FRANKFURT—The European Commission (EC) has again stopped the clock in the ongoing investigation of the proposed commercial aircraft joint venture between Boeing and Embraer, while key airlines and lessors now favor the transaction.
“This procedure in merger investigations is activated if the parties fail to provide, in a timely fashion, important information that the Commission has requested from them,” the EC said in a statement. “Once the missing information is supplied by the parties, the clock is restarted and the deadline for the Commission’s decision is then adjusted accordingly.”
According to industry sources, Europe’s top competition authority has requested a “massive” amount of additional data and is leaving only limited time for the two parties to provide the information.
Boeing and Embraer agreed to form the Boeing Brasil-Commercial joint venture, in which the U.S. manufacturer will hold an 80% stake. Approvals from 10 anti-trust regulators are required. The two companies have received unconditional approval from eight, including the U.S., and China and Brazil have indicated they will clear the deal in January.
The EC is the only authority left to decide.
The companies had hoped to get all approvals by the end of 2019. That deadline has since shifted to the end of April 2020 and is now all but certain to move further to the right.
An in-depth investigation was launched in 2019 as the EC found that “despite Embraer’s comparatively small market share, it also seems to exert some price constraint on the market leaders Boeing and Airbus even beyond the boundaries of the lower 100-150 seats segment.”
It already stopped the clock once for a period of almost two months, requesting extensive documentation of sales campaigns over many years.
The investigation takes place in the context of severe tensions in transatlantic trade and U.S.-imposed import tariffs against Airbus. European aerospace industry sources have argued that Boeing could soon have a monopoly in the U.S., with Airbus effectively unable to deliver aircraft in the future and Embraer becoming part of the Boeing camp. Boeing and Embraer “face a political dynamic in Europe,” Avolon CEO Domhnal Slattery believes.
“The European Commission could be a little misguided on this,” Air France-KLM EVP-strategy Angus Clarke said. “I don’t see any harm in the Boeing/Embraer transaction.” To him, it is quite the opposite: “It is important to have a two-horse race and that both models are in the market. [The Boeing/Embraer joint venture] is a better proposition for us.”
Clarke believes that, much like Airbus on the A220 side, Boeing will be able to drive the supply chain cost down in the E2 program, an effort that could translate into lower acquisition costs for the airlines.
Like Air France-KLM, Lufthansa also supports EC approval of the planned joined venture, viewing it as a way to strengthen competition against Airbus, which is now able to offer a broader product range.
Lufthansa does not have any Boeing narrowbodies or Embraer E2s on order. The group’s narrowbody fleet is currently all-Airbus and also includes the A220, which is flown by subsidiary Swiss International Air Lines. Lufthansa has a major campaign for more narrowbodies and large regional jets ongoing.
“There is no reason why [the European Commission] should hold it up,” AerCap CEO Aengus Kelly said. “Boeing needs the Embraer deal.” AerCap has a large order for 50 E2s in place.
“You are handicapped if you are marketing in the same space and are not owned by one of the giants,” Air Lease Corp. president and CEO John Plueger believes. “If you want to have strong competition it is extremely important” to allow Boeing to control Embraer’s commercial aircraft business now that Airbus controls the A220. Taking over the former C Series was “a huge gamechanger,” in Plueger’s view.
Avolon’s Slattery thinks “it is an imperative for Boeing to own Embraer” to counter the “transformational” Airbus/C Series deal. Therefore, he said “it is a logical transaction for the EU to support.”
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