Singapore Air Show

Despite Costs, Embraer’s Slattery Shows Patience on Boeing JV

 - February 6, 2020, 4:36 PM
Embraer Commercial Aircraft CEO John Slattery (Photo: Embraer)

Embraer Commercial Aircraft CEO John Slattery continues to exhibit exceptional patience with the European Commission’s extended review of the Brazilian company’s proposed joint venture with Boeing, even while costs associated with the merger continue to mount. Speaking with AIN just ahead of the Singapore Airshow, Slattery cited confidentiality interests in declining to offer details of the EC’s most recent request for information on the proposal following its decision to suspend its review for a second time on January 21. However, he reiterated he remains “respectful” of the process, notwithstanding the fact that Embraer (Chalet CD37) has finished its IT migration in preparation for the establishment of the entity called Boeing Brasil last month. The transaction has gained the endorsement of nine of 10 jurisdictions whose approval the deal needs to proceed, leaving the EC as the last remaining holdout.

One might excuse any hint of impatience from Slattery given not only the administrative costs incurred but also the lack of “visibility” the delay has generated among airline executives. Although Embraer hasn’t yet reported fourth-quarter results, some of the same influences that resulted in a steep loss in the third quarter of 2019 remained at play during the last three months of the year. By the end of last year, the commission’s competition division had requested more than 1.5 million pages of documents and data on 1,200 sales campaigns over the last 20 years.  

Meanwhile, potential customers have shown some hesitancy to pursue deals during the process. “Certain airlines want more visibility on the transaction before they're prepared to move forward with their fleet planning,” explained Slattery. “We are hearing increasingly that airlines are getting a little frustrated. They want some surety around what the future patina is going to look like so they can plan accordingly. So we understand that frustration. We're doing everything we can to get our transaction closed so that we can get back to the day job, which is, designing new aircraft, building fine aircraft, and servicing them in the marketplace.”

That lack of visibility extends to Embraer’s own decision making as well, most notably on its new turboprop studies. Now two years into a three-year study, Embraer expects to decide by the fourth quarter whether or not to proceed. One certainty, however, centers on the fact that it will not move forward absent the joint venture with Boeing. “My board of directors will not support a development, the massive capital spend that will be required…outside of the environment of the joint venture with Boeing,” said Slattery.

But if the JV doesn’t happen, Embraer would almost certainly miss a golden market opportunity in the Asia-Pacific region in particular, given the company’s own projections for a 20-year demand for 960 new turboprops. “[ATR has] four-fifths of the market and probably [will] increase even that percentage. So it's an effective monopoly,” noted Slattery. “ATR is owned 50 percent by Airbus, so Airbus is uniquely positioned in the turboprop market. The customers want real competition and the climate wants better aircraft that burn less fuel and certainly that are quieter. We believe we could be positioned very well to be the disruptor in that space.”

Slattery added that he doubts the most recent delay in the EC’s review might also delay a decision on the turboprop, notwithstanding his reluctance to predict a time frame for the commission’s final decision. The EC set April 30 as a decision deadline once it restarted its investigation on January 6, some two months after “stopping the clock” the first time. Now, the new deadline remains unclear, further compromising the “visibility” Slattery said airlines so covet, and the Embraer boss declined to offer an estimate of what new deadline the EC will set once it resumes its current pause. “We don't want to speak to whatever protocol it is that the commission wants to adopt on the timeframe. But logically I would expect that…they will add whatever time the clock was stopped onto that [April 30] date, but that's a decision for them,” said Slattery.

Asked whether the recent change in leadership at Boeing might engender yet more uncertainty, Slattery projected nothing but a solid conviction about the fidelity of Boeing CEO David Calhoun’s declared commitment to the partnership.  

“First, let me say that I think Dave Calhoun is a great leader and I think the Boeing Company is very lucky now to have somebody of Dave's caliber in the CEO role,” noted Slattery. “Closing the partnership with Embraer is a key priority for him. So he's made himself accountable for that. He's put it up there in black and white. We have seen absolutely no pull down on the level of resources that Boeing has committed to the transaction and planning for Day One.”