Boeing falls out on $4.2 billion Embraer deal – aircraft giant hasn’t been this cheap since 2016

Boeing Co’s (NYSE:BA) deal with the Brazilian Aircraft maker Embraer SA (BVMF: EMBR3) has fallen out after companies failed to finalise deal by dead-line. After years of discussion, Boeing had planned to acquire a controlling portion of Embraer’s airline manufacturing branch. The deal would see Boeing take control of the single aisle market share that is currently lead by AIRBUS SE (EPA: AIR).  Since the fallout, Embraer is likely to seek damages from Boeing as they claim BA avoided its commitment to the deal.

What are the ramifications of the fall out?

The fallout of the $4.2 Billion deal has huge ramifications for both companies as well as the airline manufacturing industry. The deal itself would allow Boeing to gain huge traction within the single aisle aircraft industry, which would have potentially stripped AIRBUS SE of billions in revenue. The deal between both companies seemed promising in 2017 as talks begun, but in the current state of the Travel Industry Boeing was unlikely to take on the risk.

The news is likely to take a negative effect on both company’s stock price come Monday at open. Conversely, the European giant Airbus SE is likely to open strongly as Boeing is no longer a threat to the companies already dominated small aircraft-industry.

History of Boeing and it’s powerful comebacks

Boeing (NYSE: BA) is not just an airline company. Boeing is an integral part of our lives. BA won endless dogfights for the US in WW1 and WW2, pioneered large capacity overseas flights in the 80s, and contributed to the creation of a global economy. Thus, Boeing is much more than an airline company.

COVID-19 is unprecedented. However, BA’s management navigated the airline through a minefield of challenges in the 20th and 21st centuries. Such as the drastic decline in military spending during the Vietnam war, the 1987 crash, and the GFC. Thus, with Boeing being an airline veteran, they will likely return to their old altitude. Nonetheless, here are the following problems Boeing is currently facing.

  • The decline in new plane orders: causing airlines to withdraw billion-dollar deals with Boeing
  • Keeping lay-offs, early retirement packages and redundancies low
  • Finding a new long-term investment opportunity after terminating the $4billion acquisition of Embraer.

Boeing’s AGM this week should paint a clearer picture of future expectations.

Is the Boeing stock price good value?

Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this areaAfter discussing Boeing’s stock history, it is clear COVID-19 has had a significant effect on its stock price as well as its internal outlook. It would be unfair to determine Boeing as good value when its industry is in turmoil. The effects of COVID have affected the deep roots of demand within the airline industry.

Instead, we must find a new value of this stock that takes into account the next 1-2 years of economic effects on demand and supply. The stock will bounce back eventually, however the demand for aircrafts will increase AFTER airlines are able to expand again. Therefore, my strategy is to watch how the next few months of poor demand will impact the behaviour of shareholders.

Unless the company enters new turmoil, my target value based on research (opinion not advice) is around $95-$105. An entry at a price 15-20% lower than its current does mitigate the risk of another downturn.

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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Tyger Fitzpatrick, Managing Director and Patrick McLoughlin, Senior Manager.

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