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Boeing-Embraer Deal is Officially Terminated
In an official statement released this morning, Boeing has announced that it is terminating the efforts to establish a joint venture with Brazilian builder Embraer, after denouncing the latter has not met the conditions for consolidation in due time.
Both companies started formal talks about a joint venture regarding the Embraer E2 series, the next generation of the successful E-Jets regional aircraft portfolio.
Clearly, the intention of the two companies was aimed at closing the agreement during 2019. The complexity of the operation and a few setbacks put by various antitrust commissions made that date more and more complicated. In fact, the European competition defense agency still does not approve the operation and has moved its ruling for August 7. But internally, the two companies had set a deadline in January 2019 to complete the integration, after meeting a series of conditions.
This period expired 15 months after the provisional agreement was signed. It expired at 00:00 San Paulo time on April 25, 2020.
The conditions did not seem insurmountable at the time: they mostly revolve around how Boeing will pay 80 percent of Embraer. But if that issue had become particularly complex for the North American manufacturer in the past year, the COVID-19 pandemic ended up muddying everything.
In a context in which the airline industry requests 60 billion dollars of public funds through CARES to be able to pass this crisis with a relative relief – abruptly cutting any investment, canceling orders and taking advantage of a fuel price at historical minimums that would allow them not to worry so much about the difference in consumption efficiency that new generation aircraft allows, and where Boeing particularly has a 19 billion bill ahead in compensations derived from the grounding of the MAX, is it smart to spend 4.2 billion for 80 percent of Embraer Commercial? And the other big question: Is Embraer Commercial still worth 5 billion?
More than a few analysts believe that the answer to both questions is a resounding no. And perhaps the expiration of the deadline was a more or less elegant exit for Boeing, which should pay between 75 and 100 million for the cancellation of the agreement.
Nothing indicates that it cannot be taken up later, with other values, adjusted to the reality of the market. This would be a tremendous blow to Embraer, who relied on this agreement strongly because it is going to be very difficult to perform well as an independent producer against Boeing and Airbus. The Brazilian company declared that it is not in a position to offer guarantees on “an extension of the term, the consummation of the agreement or a tentative date of completion if any.”
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