Embraer Says Boeing, Airbus Know Their Smallest Jets Are Too Big

(Bloomberg) -- Boeing Co. and Airbus SE are seeking to buy regional planemakers because their own entry-level jets are too big to be efficient, according to Embraer SA, which is in takeover talks with the U.S. manufacturer.

The Boeing approach and Airbus’s agreement to take a stake in Bombardier Inc.’s C Series model show they accept that stretching regional planes to accommodate more passengers is a better bet than shrinking their own full-size jetliners, Embraer’s commercial jets chief, John Slattery, said Tuesday.

Sluggish sales of the smallest versions of the upgraded Boeing 737 and Airbus A320 families bear that out, according to Slattery, who said that making planes smaller while using the same engines leaves them over-powered and too heavy to maximize profitability in the markets they’re designed to serve.

“The under-performance of the A319neo and the Max 7 is not a result of low market demand but an inability to deliver the efficiency required by the industry,” the executive said at the Airline Economics Growth Frontiers conference in Dublin. Airbus’s move to take control of the C Series “validates the huge opportunities” in the 100-to-150-seat sector, he added.

‘Positive’

Slattery said he supports a deal with Boeing and that the U.S. and Brazilian companies have been close over the years, with “cultural synergies” that would help ease any deeper collaboration.

“As leader of the largest business within Embraer, I am positive toward what a potential outcome could be,” he said, while adding that it’s still unclear what structure a transaction could take.

The Brazilian government is split over Boeing’s bid for control of Embraer, people with knowledge of the matter said last week. The finance ministry views a deal as vital to the planemaker’s long-term survival, whereas defense chiefs are resistant to handing over control and favor a partnership, according to the people, who asked not to be named as the discussions are private.

Boeing wants a structure in which it gains control of Embraer and could be open to splitting the company and giving the government powers over the defense business, they said. Brazil holds a “golden share” that gives the government veto rights over a change in control as well as major strategic decisions regarding operations. Analysts at Bradesco have assigned a 60 percent probability to the talks ending with Boeing acquiring a minority stake.

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