Here’s what it would take for Embraer to break the Boeing-Airbus duopoly
The crisis engulfing Boeing is showing no signs of abating.
Just this week, the US planemaker has faced fresh whistleblower allegations, renewed regulatory pressure after yet another flight incident and fallen further behind Airbus in deliveries.
Shares are down over 30 per cent since the turn of the year, while Airbus’s shares are up nearly 16 per cent.
Comparisons between the two have always been thrown around given the Airbus-Boeing duopoly’s decades-old existence.
However, given the current crisis, analysts have begun speculating whether it could finally be broken. Waiting in the wings is Embraer.
“I think a lot of eyes are turning to Embraer because they’re highly competent. They just need to find a way to scale up,” veteran aerospace analyst Richard Aboulafia told Morning Wire in an interview last month.
Based in Brazil’s São José dos Campos, Embraer is currently the world’s third-largest aeroplane manufacturer. However, it has only a seven per cent market share of the in-service passenger and freighter markets, compared with Boeing’s 39.5 per cent, according to the IBA consultancy.
Shares have soared nearly 50 per cent since the crisis at Boeing began though, boosted by a booming $18.7bn order backlog, which has reached its highest level in six years.
“Given all the current trends, Boeing’s mismanagement and market needs, Embraer can get there with the right strategy and the right leadership…. The first step is to challenge part or all of the 737,” Aboulafia said in March.
Could Embraer build a challenger jet?
The single-aisle 737 is Boeing’s staple, bestselling craft. But the most recent generation, the 737 Max, has been subject to fierce scrutiny following a string of major incidents. It has also been subject to the same production issues affecting the rest of the company’s assembly line.
“Even in the current dynamic where Boeing is facing multiple manufacturing challenges across its entire commercial aircraft range, I believe it would be very difficult for Embraer to challenge Boeing with a new single-aisle,” Rob Morris, global head of the consultancy Cirium, told Morning Wire
Indeed, the last challenger to the duopoly, Bombardier, ultimately bankrupted itself trying to compete with its CSeries and its new programme was acquired by Airbus and rebranded as the A220.
“There are a couple of key reasons why Bombardier failed, and I believe Embraer would face the same challenges,” Morris said.
“There are a couple of key reasons why Bombardier failed, and I believe Embraer would face the same challenges.”
Rob Morris, global head of the consultancy Cirium
“The first is the cost of developing a clean sheet commercial aircraft with effective new technology and to convince customers to convert from their incumbent OEM – Boeing or Airbus – to Embraer.
“Boeing is weakened today but Embraer would likely have to spend in excess of $5bn to develop such an aircraft, funding this will be very challenging.”
Mike Yeomans, director of valuations and consulting at IBA, agreed. He told Morning Wire Embraer’s product line-up, which includes the E2 family, could not currently “compete directly with Boeing in all markets.”
Boeing has widebody families in the 767, 787 and 777, whilst Embraer does not, he noted. “So to overtake Boeing, Embraer would need to design, launch, certify and deliver multiple all-new narrowbody and widebody aircraft programs.”
Yeomans, Aboulafia and Morris all agree if it were to happen, it would take decades at least.
Would airlines bite?
According to Cirium data, there are 347 airlines operating globally with Airbus jets, 341 with Boeing jets and only 117 with Embraer jets.
Airlines are apoplectic with Boeing and its biggest customer United Airlines has sought to up its orders from Airbus. However, it would be a huge mountain to climb for Embraer to truly make a dent in Boeing’s customer base.
“Embraer’s customer base is primarily regional airlines who would not naturally be customers for a 150-240 seat single-aisle family,” Morris said, leaving the Brazilian planemaker’s challenger jet in a tight spot.
Embraer is also facing the same supply chain issues plaguing the entire sector. Chief executive Francisco Gomes Neto said in March the snarl-ups would hit deliveries in 2024.
“We are already seeing some delays at the beginning of the year that are bringing some challenges in our production flow.”
Even now, Boeing has time.