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.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
