What the Embraer-Boeing deal means for both companies

Since news first broke of talks between Embraer and Boeing in December 2017, the Brazilian company’s stock has increased by an approximate 65 percent. On July 5, however, the stock crashed by almost 15 percent – after the Embraer-Boeing deal finally materialized. The two plane manufacturers announced that they will create a third company, worth USD 4.75 billion.

While the amount was considered fair, market analysts were expecting more. Last May, Boeing took over KLX, a U.S. aerospatial equipment producer, in a USD 4.2 billion deal. That explains part of the drop in the stock value. Another reason is the fact that many points of the deal remain unclear – and financial markets detest any hint of uncertainty.

Nevertheless, the deal is advantageous for both companies. For Boeing, it’s an opportunity to enter the small and medium-sized aircraft market. Besides, it makes the U.S. planemaker stronger in its competition with Europe’s Airbus – at a moment when the duopoly in the aviation sector is also becoming threatened by Russian, Japanese, and Chinese competitors.

For Embraer, the deal brings some much-needed financial strength. Despite being internationally recognized as an innovative and extremely competent company, Embraer has historically depended on support from Brazil’s National Development...