Read the rest of this article by one of our favorite contributors who provide some of the best supply chain content in the industry.

The European Commission (EC) has opened an in-depth investigation to assess the proposed joint venture involving U.S.-based aircraft manufacturer Boeing and Brazil-based Embraer. The EC has a mandate to assess mergers and acquisitions involving companies with a turnover (revenue) above certain thresholds and to prevent concentrations that would significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it. The transaction has already been cleared by the U.S. Federal Trade Commission. 

The EC is concerned that the transaction may reduce competition in the commercial aircraft sector. Specifically, the commission has said that removal of Embraer as the third-largest global competitor in the market could lead to higher prices and less choice.

Commissioner Margrethe Vestager, in charge of competition policy at the EC, said in a news release, “Markets for commercial aircraft need to function well to deliver innovative and efficient products to customers at a fair price. Therefore, with our in-depth investigation, we want to make sure that mergers in commercial aircraft do not significantly reduce effective competition on prices and product development.” 

Specifically, the EC notes that in the small single-aisle segment (100 to 150 seats), Boeing and Embraer manufacture aircraft that to a certain extent target the same customers. “While they face important competition from Airbus, Boeing and Embraer also seem to engage in head-to-head competition as regards price and other parameters in important aircraft purchasing campaigns globally and in the EEA,” the EC stated in announcing the investigation.

In the overall narrowbody market (100 to 225 seats) Embraer has been expanding its customer base, bringing new models to market. “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 transaction may, therefore, eliminate a small but important competitive force in the concentrated overall single-aisle market,” the EC announced.

The EC also maintains that taking Embraer, the world’s third-largest commercial aircraft manufacturer, out of the market would result in potential rivals from China, Japan and Russia being unable to fill the gap in the next decade because of high barriers to entry.

Terms of the agreement, announced in December 2018, call for Boeing to acquire an 80% ownership stake in the joint venture for $4.2 billion. Embraer will hold the remaining 20% stake. The new company will remain in Brazil, but Boeing will possess “full strategic and operational control and management.” The deal is expected to close in early 2020, rather than as originally scheduled in late 2019.

On approval of the partnership, Boeing will now be able to compete with Airbus and Bombardier, which formed a similar joint venture in July 2018. That deal called for Bombardier to sell Airbus a 50.01% stake in the Canadian aircraft manufacturer’s flagging C Series commercial jet program for a token one Canadian dollar. As part of the deal, Bombardier retained a 31% stake in the aircraft and Investissement Quebec 19% to expand in an estimated market of more than 6,000 new 100-150 seat aircraft over 20 years. In August 2019, Airbus opened a second assembly line for the aircraft at its Mobile, Alabama factory.

Airbus has been using its muscle in the market to offer customers package deals that include its own aircraft plus former C Series aircraft, now branded as A220 aircraft. As an industrial powerhouse, Airbus also has the leverage to bargain with suppliers for A220 parts and components.