What happened

Shares of Embraer (NYSE:ERJ) spiked 17% on Friday following a report that a Chinese manufacturer has expressed interest in joining forces with the world's third-largest commercial airplane manufacturer. Embraer was left at the altar by Boeing (NYSE:BA) just last month, but it appears to have other options.

So what

Brazil's Embraer is a maker of small commercial jets, and until recently had a deal in place to sell 80% of its commercial operations to Boeing for $4.2 billion. That valuation arguably did not reflect the post-COVID-19 reality of commercial aerospace, with airlines scrambling to cut costs and cancel expansion plans. But there is still value in Embraer's portfolio.

Embraer E195-E2 on the tarmac.

Image source: Embraer.

Reuters reported Friday that aerospace manufacturers including China's state-owned COMAC have voiced an interest in forming an alliance with Embraer, and companies in Russia and India have also conveyed interest.

There's logic in a deal for both sides. COMAC and Russia's Irkut are both trying to develop planes to rival mainstay offerings from Boeing and Airbus (OTC:EADSY) and attempt to undo a global duopoly in mid-sized aircraft. Embraer has established engineering talent and technology used on its popular ERJ smaller jet series and would lend credibility to those efforts.

A deal would also give Embraer added heft as it attempts to sell its new generation of E-Jet planes against similarly sized Airbus A220 aircraft.

Now what

Investors should be warned that the talks appear preliminary, and it is possible a deal with either China or Russia would face pushback from the United States and other Western nations.

But if a tie-up does happen, the big loser would appear to be Boeing. Not only would an alliance with Embraer help the Chinese or Russians manufacture a credible rival to Boeing's offerings, it would mean there are two strong competitors -- Embraer's E-Jet and Airbus' A220 -- in a segment of the market where it has no real alternative to offer.

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