By Marcelo Rochabrun, Tim Hepher and Rodrigo Viga Gaier
SAO PAULO/PARIS (Reuters) – Brazilian planemaker Embraer SA (SA:) has been thrust into an uncertain future with no immediate plan B, while not ruling out seeking a bailout after Boeing Co (N:) jettisoned a $4.2 billion commercial aerospace tie-up amid the coronavirus crisis.
The company’s shell-shocked chief executive, in the job for a year with little aerospace experience, sought to rally staff after the board held late-night talks to review the collapse of plans for surviving mounting aerospace competition.
“Our history is full of difficult moments, and we have overcome all of them,” Francisco Gomes Neto told Embraer’s 20,000 staff before giving them a thumbs up.
But Embraer now faces a historic crisis with its isolation reinforced by the breakup – two years after Europe’s Airbus (PA:) absorbed Embraer’s main competitor, the Canadian-designed A220.
“For Embraer, it could be very damaging,” said Teal Group consultant Richard Aboulafia, noting it was the only significant independent jetmaker.
“It’s hard to pressure your suppliers when the volume you’re offering is a fraction of your competition’s”.
Embraer’s immediate aim is to reassure investors. It pledged cost savings and said it had solid liquidity.
It also tore up arguments previously used to persuade unions and regulators to back the deal, saying it could survive without Boeing rather than stating the deal would be its “salvation”.
The former state-owned company has not asked for a bailout but says it is open to “complementary” sources of financing.
Brazilian companies, including airlines and automakers, are in bailout discussions.
Embraer “will need strong government support to recover the (separation) expenses and recover from the economic crisis caused by coronavirus,” said Aurelio Valporto, who heads minority shareholder group Abradin and opposed the deal.
Embraer had two main pitches for investors that have now vanished.
First, it would pay $1.6 billion in dividends from the sale. Second, it would receive enough cash to wipe debts clean and rejuvenate defense and executive-jet units. As a revamped company, Embraer would get a fresh start.
Executives also hoped Boeing’s marketing would be a silver bullet for the commercial arm, to be 80%-owned by Boeing.
Instead, Embraer now has a crisis committee that meets daily and no end in sight for its troubles.
That, analysts say, could not come at a worse time.
Sales of its E2 have lagged. Overall jet demand has vanished due to coronavirus. Now, crashing oil prices have further weakened the case for new jets, sold mainly on fuel efficiency.
CHINA WILD CARD
Questions have also been raised over how long high-profile Embraer jetliner CEO John Slattery, who aggressively marketed the E2 jet while lobbying for regulatory approval, will stay without the deal. He did not respond to a request to comment.
In a Twitter post, he said, “Despite this uncertain period in our industry, I’m confident Embraer will emerge stronger.”
On the positive side, analysts expect demand for small jets like the A220 or Embraer’s E2 to lead any future rebound.
The breakup may also spark a distracting legal battle.
In Brazil, alarm bells rang when Boeing lawyers began quizzing Brazilian counterparts on paperwork in recent weeks.
Industry sources said Boeing needed room to maneuver as it seeks U.S. government support for the U.S. aerospace industry. With the crisis expected to resurrect economic barriers, it was seen in a corner over moves to acquire thousands of Brazilian engineers while drawing up plans to lay off its own staff.
“You can’t easily go to Congress and ask for support and spend the money on an acquisition,” a senior source said.
Embraer says Boeing scuppered the deal on technicalities because of its own financial problems. Boeing says it pulled out only because Embraer failed to meet conditions. But the row itself could be damaging.
“Since it came apart in such vitriolic fashion, it’s hard to believe they can pick up the pieces and try again,” Jerrold Lundquist, managing director of The Lundquist Group, said.
That leaves limited options for Embraer though none has been discussed as a serious plan B.
One potential wild card is China, which almost beat Airbus to the A220 program and which remains on the hunt for ways of accelerating its own aerospace ambitions.
“From a strategic point of view, it is an option but it could be politically problematic,” Lundquist said.
Members of the inner circle of Brazilian President Jair Bolsonaro have repeatedly attacked China over coronavirus.
The breakup also leaves uncertainty for Embraer employees, many of whom were expected to work on future Boeing programs.
Embraer had already furloughed more than 90% of its main Brazil plant due to the crisis.
It had also spent $30 million on a new headquarters as it prepared to carve out the commercial unit.
“Our teams were working together, deciding things together. There were thousands of people working on joint decisions, all for it to end this way,” a person close to the discussions said.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
