The Boeing-Embraer marriage is off, and it looks like a bad split

Apr 26, 2020

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Boeing has called off its plan to buy the majority of Embraer’s commercial aircraft division, a deal that would have strengthened its position in the smaller jet market adding the E-Jet-E2 to its portfolio.

Boeing and Embraer were unable to reach an agreement on “unsatisfied [master transaction agreement] conditions” and further negotiations would not resolve the issues, Chicago-based Boeing said on 25 April.

However, in response, Embraer said Boeing “wrongfully terminated” the agreement, in its own statement on 25 April. The Brazilian planemaker claimed that Boeing’s move stemmed from “its own financial condition and 737 MAX” grounding.

Industry observers appear to agree with Embraer’s view that Boeing cancelled the deal due to the collapse in aircraft demand amid the coronavirus pandemic, reported The Seattle Times.

The Boeing-Embraer tie up, while unveiled in 2018, stems from the U.S. planemaker’s concerns with Bombardier. In 2017, Boeing filed a trade complaint with U.S. authorities over Bombardier’s sale of at least 75 CS100s — now the A220-100 — to Delta Air Lines claiming “damages” from Canadian subsidies to the aircraft program. That complaint, and the threat of possible tariffs, prompted Bombardier to sell the CSeries to Airbus and Boeing to seek a partnership with Embraer.

Boeing was to take control of 80% of Embraer’s commercial aircraft division, which is focused on producing and selling the E2. A separate joint venture on Embraer’s KC-390, a military transport jet, was also planned.

Related: Brazil Approves Boeing’s $4.2 Billion Acquisition of Embraer

Boeing 737 MAX airplanes from Icelandair sit parked in a parking lot at a Boeing facility adjacent to King County International Airport, known as Boeing Field, on May 31, 2019. (Photo by David Ryder/Getty Images)
Boeing 737 MAX jets parked in a parking lot at Boeing Field near Seattle after the planes were grounded globally in 2019. (Photo by David Ryder/Getty Images)

Apart from regulatory hurdles, progress on the Boeing-Embraer deal appeared to be moving forward even after the 737 MAX grounding in March 2019. The grounding hit Boeing hard prompting its first annual loss since 1997.

The U.S. planemaker has focused resources on getting the MAX, the cash cow of its commercial jet business, back in the air since the grounding.

During its 2019 earnings presentation, Boeing executives mentioned the MAX 39 times and the Embraer deal just once, according to Seeking Alpha.

A legal dispute between Boeing and Embraer appears set to occur next. The Brazilian planemaker said in its statement that it will seek “damages” from Boeing for cancelling the deal.

However, the damage to Embraer could be lasting. The planemaker has landed few large new orders for the E2 in the past year, save KLM’s commitment for up to 35 E195-E2 jets that it finalized last November. Embraer has no orders for the re-engined E-Jet from U.S. carriers to date, whereas Airbus has sold the comparably sized A220 to Delta, JetBlue Airways and David Neeleman’s start-up Breeze Airways.

Related: 737 MAX woes send Boeing to first annual loss since 1997

Featured image courtesy of Embraer.

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