Embraer: Learning To Thrive On Its Own

Aug. 19, 2020 2:57 AM ETEmbraer S.A. (ERJ)BA1 Comment

Summary

  • After failing to close the deal with Boeing, Embraer needs to once again learn how to thrive on its own.
  • It will take a long time until the company could once again reward its shareholders.
  • With negative margins and an uncertain future ahead, Embraer stock has a high chance of continuing to trade at distressed levels for a while.

For more than a year, Embraer (NYSE:ERJ) was preparing to participate in the upcoming civil aviation joint venture project along with Boeing (BA). However, after Boeing decided to terminate the project, Embraer once again needs to learn how to thrive on its own. The termination of the deal came at the worst time possible, as the Brazilian aircraft manufacturer has been severely hit by the pandemic and its share price crumbled. The recent earnings report showed that Embraer doesn’t operate at its full capacity, as the number of its plane deliveries declined in comparison to last year. Nevertheless, the airline has enough liquidity to survive this crisis, but its recovery to its pre-COVID-19 profitability levels will take years. With negative margins and an uncertain future ahead, the company decided to suspend its guidance, while the stock has a high chance of continuing to trade at distressed levels for a while.

Limited Upside

As we mentioned in our latest article on the company, Embraer spent a lot of time preparing for the implementation of the Master Transaction Agreement (MTA), which eventually should’ve led to the creation of a joint venture project with Boeing, which was valued at $5.26 billion. Embraer itself was expecting to receive around $3 billion in net proceeds that it could’ve used for dividends and buybacks. At the same time, it could’ve leveraged Boeing’s global reach to quickly expand and enter new markets. Since the deal is terminated now, Embraer has no other choice but to learn how to thrive on its own once again. In early June, the company said that it views Indian and Chinese companies as possible new partners for upcoming civil aviation projects. However, after that statement was made, no new news about the possible partnership has surfaced to this day.

Currently, Embraer works on

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