Boeing Co.’s ventures with Embraer SA face a longer probe from the European Union amid regulators’ concerns the transaction will knock out an important rival to the world’s two biggest planemakers.
The European Commission set a February 20 deadline to rule on the deal, it said Friday. Embraer, which was expecting deeper scrutiny of the agreement, has already shifted its target to complete the transaction from this year to early 2020.
An in-depth investigation from the EU, one of the world’s toughest merger regulators, often raises risks that companies must sell part of their business to eliminate antitrust concerns. The EU said it was worried the deal would “remove Embraer as the third largest global competitor" to both Boeing and Airbus SE, which “may therefore result in higher prices and less choice."
Boeing plans to take an 80% stake in the venture controlling Embraer’s commercial airplane and services businesses. That bolsters its duopoly with European rival Airbus as they face off over the market for smaller jetliners. The deal adds Embraer’s E-Jet family to Boeing’s portfolio, extending its reach into the market for 100-seat planes. The companies are also starting a venture to market Embraer’s KC-390 military aircraft.
Regulators said they didn’t see any potential rivals from China, Japan or Russia that would be able to replicate Embraer’s competition with Airbus and Boeing within the next five or 10 years. They also flagged concerns that the American aircraft maker and Embraer compete head-to-head for 100-150 seat aircraft, with the Brazilian company a “small but important competitive force" for bigger 100-225 seat aircraft.
“Despite Embraer’s comparatively small-market share it also seems to exert some price constraint on the market leaders Boeing and Airbus even beyond the boundaries of the lower 100-150 seats segment,“ the EU said.
Boeing and Embraer didn’t immediately respond to requests for comment.
The EU probe, already flagged by the companies, comes as Boeing enters a crucial month for its chief executive officer and the grounded 737 Max jetliner. Dennis Muilenburg’s future is inextricably tied to that of the plane, which is nearing a key test with the U.S. Federal Aviation Administration seven months after two deadly crashes brought a flying ban.
Boeing has had a long relationship with Embraer and the two companies don’t compete directly for most of their business, with Embraer focusing on regional jets and Boeing on larger aircraft.
The exceptions are two product overlaps. Embraer’s largest model, the E2-E195, seats between 132 and 146, according to its website. That makes it a competitor to Boeing’s 737 Max 7, which holds between 138 and 172 passengers. The jet is the smallest member of the Max family and struggled to win orders even before the groundings.
While Boeing is paying $4.2 billion for the deal, it may also assume some of Embraer’s debt. A research note from Bank of America on October 3 put the deal value at $5.25 billion.