Embraer SA (ERJ +7.02%) was one of the market's big movers on Thursday, with the stock opening at a daily high of $31.83 only to dip back to $30.37 later in the day. The stock's pop and drop comes on the heels of a multibillion-dollar deal with the newly formed American Airlines Group (AAL +4.61%). Let's take a closer look at what this means for both companies.
Flying high
On Thursday, Brazilian plane maker Embraer SA, said it locked down a firm contract with American Airlines Group for 60 Embraer E-175 regional jets worth about $2.5 billion. As part of the deal, American also has options for buying an additional 90 Embraer planes down the road. Moreover, Embraer has promised to deliver the first of these jets to American Airlines in the first quarter of 2015.
It's been a busy week for American Airlines. On Monday, the carrier finalized its merger with US Airways Group, to become the world's largest airline by traffic. Together the new company will be called American Airlines Group and trade under the ticker symbol AAL. This merger was important because without it, American Airlines may not have been able to finance the regional purchase with Embraer.
On top of this, American Airlines Group's multibillion-dollar investment in new Embraer jets will help the company lower overall operating costs. American plans to retire its older fleet of 50-seat regional jets for these newer, more efficient 76-seat models, according to Bloomberg. With bigger planes, the airline can spread the fuel costs across more paying customers per flight.
Overall, it has been a great year for Embraer. In fact, the aircraft maker is now the market leader for regional jet sales, and the third-largest commercial plane maker behind manufacturing giants Boeing and Airbus. For the year, Embraer expects to book sales of between $5.9 billion and $6.4 billion, helped by as many as 95 commercial jet deliveries, according to research from Morningstar. Thanks to a more consolidated airline industry, Embraer should continue to benefit from strong North American jet sales.
