Airlines are about to lose another planemaker

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BY THE standards of Brazil’s justice system, the courts moved at supersonic speed. On December 19th a federal judge issued an injunction freezing a planned joint venture between Boeing, a giant American planemaker, and Embraer, a small Brazilian manufacturer of regional jets. Three days later an appeals court struck down the order (the second attempt by the same judge and petitioning lawyer to block the deal). More challenges may loom—and in the view of many airlines for good reason.

On December 17th the two companies said they had agreed the terms of the tie-up, which will see Boeing pay $4.2bn for 80% of Embraer’s commercial-aircraft operations. The deal leaves out Embraer’s defence and security business, a politically sensitive unit that will remain under the Brazilians’ sole control, though the two companies said they would work together on “developing new markets and applications for defence products”. That includes efforts to promote the KC-390, a military transport aircraft Embraer is developing to compete with the C-130 Hercules made by Lockheed Martin, an American rival. 

The deal suits Boeing, which needs to respond to last year’s tie-up between Airbus, its European arch rival, and Bombardier, a Canadian manufacturer that competes with Embraer. But the merger is even more crucial for Embraer, whose share of the regional-jet market is eroding. The Brazilian firm has managed to sell its jets and turboprops to regional airlines in America, but these successes have not been enough to fill up its order book. Convincing bigger airlines to buy more has been difficult. Embraer has also inked deals with smaller companies, mostly in developing countries. But some of these have turned out to be financially fragile. Embraer saw an order for 50 of its new E2-series jets cancelled after Air Costa, an Indian airline, went bust last year. Teaming up with Boeing should bolster Embraer’s sales force and widen its customer base.            

But the deal is not yet done. Together Boeing and Embraer would control 40% of the market for regional jets, creating a giant with revenues similar to those of Bombardier and Airbus. That may prompt antitrust regulators in Brazil and elsewhere to scrutinise the deal, which may delay Boeing’s efforts to wrap it up by the end of this year. The merger also needs approval from the Brazilian government, which owns a golden share in Embraer that allows it to veto any takeover attempts. But this should not be a problem. Jair Bolsonaro, who became Brazil’s president on January 1st, favours the merger. His pick as defence minister, Marcos Pontes, seems happy to let the deal through.

Even so, airlines and passengers should feel aggrieved that there will be one less company to buy planes from. Airbus and Boeing, the world’s planemaking giants, will soon have few serious competitors left. That could push up plane prices and cut innovation in the industry. Even Brazil’s labyrinthine legal system may not be able to stop that.