Embraer sinks to lowest since ‘09 on $4.2b Boeing breakup

Bloomberg

Embraer tumbled to the lowest since 2009 after Boeing scrapped a proposed $4.2 billion commercial-jet deal amid a severe slump in aircraft sales.
The Brazilian planemaker has already begun arbitration proceedings, according to a regulatory filing, two days after vowing to seek damages from Boeing. The US aerospace giant pulled the plug on April 25, citing unspecified issues. Last week, Embraer’s total market value fell to about a quarter of what Boeing had been poised to pay for the commercial-plane business alone.
The deal’s collapse leaves Embraer on its own to face plunging aircraft sales as the coronavirus pandemic all but erases travel demand. With airlines forecasting a slow recovery from their worst-ever crisis, Embraer must also try to jumpstart orders for its upgraded E2 aircraft against a new offering from Airbus SE.

Cut In Half
“The termination is a negative for ERJ,” Cai von Rumohr, an analyst at Cowen & Co, said in a note to clients, using the ticker symbol for Embraer’s American depositary receipts. “In addition to Covid-19 impact on ERJ’s commercial aircraft deliveries, the company must reintegrate its commercial operations with its defense and bizjet business.”
Embraer plummeted 12% to 7.31 reais on April 27 in Sao Paulo after sliding to as little as 6.91 reais for the lowest intraday price since March 2009. The shares had plunged 59% this year through April 24, comparable to the declines of Boeing and Airbus. Boeing fell less than 1% to $128.24.
“Our industry will have to address the challenges of Covid-19 and current economic conditions,” Embraer CEO Francisco Gomes Neto said on a conference call with analysts and investors. “We are now considering what would be the best strategy for our commercial aviation.”
For Latin America’s largest economy, the episode is another headache. Brazilian companies have fired employees and scrapped expansion plans to cope with the Covid-19 crisis, and the national death toll stands at more than 4,000.
Embraer has reduced salaries and hours in several plants, including at its main hub in Sao Jose dos Campos.

Chinese Interest
Embraer said it’s still working on new financial projections while assessing impact of the deal’s cancellation on cash. The company suspended its forecasts in late March as the coronavirus spread.
With a history stretching back 50 years, Embraer’s experience and engineering prowess may attract new suitors. Brazilian President Jair Bolsonaro said the government could seek other partnerships for the company, while adding that the talks with Boeing may resume, according to Estado newspaper.
China Commercial Aircraft could have interest and even propose the same terms negotiated with Boeing to reduce the execution risks, said Bradesco BBI’s Victor Mizusaki.