European Union Opens Investigation Into Boeing-Embraer Merger

RIO DE JANEIRO, BRAZIL – Brussels and Washington continue their air battle. The European Commission decided on Friday to launch an in-depth investigation into the merger of the US company Boeing with the Brazilian company Embraer, given the risk that the operation could “reduce competition” in the commercial aircraft market.

The decision comes only two days after the United States announced sanctions as part of its cross-claim against the EU for subsidies to Boeing and Airbus. EU sources have meanwhile disconnected the two events.

EU Competition Commissioner Margrethe Vestager has decided to thoroughly investigate the impact of the merger between Boeing and Embraer on the market. The operation, which if completed will result in a company valued at more than R$17 billion (US$4.3 billion), was announced to Brussels on August 30th.

EU sources said that this move forward was due to a matter of time limits and that they separated it from the conflict triggered by Donald Trump’s administration’s decision – endorsed by the World Trade Organization – to apply tariffs worth US$7.5 billion on European products in exchange for subsidies from European governments to Airbus, Boeing’s main competitor.

After a preliminary examination, the Commission’s competition department found that the merger would eliminate the world’s third-largest commercial aircraft manufacturer in a market that is already “highly concentrated,” according to a statement.

Despite the strength of its industries, Brussels believes that, in the medium term (five to ten years), China, Japan, and Russia will still not be able to “overcome entry barriers” in this business, which is why the demise of Embraer from the world market could “generate higher prices and fewer options”.

Vestager’s department notes that the competition issues would be particularly relevant in two markets: single-aisle aircraft, with 100 to 150 seats, and medium-sized aircraft, with 100 to 225 seats.

Despite competition from Europe’s Airbus, the Commission believes that, in the first case, Boeing and Embraer have an offer that points to the same demand and customers; in the second, it considers that the transaction “may remove a small but important competitive force from the overall single-aisle market”.

According to the Commission, the companies did not wish to make any concessions in the face of these two competition authorities’ concerns.

The planned operation involves merging Boeing, one of the world’s two leading commercial aircraft manufacturers, with Embraer, a leader in regional aircraft.

In a note, Vestager justified the opening of the investigation by the need to ensure that “mergers” in this market “do not significantly reduce effective competition in pricing and product development”.

The Commission now has 90 working days (until February 20th, 2020) to authorize or veto the transaction, which is also being examined by other competition authorities.

Source: El País