Why Embraer Is Up Big This Week

What happened

Shares of Brazilian aerospace manufacturer Embraer (NYSE: ERJ) were up 14% for the week as of Thursday afternoon on talk the company was near a deal to merge its air taxi business with a special purpose acquisition company (SPAC).

So what

Investors have been waiting for Embraer’s next move for more than a year now following an April 2020 decision by Boeing to walk away from a $4 billion deal to take control of Embraer’s commercial operations. Embraer’s commercial aerospace operation has some good products, but the company’s diminutive size has made competing against titans like Boeing and Airbus difficult, and the proposed deal looked like a good option to solve a lot of what ailed Embraer.

Image source: Getty Images.

The company continues to consider options for various businesses, and it appears it might have found a partner for its Eve Urban Air Mobility operation. Bloomberg reported late Wednesday that Embraer was in talks to merge Eve into Zanite Acquisition, a SPAC, in a deal that could value the combination at about $2 billion.

Embraer confirmed talks were ongoing.

Eve is developing an electric vertical takeoff and landing aircraft, a class of aircraft that somewhat resembles a blend between an automobile and helicopter. Last week, the unit crossed a major milestone, announcing an order of 200 of its aircraft by Halo Aviation, with deliveries scheduled to begin in 2026.

If Eve merges with Zanite, it would follow in the footsteps of Joby Aviation, a rival flying taxi start-up with a pending deal to merge with SPAC Reinvent Technology Partners.

Now what

Embraer shares have staged an impressive rally from their 2020 lows when the stock was down more than 75% on the fallout from the pandemic and Boeing’s decision to walk away. But even after the recent run-up, the stock is still trading 20% below where it was at the beginning of 2020.

It will be interesting to see how the potential deal with Zanite is structured and how much, if any, exposure to the potential upside Embraer keeps as part of an agreement. The company’s core commercial aerospace business — its line of small, fuel-efficient passenger aircraft — could still use a partner to help boost international sales. But investors this week were excited by the opportunity to find a partner for Eve.

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