Boeing cancelled the plans to establish a joint venture with Embraer. But while the tie-up plans are gone, the word-war has just begun. Boeing claims its Brazilian counterpart failed to meet “necessary conditions”. In turn, Embraer accused Boeing of weaseling out of making a $4.2 billion payment for its commercial aviation business.
Winding road to Boeing Embraer joint venture
Since 2018, Boeing was trying to acquire an 80% stake in Embraer commercial aviation activities, including aftermarket support services, for $4.2 billion. The new company, renamed Boeing Brasil, was to be led by a Brazilian-based management team with a president and CEO, but Boeing would have had “operational control and management” over it.
A separate joint venture was to be created for Embraer’s military division. In it, the Brazilian company was to keep control, by holding a 51% stake, leaving to Boeing the remaining 49%. The company was to continue developing the KC-390 tactical transport and inflight refueling aircraft.
The idea of handing over some of Embraer’s programs to Boeing faced strong opposition in Brazil. In December 2018, Brazilian federal court blocked the project twice, before injunctions were overturned. A break-through came in January 2019, when the deal received a green light from the newly elected Brazilian president Jair Bolsonaro.
It took another year for the two companies to gather all the needed regulatory approvals before in January 2020, the finally announced having obtained an “unconditional approval of their strategic partnership” by the Administrative Council for Economic Defense (CADE) of Brazil. At that time, the United States, China and Japan’s authorities had already given their approvals, leaving the European Commission the only exception.
Now, Boeing announced it has terminated the agreement to obtain Embraer’s commercial aviation business. The second agreement for military business, namely to “jointly market and support the C-390 Millennium military aircraft” still stands, according to the U.S. plane makers announcement on April 25, 2020.
Boeing and Embraer take up arms for blame
Explaining its rationale behind the decision to back out of the joint venture with Embraer’s commercial aviation business, Boeing said Embraer did not satisfy the necessary conditions.
“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 [Master Transaction Agreement – ed. Note] conditions. We all aimed to resolve those by the initial termination date, but it didn’t happen,” Marc Allen, president of Embraer Partnership & Group Operations, is cited in Boeing’s statement. “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.”
On the same day, Embraer confirmed having received the deal’s termination notice from Boeing, but denied failing to meet any of its obligations. By calling its ex-partners actions “wrongful”, the Brazilian company said it would pursue all remedies against Boeing for the damages incurred because of the termination.
“Embraer believes strongly 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,” a statement by Embraer read.
“We believe 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 own financial condition and 737 MAX and other business and reputational problems.”