In a late-night (IST), news drop, Boeing announced that it had terminated its Master Transaction Agreement (MTA) with Embraer, under which the two companies sought to establish a new level of strategic partnership. The parties had planned to create a joint venture comprising Embraer’s commercial aviation business, with Boeing taking an 80% stake in the business. A second joint venture was intended to develop new markets for the C-390 Millennium medium airlift and air mobility aircraft.
Boeing leaves Embraer at the altar.
The Boeing – Embraer journey started in 2018 when both the companies signed a pact to come together, right about the time Airbus unveiled the A220 (originally the C-series) which was a small aircraft developed by Canadian airframe maker Bombardier, who sold it to Airbus for a token payment after the US put a massive amount of duties on the plane (as there was a big order from Delta). Since then, the Embraer joint venture approvals have come in very very slowly, however, were all complete apart from an endorsement coming from the European Commission.
Under the MTA, April 24, 2020, was the initial termination date, subject to extension by either party if certain conditions were met. Boeing exercised its rights to terminate after, per its claims, Embraer did not satisfy the necessary conditions.
Marc Allen, president of Embraer Partnership & Group Operations, said,
Boeing has worked diligently over more than two years to finalize its transaction with Embraer. Over the past several months, we had productive but ultimately unsuccessful negotiations about unsatisfied MTA conditions. We all aimed to resolve those by the initial termination date, but it didn’t happen.
It is deeply disappointing. But we have reached a point where continued negotiation within the framework of the MTA is not going to resolve the outstanding issues.
Boeing and Embraer will maintain their existing Master Teaming Agreement, originally signed in 2012 and expanded in 2016, to jointly market and support the C-390 Millennium military aircraft.
Embraer deems it a wrongful termination
Embraer responded, terming the termination of the deal wrongful.
— Embraer (@embraer) April 25, 2020
Embraer believes that Boeing has wrongfully terminated the MTA, that it has manufactured false claims as a pretext to seek to avoid its commitments to close the transaction and pay Embraer the US$4.2 billion purchase price. Embraer believes Boeing has engaged in a systematic pattern of delay and repeated violations of the MTA, because of its unwillingness to complete the transaction in light of its financial condition and 737 MAX and other business and reputational problems.
The Road Ahead
The road ahead seems sticky. Certainly Boeing’s failures over the years, such as an inability to bring the MAX back to the skies, and now a situation where they are in a condition where new product development has stopped, as well as due to the bad global situation, perhaps the way aviation will change is unknown, probably paid a part in their pulling back from the deal. Also, if Boeing is going to participate in a government-funded programme to keep them afloat and pay the bills, the optics of billions of dollars flowing out to Brazil are just too bad. How will Embraer proceed is something to be seen, given a lot of focus was on getting the deal done for a while now.
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