Boeing and Embraer are doing some kind of complex partnership (press release). Here’s the interesting part for me:
The transaction values 100 percent of Embraer’s commercial aircraft operations at $4.75 billion
Wikipedia shows that Embraer is the market leader in regional jets produced. The company is profitable (Motley Fool). Yet this division, which produces most of the company’s revenue, is worth less than 1/10th as much as unprofitable Tesla (market cap $52 billion) or unprofitable Uber (estimated value $72 billion after losing $10+ billion).
Given the limited value of an off-the-charts successful outlier such as Embraer, how can sane people invest in the airplane manufacturing industry? (I will be at Oshkosh later this month and expect to see a full range of insane folks, many working for tiny enterprises with yet-to-be-certified products)
Related:
Company valuations are indeed more than a little puzzling, it’s true.
On this topic, Warren Buffett’s favorite book suggestion on investing, is worth a read.
https://www.amazon.com/Intelligent-Investor-Collins-Business-Essentials-ebook/dp/B000FC12C8/ref=sr_1_1?ie=UTF8&qid=1530896148&sr=8-1&keywords=the+intelligent+investor+by+benjamin+graham
This should help to “cut through the murk” a bit.
Everybody knows that Wall Street is basically one big boiler room operation or a casino at best. When did profitability have anything to do with market cap?
Most smaller airplane manufactures can probably be described as “lifestyle business” run by very passionate crazy people who will design and build airplanes just as long as they can put some food on the table. Similar to pilots willing to work for less than minimum wage just to get time in the left seat.
Even the major airplane manufacture will sell you planes at a good discount. If you want the new c series from Bombardier (an “old stock” Canadian company), you can get them at $19.6m each, below the $33.2m production cost. No sane person would invest in Bombardier, that is why the Canadian and Quebec governments are investors.
It’s always cracked me up to think than these new unicorns based on incredibly risky models with unknown amounts of regulatory and legal nonsense in their future, and unknown competitors should be worth more than a Boeing, a GM or Ford, or an Embrauer.
Uber is worth more than Boeing? How? What company would you prefer to own? Dara’s cab company that makes nothing, has little that provably can’t be reinvented by recent grads, loses zillions of bucks each quarter and is facing untold abouts of threats to its profit model from regulations and employment las and basic disruptions in the cab industry they created, or a company that is literally 1/2 of the manufacture of all major aircraft in the world that has at this point a single competitor (with a few threats on the horizon) and whose regulatory and legal environment is well understood, with tons of engineering and manufacturing know how that would be almost impossible to reproduce and that faces almost no disruption on their primary market, continental and transcontinental passenger flight?
What risk, what discount factors are being applied to the mythical revenue and profit from Uber that still lets it be valued more highly than a Boeing (or Airbus or GM or Ford)?
I don’t think that would be the right way of interpreting those valuations. Presumably it’s something along the lines of this deal between bombardier and airbus https://www.youtube.com/watch?v=V1YMPk3XhCc .
Boeing is vastly underpaying for their share of the joint venture under the assumption that it can use its massive sale force and airline connections to win more sales (or at least maintain the status quo vs the Airbus/Bombardier joint venture).
I don’t see how the Military cargo jet enters into this (presumably they would have to extend the joint venture, which Brasilia won’t like), but obviously if Boeing can mobilize all it’s retire USAF generals to get the air force to upgrade from the -130 to the -390 (“THREE TIMES MORE AIRPLANE”?) underpaying by a couple of billions would be a moot point.
About five years ago, Brevard County Florida and the City of Melbourne, FL each gave Embraer a $1 million grant to build a (smallish) manufacturing facility at the Melbourne International Airport. Embraer did spend several million dollars building the facility and hired less than 100 people.
@Pavel: Bombardier (an “old stock” Canadian company)
I was disappointed, but could understand, when, in 2014, Bombardier announced it would no longer manufacture its SeaDoo jet boats. I had an ’08 14-foot 235 HP turbo-charged SeaDoo jet boat. When I could keep it running, it went like a rocket.