate Bombardier. The A220 (formerly C-Series) has now become Airbus’ answer to Embraer’s E-Jet line of aircraft and has given the European company a foothold into every level of the commercial aviation market — and it is now the only company in the world that can claim this feat since Boeing discontinued their 717 in 2005 and now no longer produce any aircraft for the 150~ seat segment. The A220 has undoubtedly been a huge success for Airbus but is now facing fresh uncertainty following Boeing’s $4.7bn purchase of Spirit Aerosystems (NYSE:SPR). This deal follows Boeing’s intention to take back control on a sprawling supply-chain and crack-down on quality control issues. Due to the deal Airbus arranged a separate $1 buyout arrangement to acquire the segments of Spirit’s business that are responsible for manufacturing parts of Airbus’ A220 & A350 models. And, in yet another demonstration of Airbus’ dominance over Boeing, Airbus will actually receive $535mn for their buyout of Spirit. Boeing’s acquisition of Spirit could easily be interpreted as a way for the US giant to take back control of their outsourced manufacturing line which has been under heavy scrutiny for the disastrous level of quality control that has been witnessed from their aircraft in recent years. However, now that each constituent of the famous duopoly has taken relevant segments of the company under its wing it will be a telling to show whether an independent Spirit was truly to blame for any of the problems with QC at Boeing.
Often overlooked is the third player in the world’s commercial aircraft market. A relatively small Brazilian company that is arguably the last remaining worldwide competitor to the long-standing dominant duopoly of Boeing and Airbus.
In 1969 Embraer (NYSE:ERJ) was founded by the Brazilian government with the instruction of supplying military aircraft to the country’s air force. However, over the decades it has grown to be a manufacturer capable of building aircraft for numerous segments of the aviation market. Although the company has grown to find its largest business with the luxury jet market, Embraer continues to gallantly pursue its territory in the commercial & military segments. The E-jet series, which launched in the late 1990s, became a booming success selling over 2,000 units and the range has recently been revitalised with more efficient E2 variants of the Embraer 190 & 195 which aims to keep pace with the eco-focused MAX & NEO next-gen options for Boeing and Airbus’ narrowbody offerings respectively. Now, Embraer has set its eyes on producing aircraft for the commercial air freight market with the maiden public flight of the E190-F Cargo Jet due to occur at the upcoming Farnborough International Airshow in late July 2024.
The -F series is not quite a “new” model being manufactured by the company, instead it is a development that will give airlines the option to refurbish existing E190 or E195 airframes into a freighter variant capable of carrying up to 12,300kg (E195-F). This is a significant development by the company and could perhaps see Embraer carving up the market of air freight and possibly innovating an entire new segment of the market for low-capacity air freight. Traditionally, the aviation cargo market has been dominated by aging widebody aircraft transiting on a hub-to-hub model with cargo then offloaded onto rail or lorry at a processing facility before then being sent out to another regional distribution hub before finally being delivered to a recipient at the local level. But due to the small physical footprint of the E-Jet series, they will be able to land at a much wider range of airports and therefore cargo airlines will have the ability to get cargo much closer to it’s delivery destination rather than relying on processing, reprocessing and more processing before delivery.
Narrowbody cargo freight demand has seen increasing demand particularly since the COVID-19 pandemic saw a spike in the demand of air freight and more recently global events have seen vital shipping lanes unviable for many nations following the rise of ever-growing tension in the geopolitical sphere. Embraer is also likely betting on the growth of e-commerce and for cargo capacity in smaller markets demand continuing to rise.
To me, the benefits of the small, narrowbody air freighter can be laid out as such:
Point-to-point delivery, rather than relying on a traditional hub & spoke model
Time benefits over shipping methods by sea + avoiding conflict zones
Extending the life of aged commercial E190 & E195 airframes
The Military Angle
Outside of the commercial segment, Embraer has also doubled down on it’s military efforts with the launch of their C-390 Millennium coming amid the backdrop of aforementioned global events. Already in service with the Brazilian & Portuguese Air Forces, the C-390 Millennium is Embraer’s answer to global need to replace the aging classic airlifter known as the C130. The C130 is a product of Lockheed Martin with the oldest models having been in service for over 69 years and has seen many variants, retrofits and refurbishments come along the way.
Embraer’s twin-jet C-390 shares many similarities in terms of parts & avionics with the commercial E-Jet series giving pilots the benefits of familiarity with each of the airframes. It boasts a versatility of roles from cargo lifting, air-to-air refuelling & even firefighting (among others). The C-390 will be able to support NATO standard equipment and Embraer is currently fulfilling an order for the Air Forces of both Hungary & the Netherlands (both members of NATO). The C-390 boasts several advantages over Lockheed’s newest option of the C130J, including: payload capacity, range, speed & various other technological features. This is probably due to the fact that Embraer has been able to design this airframe from the ground up rather than Lockheed’s locked-in approach of retaining as much of their 1957 product as possible to keep part, pilot & operational compatibility as high as possible.
It is also important to mention the fact that the C-390 is not the only military offering by Embraer. The EMB 314 Super Tucano is a budget-friendly attack aircraft produced by the company whilst the EMB 145-RS is a complex AWACS, Remote Sensing or Maritime Patrol offering based upon Embraer’s 145 airframe. In 2023, Embraer announced that they were joining Saab in producing the European fighter jet in Brazil for the South American nation’s air force. Quite clearly Embraer are working towards establishing a native option for every aspect of airborne warfare and they are willing to put in whatever work is needed to gain the experience they currently lack in order to obtain a full spectrum of product offerings for worldwide militaries.
Global defence spending is rapidly rising with 2024 seeing a record $2.2tn spent on defence by governments worldwide following an uncertain era of heightened geopolitical tensions. This splurge has resulted in the backlogs of traditional defence contractors becoming overwhelmed (as is happening in the commercial market of aviation) which has resulted in some nations requiring alternative quicker options to the traditional Big Five contractors or simply needing cheaper options in a world where even the largest economies in the world are spending significantly on rearmament.
BRICS, NATO & Domestic Affairs
Being a Brazilian company, Embraer sits in an interesting geopolitical position. Making up the B in the nomenclature of the economic BRICS partnership (Brazil, Russia, India, China, South Africa) Brazil naturally has a close relationship with many of the antagonists in the Western narrative. Meanwhile, Brazil is also considered a MNNA (Major Non-NATO Ally) [since 2019](http://Brazil became a Major Non-NATO Ally of the United States in July 2019.) which presents what on the surface appears to be a contradictory position in the world stage given current global affairs.
Brazilian domestic affairs are equally as mystifying with a fascinating ping-pong match of government between populism and socialism in the past decade. The Lula v Bolsonaro saga can easily be perceived (on the surface, at least) as a South American analogue for the Trump v Biden melodrama currently ongoing with Brazil’s northern neighbour as the struggle for the levers of power testing democracy in it’s very core.
These positions can only make one ponder the implications of Brazil’s domestic & geopolitical stature on Embraer…
Boeing’s Buyout Blunder
At one point in time, even Boeing recognised the stellar work that Embraer had been achieving. Prior to the COVID-19 pandemic, Boeing had initiated a framework for acquiring Embraer through a programme of joint ventures on both civil & military projects. But ultimately, in April 2020, abandoned the venture after two years of negotiations. Despite Boeing’s claims that they were exiting the deal due to a lack of confidence in Embraer’s ability to bring in future revenues it was quite clear that abandoning the deal would be one way that Boeing could offset heavy losses caused by the COVID-19 pandemic, which at the time was still in it’s early stages.
In my opinion, Boeing likely had multiple objectives in mind when they raised the prospect of acquiring Embraer through a series of joint-ventures.
Acquiring the E-Jet range as a competitor to Airbus’ A220
Investing & developing the C-390 Millenium Project as a competitor to Lockheed’s C-130
Establishing dominance of commercial & military aviation manufacturing on the Americas
Conclusion
From crop dusters to cargo lifters, Embraer is becoming a key tenant in the aviation industry but still firmly a junior to it’s much larger uncles. I believe that the company remains truly underrated by both industry and the market. But this has so-far not phased the Brazilian innovator who remain focused, humble & resilient in ongoing quest to gain a higher share of one of the toughest industries in the world.
Embraer have an edge over the duopoly in another key area both Boeing & Airbus’ order backlog is jammed until the end of the decade and Embraer still have the earliest available window with slots available from 2026.
With the 2024 Farnborough Air Show (the world’s largest) due to take place on the 22nd-26th July 2024, the resulting press releases from both airlines and indeed military air forces will provide a clear insight into the state of play for each of the “Big Three” aircraft manufacturers. One thing is for certain, my eyes will be focused firmly on the Brazilian oddity called Embraer for the foreseeable future.
NYSE:BA - 179.11 USD (MCAP: $109.95bn)
PA:AIR - 133.00 EUR (MCAP: €105.193bn) | 144.93 USD (MCAP: $114.63bn)
NYSE:ERJ - 29.91 (MCAP: $5.58bn)
Update - 25/07/2024:
Embraer have made several announcements at the ongoing 2024 Farnborough Air Show. The key ones being:
A joint order of up to 9 C-390 from Austria & Netherlands
Announcement of retrofitting E2 E-Jet series with first ever automated take-off function
An order of 6 A-29 Super Tucano multi-mission A/C to Paraguay