Embraer Jet Crash Raises Concerns for Russian Private Military Contractor
Investors appear to be overlooking the safety concerns surrounding the recent crash of an Embraer jet in Russia, despite the fact that Yevgeny Prigozhin, head of the private military contractor Wagner Group, was listed as a passenger on the flight.
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The jet involved in the incident was an Embraer Legacy 600. Remarkably, this event has had no noticeable impact on the stock performance of Embraer’s U.S.-listed American depositary receipts (ADRs), which actually rose by 3% during Wednesday trading. Meanwhile, the broader market saw the S&P 500 and Nasdaq Composite rise by 1.1% and 1.6%, respectively.
This lack of reaction from investors suggests that the cause of the crash is not being attributed to any issues with the plane itself. According to sources close to Wagner on social media, the jet was allegedly shot down by Russian air defenses, as reported by The Wall Street Journal. Images of debris, which were published by Russian media, also appeared to show damage consistent with air-defense missile impact.
While Russian aviation regulators cited by state media have not provided an official reason for the crash, some Russian lawmakers have suggested the possibility of a bomb being on board, as stated in The Journal's report. The government has confirmed that an investigation is underway.
Typically, investors react with more caution in the aftermath of such major incidents. For instance, Boeing experienced a 6.6% drop in its stock value following the crash of a 737 MAX jet on October 29, 2018, and a 5.3% decline after a similar incident on March 10, 2019.
Given the apparent resilience of Embraer shares in the wake of this tragedy, it seems that investors are confident in the company's overall safety record, despite the involvement of a high-profile individual on the ill-fated flight.
Airplane Crash Statistics
When it comes to airplane crashes, the word "typical" doesn't accurately describe the situation. According to data from Boeing, there is approximately one fatal accident for every five million flights. Airbus data reveals that for the newest planes, a complete loss of the aircraft happens approximately once every 6.3 million flights.
However, business jets have different reporting methods for safety statistics. The National Business Aviation Association reports these figures per 100,000 flight hours. Recent data shows that there is an average of one fatality per 400,000 to 500,000 flight hours.
Unfortunately, Embraer has not responded to a request for data about the safety of their Legacy 600 aircraft.
While these numbers may seem abstract, they highlight the fact that the average person would have to fly for thousands of years before they could reasonably expect to be involved in an airplane accident.
In terms of investor impact, the details surrounding the recent Legacy 600 crash are unlikely to significantly affect the shares of jet manufacturers. Embraer ADRs have actually seen a 46% increase in value this year, reflecting positive investor sentiment towards commercial aviation-related stocks. Air travel statistics have been surpassing pre-pandemic levels, with global domestic travel reaching 5.3% above May 2019 levels and international travel at about 91% of pre-Covid levels.
In conclusion, while airplane accidents do occur, the statistics demonstrate that they are extremely rare events. The aviation industry continues to improve in terms of safety, and investor confidence remains strong.
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