Bombardier win could speed up C Series sales and Boeing merger talks: analysts
Boeing's efforts to acquire Brazil's Embraer suggests it takes the 100- to 150-seat market seriously.
MONTREAL — Bombardier’s unexpected win at the US International Trade Commission could accelerate the merger talks between Boeing and Embraer in order to offer an alternative to the C Series, some industry analysts say.
They say Boeing’s efforts to acquire the smaller aircraft manufacturer suggests it takes the 100- to 150-seat market seriously and that it acknowledges its offering is a weak alternative.
“However that could change with a partnership or acquisition of Embraer, whose portfolio is analogous to Bombardier and who has already started talking about a WTO challenge by Brazil,” analyst Chris Murray of AltaCorp Capital says.
While the decision Jan. 26 is a significant victory for Bombardier, it is unlikely to be the last chapter in the dispute, he wrote in a report.
Murray said Chicago-based Boeing could appeal the decision, file a new petition in a different venue or the US Administration could launch additional trade actions.
Richard Aboulafia, an analyst at US aerospace consulting firm Teal Group, agreed that it could speed up talks between the two companies even though he says the union isn’t logical.
“I think somehow Boeing might be convincing itself that the bottom end of the market is somehow a threat to the core of their business,” he said in an interview.
But not everyone views the US ruling as being a big impetus.
Analyst David Tyerman of Cormark Securities says “the die was cast” about a potential merger when Airbus SE agreed last fall to acquire a majority stake in the C Series.
“I would think that both Embraer and Boeing at the end of the day are probably going to be a lot better off getting together because otherwise each one of them has a competitive disadvantage versus the Airbus-Bombardier combination,” he said in an interview.
Tyerman is also less convinced than others that the ruling itself will prompt new C Series sales.
“When the Airbus deal got announced that was the critical thing,” he said.
Bombardier itself wouldn’t say if it expects the ruling will ignite sales.
“As for orders, we will see, but obviously, this removes a big cloud on the program,” spokesman Simon Letendre wrote in an email.
Bombardier’s stock surged Jan. 26 and continued higher in trading Jan. 29. Several analysts raised their outlooks for the company’s share price partially on the removal of uncertainties on the C Series in the US.
“The conclusion of the trade dispute removes the risk of the program’s success in the U.S., and should allow Bombardier to secure additional orders in the country, where we believe it has a lot of potential,” analyst Benoit Poirier of Desjardins Capital Markets wrote in a research note.
Poirier raised his target price to $4.50 from $4, adding he hopes the ruling will now allow investors to focus on Bombardier’s “long-term fundamentals.”
He pointed to JetBlue Airways, Spirit Airlines and Sun Country Airlines which expressed their support for Bombardier during the dispute.
Analyst Steve Hansen of Raymond James said he expects talks with airlines will resume.
“We expect this ruling will immediately help thaw (restart) sales discussions with other U.S. airlines _ talks that have reportedly been ‘frozen’ ever since the Department of Commerce imposed preliminary tariffs (of nearly 300%) back in December,” he wrote.