PARIS/SAO PAULO/SEATTLE: Brazil has upheld proposals by Boeing Co to buy the jet-making arm of Embraer, but plunging markets have raised urgent questions over the fate of the $4.2 billion deal as aviation reels from the coronavirus crisis.
Brazil’s anti-trust watchdog dismissed prosecutors’ objections to the politically sensitive deal on Wednesday.
A slump in Embraer shares and cash concerns at Boeing driven by the impact of the coronavirus on air travel dealt a blow to the deal’s fragile economics, however, compounding uncertainty caused by delays in winning European Union regulatory approval.
Shares in the world’s third-largest planemaker fell 14 per cent on Wednesday, giving it a market value of about $1.3 billion after falling by two thirds since the deal was first aired in 2018, according to Refinitiv Eikon data.
At such prices, Boeing would gain control of the commercial unit of Embraer but only after paying three times the value of the whole company, which also makes military and business jets. Boeing has offered to pay $4.2 billion in cash for 80 per cent of Embraer’s commercial unit, which builds jetliners in the 70- to 150-seat segment and competes with the Canadian-designed A220 programme recently acquired by Europe’s Airbus.
Recent trends “have increased the chances that this deal does not get done,” Canaccord Genuity analyst Ken Herbert said.
At stake is a key plank of Boeing’s strategy for expanding its engineering and industrial base just as it faces talks over $60 billion of US support for the US aerospace industry.
While Boeing could, analysts note, seek a lower price, pledges baked into the deal during months of sensitive negotiations leave Embraer’s shareholders little room for manoeuvre barring a sharp rebound. Embraer plans to pay a $1.6 billion special dividend to its shareholders out of the proceeds from the transaction. — Reuters
Oman Observer is now on the WhatsApp channel. Click here
