In November 2017, United Airlines made headlines when it celebrated the final flight of its last Boeing 747 by making it a public relations event. The special flight from San Francisco to Honolulu was sold out hours after it was announced. United treated customers to a pre-launch party, on-board festivities and a few special loops around picturesque San Francisco Bay.
The Boeing 747 was launched in 1970 and is the aeronautical equivalent of a 1970 Cadillac Coup Deville, extremely spacious and powerful. Air travel in 1970 still had an aura of glamor. The 747’s size and use of space literally exuded largesse, especially for those in business or first class.
At the same time, the size was a nod to efficiency in the context of the era. The 747 simply had a lot of seats, from 416 in a three-class configuration, and up to 660 in a one-class economy configuration. Big planes like the 747 helped to make air travel, particularly international travel, more affordable for ordinary consumers.
In the past months, while United Airlines has been busy celebrating the end of the line for its last Boeing 747, Boeing itself has been engaged in some contentious battles concerning expanding its product line into the smaller, more efficient jets currently demanded by the market
The two most highly regarded manufacturers in this market are Bombardier of Canada, and Embraer of Brazil.
Earlier this year, Boeing complained to the Department of Commerce (DOC) that Bombardier received inappropriate financial aid from the Canadian government in winning a coveted order of 125 medium-sized jet airliners from Delta Airlines. The DOC agreed that the government assistance that Bombardier received was in contravention of the North American Free Trade Agreement (NAFTA). As a result, the DOC imposed a 220 percent import tax on this proposed purchase by Delta from Bombardier.
However, Boeing’s aggressive action against Bombardier backfired almost immediately. A few short weeks later, Boeing’s archrival, European giant Airbus, announced it was acquiring a majority stake in Bombardier’s prized “C Series” jet product line. Furthermore, the European-Canadian joint venture stated that many of the planes would be manufactured in Alabama, thereby taking NAFTA issues off the table in the US.
Bombardier’s C Series is the new new thing in commercial passenger airliners. It is a family of narrow-body, twin-engine, medium-range jet airliners with a seating capacity of up to 133. It entered service in 2016 and was very positively received by pilots and passengers. In addition, it is relatively fuel-efficient with an average cost savings of about 25% over comparable planes. And, so far, it is regarded as very well made, achieving top industry reliability scores.
Having unexpectedly watched Bombardier embraced by its arch-rival Airbus, Boeing announced on December 21 that it was in takeover discussion with Embraer, which has been making highly-regarded medium sized airliners since the mid-1990’s.
Embraer’s E-Series encompasses several models, with seating capacities ranging from 66 to 124. Over 1,400 have been delivered to date and Embraer enjoys a significant order backlog.
Embraer’s new version of the E-Series, the E2, has been in the works since 2013 and is scheduled to come on line in 2018. It is designed to compete directly with the Bombardier C Series.
At this point, however, it seems unlikely that Boeing will be able to acquire Embraer outright. By law, the Brazilian government has a veto power (referred to colloquially as a ‘golden share’) over any change in control of the company.
Last week, Brazilian President Michel Temer stated plainly he was not in favor of a change of control in Embraer, but that he was not opposed to Embraer and Boeing working together. Embraer is not only a justifiable source of national pride in Brazil, it is a significant employer and integral part of Brazil’s national defense infrastructure.
It is important to note that Bombardier’s stature in Quebec (and Canada) is akin to Embraer’s in Brazil. And Airbus is not taking over Bombardier. Rather, Airbus is going to own a 50.1% in a joint venture that encompasses Bombardier’s C Series.
It does seem likely that Boeing will be able to craft a similar deal with Embraer that will give it meaningful ownership rights to the Embraer E2 jets and allow it to compete quickly and effectively against the Airbus-Bombardier C Series.