Shares of Embraer (NYSE:ERJ) were up more than 8% on Monday thanks to another positive development in the race to create a COVID-19 vaccine. The Brazilian plane maker has had a terrible year in 2020, and needs to see the pandemic under control if it is to have any hope of staging a recovery.
Embraer shares have lost nearly 70% of their value in 2020, weighed down by the pandemic and a failed attempt to combine with Boeing. The pandemic has caused travel demand to evaporate and has led to airlines cutting expansion plans. It is also the primary reason Boeing decided to abandon a $4 billion deal in May that would have given it control of Embraer's commercial operations.
Embraer makes so-called regional jets, planes that are smaller than the part of the market that Boeing and Airbus focus on. That segment is expected to recover faster than the overall market, but airlines that have taken on debt to survive the crisis might need years to rebuild their balance sheets before they focus on new plane purchases.
News on Monday from Moderna that the company's COVID-19 vaccine candidate had performed better than expected is a positive step toward an eventual commercial aerospace recovery, and Embraer shares joined a broader rally in the sector. The shares are now up more than 20% since the start of last week, when Pfizer first made headlines with its positive vaccine results.
Even after the vaccine is widespread and travel patterns begin to normalize, Embraer still faces a difficult path ahead. The company's new E2 jet is well regarded, but Embraer has struggled to sell it against Airbus' similarly sized A220 in part because the company lacks the scale and connections the larger Airbus enjoys.
The deal with Boeing was supposed to solve that problem for Embraer, and in the long term the company likely still needs a partner. But with so few plane makers around the globe, Embraer could face a difficult choice of trying to reconcile with Boeing or perhaps strike a deal with one of China's emerging aerospace companies.
The vaccine is a good first step for Embraer, but the company's shares could still find it hard to get airborne even when the pandemic is over.