On 1 June, Embraer CEO Francisco Gomes Neto indicated that the company was exploring new partners, following the collapse of the joint-venture agreement with Boeing. The two companies have since sought arbitration. While no specific partners were identified, producers in India and China were highlighted as aspirational.
GlobalData Associate Analyst Harry Boneham comments: “The combination of Embraer’s commercial aircraft market distribution, together with regional differentiation of the impact of the Covid-19 pandemic, makes Chinese producers attractive partners for Embraer.”
The Covid-19 pandemic has affected the global commercial aerospace industry gravely, with a recent poll conducted by GlobalData showing 83% of respondents characterising the impact of Covid-19 on aerospace companies’ revenue as ‘high’.
In April, the International Air Transport Association (IATA) recorded a 48% decline year-on-year in revenue passenger kilometres globally. However, the Covid-19 pandemic has not been felt uniformly or simultaneously. China, thought to be the first country affected by the virus, is ahead of the curve relative to the rest of the world.
IATA found that in March, the Chinese domestic market was beginning to show signs of recovery, declining by 65.5% year-on-year, a gain of 21.1% from the previous month. However, elsewhere other countries were beginning to experience Covid-19-related measures, with Japan and the US experiencing year-on-year declines of 48.1% and 11.8% respectively. This indicates that China’s domestic market will be among the first to recover from the Covid-19 crisis.
Additionally, trends observed from previous crises such as the 2008 Great Recession indicate that shorter, smaller flights will recover quicker from the Covid-19 crisis. This indicates that demand for regional aircraft operating domestic routes will be relatively quick to recover in comparison to large wide-body aircraft, the market for which is dominated by Airbus and Boeing.
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By GlobalDataEmbraer is well-positioned to take advantage of this trend, possessing a strong market presence in the regional aircraft sub-sector. Through developing a novel joint-venture agreement with a Chinese producer, Embraer could capitalise on this trend, gaining access to a large domestic market, which is likely to recover sooner than other regional routes.
