Bombardier's Bad New: Good for Embraer?
I read a brief note today that summarized a few of the problems Bombardier has been having -- SAS, the scandinavian airline, just grounded their Bombardier turbo-props, and they've had some reported trouble in the US and Canada with their regional jets.
I don't know if these problems will really turn out to be significant -- whether the scandinavians are the canary in the coal mine or are overreacting to something mechanical that would be easy to fix (though personally, I like it when my airline overreacts to safety concerns).
But, as an investor, the first thing I thought was, "I should look at Embraer again."
I've considered purchasing Embraer shares several times in the past, but the price was always a little bit higher than I was willing to pay. Now I'm thinking that it might be time to reconsider. This is a fairly fast-growing company, and the trailing PE of 30 certainly reflects that (the forward PE is a more modest 15, about the same as Boeing). It's also Brazilian, which means that US investors have enjoyed a nice tailwind on the share price as the Real has gone up against the dollar, but also that Embraer has suffered as an exporter in a country with a strong currency.
So, why Embraer? They're one of the largest aircraft makers in the world (though far behind leaders Boeing and Airbus), but they focus on the same niche as Bombardier's turboprop and small jet market: The smaller, more efficient planes that we've all derided as passengers but that the airlines love. Embraer's big backlog is primarily in their largest 170 and 190 series planes, which are actually pretty big (comparable to a DC-9, for those dinosaurs among us, or a bit smaller than a Boeing 737), but they also make many smaller regional and executive aircraft.
I don't really know if this bad news for Bombardier will translate to an increase in Embraer's order book -- but I do know that in aviation, the sensitivity of airlines to event a whiff of anything unsafe or un-airworthy about an airplane is very bad news indeed for the manufacturer. This is one area, unlike lead-painted tchotchkes, where folks have been consistently focused on quality and safety ... so maybe Bombardier's storm clouds will drum up a little extra business for the big Brazilian regional jet maker. We'll see, but I'm at least going to take this opportunity to give ERJ a closer look -- and maybe kick myself for not noticing when their shares had a big dip last month.
I don't know if these problems will really turn out to be significant -- whether the scandinavians are the canary in the coal mine or are overreacting to something mechanical that would be easy to fix (though personally, I like it when my airline overreacts to safety concerns).
But, as an investor, the first thing I thought was, "I should look at Embraer again."
I've considered purchasing Embraer shares several times in the past, but the price was always a little bit higher than I was willing to pay. Now I'm thinking that it might be time to reconsider. This is a fairly fast-growing company, and the trailing PE of 30 certainly reflects that (the forward PE is a more modest 15, about the same as Boeing). It's also Brazilian, which means that US investors have enjoyed a nice tailwind on the share price as the Real has gone up against the dollar, but also that Embraer has suffered as an exporter in a country with a strong currency.
So, why Embraer? They're one of the largest aircraft makers in the world (though far behind leaders Boeing and Airbus), but they focus on the same niche as Bombardier's turboprop and small jet market: The smaller, more efficient planes that we've all derided as passengers but that the airlines love. Embraer's big backlog is primarily in their largest 170 and 190 series planes, which are actually pretty big (comparable to a DC-9, for those dinosaurs among us, or a bit smaller than a Boeing 737), but they also make many smaller regional and executive aircraft.
I don't really know if this bad news for Bombardier will translate to an increase in Embraer's order book -- but I do know that in aviation, the sensitivity of airlines to event a whiff of anything unsafe or un-airworthy about an airplane is very bad news indeed for the manufacturer. This is one area, unlike lead-painted tchotchkes, where folks have been consistently focused on quality and safety ... so maybe Bombardier's storm clouds will drum up a little extra business for the big Brazilian regional jet maker. We'll see, but I'm at least going to take this opportunity to give ERJ a closer look -- and maybe kick myself for not noticing when their shares had a big dip last month.
Labels: ERJ
This article posted by One Guy @ 10/29/2007 12:44:00 PM 2 comments
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