Why the New 737 MAX Is a Problem for Embraer SA

Embraer SA (NYSE: ERJ  ) has spent years trying to convince mainline carriers that its E-jets are as capable as Boeing (NYSE: BA  ) aircraft when it comes to serving mid-range routes. The new 737 MAX 8 could make it harder for Embraer to win that argument, Fool contributor Tim Beyers says in the following video.

At the recent Farnborough Air Show, Boeing talked up the MAX 8, a high-capacity variant of the 737, capable of seating 200. That's a big boost when you consider that most comparably sized 737 aircraft top out at 175 passengers. Even the models flown by the sardine squad at Europe's Ryanair top out at 189.

It was only last year, at the 2013 Paris Air Show, that Embraer introduced its new "E2" version of the E-jet family, including a modified E195 jet capable of ferrying as many as 144 passengers in a high-density configuration. That's more than the majority of 737 aircraft flown by Southwest Airlines, whose 737-700 jets seat between 137 and 143 passengers.

To be fair, we've yet to see a rush of firm orders for the "E2" version of the E195 jet. Boeing's high-capacity Max 8 could keep it that way, Tim says. There's no reason to go for a smaller aircraft if a bigger one will ferry more passengers with as much, or more, efficiency.

What to do if you're an investor? The expanded MAX won't be in service anytime soon, so there's no reason to sell. And yet, it's probably a good idea for investors to compare the order books for both Boeing and Embraer. If E2 demand starts lagging as firm orders for the Max 8 roll in, it may be time to reevaluate Embraer stock.

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  • Report this Comment On July 20, 2014, at 7:23 AM, Mathman6577 wrote:

    Good article.

    The industry trend within the same class of aircraft does seem to be towards more seating capacity (i.e. A321 over A320, 787-9 over 787-8. etc.). The bigger Max versions will probably be a good seller for Boeing (and GE).

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