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Boeing, Embraer Announce Regional Jet Joint Venture

We believe the tie-up is attractive for Boeing but give the arrangement about a 50/50 shot of going forward.

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Boeing Co


Boeing plans to make a cash payment of $3.8 billion to Embraer, implying a $4.75 billion valuation. This valuation results in an 18 times EV to EBIT multiple based on our 2018 forecast for the regional jet unit’s operating profit. However, we think profits are depressed due to the E2 ramp, and the valuation multiple sits at a more reasonable 15 times our normalized operating profit before any cost synergies. This all suggests that Boeing didn't get the business cheap but neither did it grossly overpay; Boeing shares were flat on the news.

We continue to believe that the tie-up is attractive for Boeing because it gives the U.S. company access to Embraer’s engineers for its next aircraft development program and provides additional manufacturing locations/options outside of Washington state. If the tie-up is consummated, we think the launch of Boeing’s next generation midsize aircraft is more likely. We don’t expect to make material changes to our Boeing fair value estimate of $309. Embraer shares are trading down double-digit percentages, but we’re holding off on a decreasing our fair value estimate of $25 on the ADRs given the uncertainties surrounding government approval. That said, testing the JV set-up in our model indicates that it will shave about 5% off our fair value estimate for Embraer.

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About the Author

Chris Higgins

Senior Equity Analyst
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Chris Higgins, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers aerospace and defense companies, airports, and airlines.

Before joining Morningstar in 2015, Higgins spent eight years working for Airbus Group in both the United States and Europe. While at Airbus Group, he held a variety of positions, ranging from corporate development to investor relations.

Higgins began career in strategy consulting, where he consulted leading U.S. and European aerospace and defense prime contractors. During his time in consulting, he led teams that solved business challenges ranging from merger and acquisition decisions to new product launches.

Higgins holds a bachelor’s degree in economics from Rhodes College, where he graduated as a member of Phi Beta Kappa, and a master’s degree in finance from The Henley Business School in the United Kingdom. He also holds the Chartered Financial Analyst® designation.

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