Bombardier Rattled As Embraer Wins China Deal
TORONTO (Reuters) - Bombardier Inc. (Toronto:BBDb.TO - news) shares dropped as much as 10 percent on Friday on news that its Brazilian rival, Embraer SA (EMBR3.SA), had entered into a partnership agreement to build regional jets in China.
But analysts said that while Bombardier shares were undoubtedly hurt by the reports, the news was immaterial to the prospects of the Canadian company.
Shares of Bombardier, the world's largest maker of passenger rail equipment and third-largest civilian aircraft maker, finished down 39 Canadian cents at C$5.16 on the Toronto Stock Exchange, pulling back from a 52-week low of C$4.99 set earlier in the session.
The stock has been in in a steady slide over the last four months, falling 63.9 percent over that period. The shares have lost about three-quarters of their value since the Sept. 11 attacks undermined the airline and travel industries.
On Thursday, China's state council said it had approved plans by Embraer, the world's fourth-largest airplane maker, to enter into a joint venture with state-run AVIC II to build 50-seat passenger jets in China. Embraer officials, however, cautioned that Chinese approval did not necessarily mean the project was about to take off.
Chinese industry officials have forecast domestic carriers could need as many as 500 of the smaller, short-haul aircraft over the next 20 years.
But some analysts downplayed the significance of the announcement.
"Bombardier remains the market leader in selling regional aircraft in China with 25 CRJs and Dash 8s delivered," Richard Stoneman of Dundee Securities Corp. said in a research note.
Stoneman said the move from intention to manufacture to actually building aircraft in China is a "leap of faith."
He maintained a "strong buy" rating on Bombardier with a target price of C$12.00.
Jacques Kavafian of Octagon Capital said that while Embraer may end up building a production facility in China, it doesn't necessarily mean they'll be more competitive because of it.
"Airlines (in China) will end up buying the better product, he told Reuters. "My interpretation is it's not material to Bombardier."
"There's just no positive news to offset what appears to be negative news, so it (the stock) is just selling off," Kavafian said.
($1=$1.58 Canadian) |
