Embraer’s commercial and business jet assets could be back on the market someday, Bombardier’s future as a bizjet-focused OEM remains a topic of debate, and a Boeing-Mitsubishi SpaceJet partnership is on the lips of Boeing’s CEO.
April was a momentous month for imagining merger-and-acquisition (M&A) possibilities in business aviation manufacturing.
After Boeing walked away from its acquisition of most of Embraer’s commercial aircraft division on April 25, speculation has ignited in dealmaking and industry circles about what could happen next in bizav. Observers have long suggested a consolidation needed to occur among top OEMs. After COVID-19, the prospects for movement across all of aerospace, aviation and defense seem only greater, several sources tell The Weekly of Business Aviation.
To be sure, M&A activity is currently frozen due to the novel coronavirus outbreak’s impact on air travel, several dealmakers have said in recent weeks. What is more, attention is turning to which other deals could fall victim due to the coronavirus. Analyst Cameron Doerksen of National Bank of Canada Financial Markets notes that Bombardier’s sale of its CRJ assets to Mitsubishi remains to be closed. Jefferies analysts Sheila Kahyaoglu and Greg Konrad list aerostructure giant Spirit AeroSystems’ bids for Bombardier’s commercial aerostructures assets and the Asco aircraft parts maker as vulnerable.
Before the pandemic, all of these deals were expected to close this year–in fact, the Asco acquisition was supposed to close last year before a cyberattack disrupted its operations. Spirit recently secured $1.2 billion, ostensibly in part to help pay for those deals. But with the coronavirus upending core customer Boeing’s market outlook, Spirit’s fortunes have changed, too.
The breakup of the Embraer-Boeing deal is a proverbial earthquake in the bizav landscape. Embraer commercial aviation chief executive John Slattery told The Weekly of Business Aviation on May 1 that his division–which was made wholly separate from the rest of Embraer’s bizjet and defense assets to join Boeing–would in the immediate future remain part of “one Embraer.” But he acknowledged there might be outside interest.
“There’s been no outreach by Embraer to anyone,” Slattery said. “This is not the time for that. But you know, I can’t legislate for the inbound calls that could come.”
Slattery said other so-called strategics, or rival aircraft OEMs, are not in a position to bid for Embraer or anyone’s assets at the moment. Dealmakers and advisors agree that liquidity concerns have put every manufacturer in a cash-conservation mode.
“It’s like asking someone in the middle of a tornado which direction they are going,” says Greg Van Beuren, managing director of adviser Houlihan Lokey. “There is really no new credit available for strategic activity like an acquisition. It is primarily being used to shore up balance sheets and see how long this will last.”
Still, private equity (PE) investors worldwide are sitting on a mountain of “dry powder,” or cash and equivalents ready to be put to work in M&A. Analyst Doerksen previously surmised a PE-based buyer or consortium could eventually make a play for Bombardier once the other sales wrapped up. The idea is not far-fetched despite Bombardier being an industrial crown jewel in Canada. Governments there and in the UK have allowed PE owners to take on A&D ownership of key companies such as MDA or GKN in recent years after agreeing to certain conditions, including job preservation and no redomestication.
Meanwhile, Boeing CEO and President David Calhoun on April 29 voiced willingness to explore a potential teaming with “incredibly competent” Spacejet-maker Mitsubishi. “I’m open to any kind of major partnership,” he told reporters after announcing first-quarter earnings. “We will entertain partnerships like that all the time. I’m not afraid of them. I like the effect it has on globalizing our company.”
More information from any of these companies could emerge in the coming weeks. Spirit is scheduled to release quarterly results May 6, Bombardier May 7, and Embraer May 27.
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