Heading into the Labor Day weekend, investors decided to do a lot of their back-to-school shopping on the NYSE this year, buying shares of Brazilian airplane maker Embraer (NYSE:ERJ) hand over fist and sending the stock price up 9% by week's end.
The catalyst for the buying spree: news of an impressive sale of 100 aircraft to China's fourth-largest airline, HNA Group. For such a sizeable purchase order, a Fool suspects that Embraer offered a sizeable discount. That said, according to the firm's press release, the list price value of the 50 ERJ 145s and 50 Embraer 190s runs to a cool $2.7 billion. That's about 74% of what Embraer sold in all of 2005 by revenues, and more than 80% by deliveries. Nine months' worth of work booked in a single sale? Not bad.
Of course, Embraer won't be delivering these all at once. That's not how the airplane biz works. According to the press release, the ERJ 145s will begin rolling off the line and onto the tarmac (almost literally; Embraer will be making the planes at its Chinese joint venture in Harbin) in September 2007. The Embraer 190s, which will be built in Brazil, will begin arriving in China three months later.
So much for the basics. What I find most interesting in this story is this little line from the press release: "The awarding of the order of 50 ERJ 145s by HNA Group will further secure the future success of the joint venture which, in turn, will strengthen the cooperation between China and Brazil in the aviation field."
If it had been Embraer saying that, you might chalk the comment up to political correctness. But this was Embraer's local partner speaking, and a pretty well-connected partner at that. The head of the state-owned "China Aviation Industry Corporation II" (AVIC II), and the author of that statement, is a former vice minister of China's Science, Technology, and National Defense Industries Commission. One suspects that when he speaks, Chinese airlines listen -- which might suggest that last week's announcement of Embraer's first Chinese "E-Jet" sale could be the first of many.
On a corollary note, I can't help but notice the word "defense" in the former vice minister's portfolio. And the fact that AVIC II also builds military aircraft. And the fact that Embraer does, too. Perhaps in future years, civilian airliners won't be the only things Embraer sells in China.
Flying high with further Foolishness:
- Embraer isn't the only airplane maker with Chinese ambitions. Read about Airbus' and Boeing's (NYSE:BA) plans right here.
- Embraer's Chinese success was hardly unexpected -- at least by the Fool. Read how Stephen Simpson predicted that China would play a big part in Embraer's success in "Uplifted on Embraer."
Embraer is a Motley Fool Stock Advisor pick. To take a 30-day free trial of any of the Fool's newsletters, click here.
Fool contributor Rich Smith does not own shares of any company named above. The Fool has a soaring disclosure policy.
