Boeing Scraps US$4.2 Billion Deal with Embraer

Boeing stepped back from a US$4.2 billion agreement to buy Embraer’s commercial jet division after both companies failed to meet an April 24 deadline. The move caused trouble for the Brazilian company and sent its shares spiraling down.

Boeing and Embraer’s deal was penned in February 23, 2019, when airplane demand was high and expected to remain so. At the time, Boeing aimed to acquire 80 percent the Brazilian’s planemaker’s commercial jet division, in a move that would allow the first company to better compete against Airbus in sales of airplanes with less than 150 seats. The acquisition plan also followed a similar move by Airbus, which acquired a majority stake in Bombardier’s C Series Aircraft to strengthen its position in the 100-150 seat segment.

The venture had already been approved by regulators from many countries and was pending approval in the EU. Both OEMs had 15 months from the day the deal was signed to meet contractual conditions for the acquisition but no consensus was reached by April 24. While Embraer called for a deadline extension, Boeing walked out of the deal citing that its partner did not satisfy the necessary conditions to continue. "It is deeply disappointing. But we have reached a point where continued negotiation within the framework of the [Master Transaction Agreement] MTA is not going to resolve the outstanding issues," said Marc Allen, President of the Embraer Partnership & Group Operations at Boeing.

Embraer, on the other hand, claimed that it had fully complied with the terms of the Master Transaction Agreement and argued that Boeing’s claims were “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.” The Brazilian planemaker blamed the financial troubles that Boeing is facing due to the global grounding of the 737 Max as the reason behind Boeing’s withdrawal of the deal. This troubled aircraft has not flown for over a year and its return to the skies keeps being postponed, causing financial trouble for airlines that operate it. Boeing has been trying to assuage its commercial partners by compensating them for their lost revenue but some airlines are taking the plane maker to court and/or cancelling their orders.

Embraer claims that it “will pursue all remedies against Boeing for the damages incurred by Embraer as a result of Boeing's wrongful termination and violation of the MTA.” On Monday, the Brazilian company began an arbitration process against its former partner and rushed to calm investors as its shares fell by 16 percent.