EUR 850.00 For Business Accounts Only

Morningstar | Embraer's business will be fundamentally transformed if the Boeing JV goes through.

Embraer's leading market share in regional jets, a more comprehensive lineup of business aircraft, and the KC-390 transport aircraft solidify the company's leading position in aerospace. Embraer still boasts the number-one position in the market for aircraft between 70 and 130 seats. However, the Airbus majority stake in the Bombardier CS Series program presents a challenge to Embraer's regional jets. And the lack of scope clause changes in the U.S. (the largest regional jet market) is also a concern on the horizon. Embraer has also focused on developing its defense business with support from the Brazilian government. The KC-390 aircraft is the company's flagship defense program and although the company has faced some challenges on the endeavor, we think the aircraft will ultimately be a success.In its business jet unit, Embraer has registered impressive growth thanks in part to the Phenom 300 aircraft and now has a dominant position in the lower-end segment. The introduction of midsize business jets is broadening Embraer's offerings, but it faces competition from Textron's Cessna business and a market that has only begun to rebound. Brazil’s economic woes are compounding the challenges Embraer faces from a soft business jet market, the lack of scope clause changes from U.S. mainline carriers, and the Airbus-Bombardier C Series partnership. The Brazilian real's volatility against the U.S. dollar and risks in Embraer's defense business, whose fortunes are linked to the Brazilian government, also add to an uncertain outlook. More recently, Boeing has made an offer for 80% of Embraer's regional jet business; we give the deal a 50/50 chance of closing due to the need to secure Brazilian government approval combined with concerns around the low price Boeing has offered for the assets.We continue to carry a very high uncertainty rating on the stock. We see value due to the company's strong competitive position and narrow moat, particularly in the lower end of the business jet market and in regional jets, but investors will have to stomach risks in 2018 and 2019, which may include a bumpy transition to the new E2 regional jets.