Embraer Facing Historical Crisis Without a Contingency Plan

Brazil based plane maker Embraer SA (EMBR3) is facing its toughest times in the history of its existence. Coronavirus pandemic has greatly affected airline industries globally, however Embraer is feeling the heat of the pandemic without a plan B.

Before global outbreak of the pandemic U.S based Boeing Co (BA) had offered Embraer a commercial aerospace tie-up deal amounting to $4.2 billion, unfortunately, Embraer turned down the offer.

Chief executive of Embraer, Francisco Gomes Neto, summoned a meeting to inform the company’s 20,000 employees about the tough times the company is plunged into.

“Our history is full of difficult moments, and we have overcome all of them,” said Neto.

Neto has only served the company for one year, his appointed to the position was met with a public uproar since he possessed little experience in the airline industry prior his appointment.

In recent years, Embraer has been isolating itself from partnerships with interested parties, two year ago the company cut off existing ties with Europe based Airbus SE (AIR). Thereafter, Airbus replaced Embraer in the partnership with Canadian based A220 which is also main rival of Embraer.

Senior analyst and Teal Group consultant Richard Aboulafia, believes Embraer is in between a rock and a hard place and the pandemic could leave the company with significant damages one which will take time to reverse.

For Embraer, it could be very damaging. It’s hard to pressure your suppliers when the volume you’re offering is a fraction of your competition’s,” said Aboulafia.

The airline assures its investors of having a relatively strong liquidity, in addition Embraer claims it will cut cost as one way of reducing losses during these hard times.

When asked if Boeing’s deal can be the ultimate savior considering current situation on ground, Embraer ruled out any possibility of striking any deal with Boeing. Nonetheless, the company said its open to any bailout from the government or even extra capital injections by investors.

According to an investor in the company, Aurelio Valporto, Embraer will need a lot of government support if it will be able to fully recover from damages inflicted by coronavirus pandemic.

Leave a comment