Boeing - Embraer Deal Cancelled
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Boeing - Embraer Deal Cancelled
https://www.seattletimes.com/busines...se-of-embraer/
Boeing kills its $4.2 billion purchase of Embraer
April 25, 2020 at 7:30 am
By Dominic Gates
Seattle Times aerospace reporter
After more than two years of negotiations, Boeing on Friday abruptly terminated its proposed $4.2 billion deal to acquire the commercial jet business of Brazilian regional jetmaker Embraer.
Boeing let a midnight Friday deadline to extend negotiations over the closing terms of the deal, citing an inability to come to a final agreement. “Boeing exercised its rights to terminate after Embraer did not satisfy the necessary conditions,” the company said in a statement.
However, industry observers who had been expecting the decision believe the key reason for terminating the deal is the collapse in demand for airplanes due to the coronavirus pandemic and Boeing’s urgent need to conserve cash as revenue dries up.
The pandemic has so changed Boeing’s circumstances that killing the acquisition plan has looked inevitable.
Politically, going forward with a major foreign investment could have derailed Boeing’s negotiations with the U.S. government for a massive loan to survive the brutal business downturn.
The deal would have been Boeing’s largest acquisition since it bought McDonnell Douglas in 1997. While its failure seems a short-term necessity, it’s nevertheless a blow to the jetmaker’s long-term strategy and to its competitive position against European rival Airbus.
Boeing had seen Embraer as providing a new line-up of smaller jets to extend its airplane offerings. It had also hoped to gain from Embraer’s substantial engineering talent in Brazil.
Boeing had said Embraer’s facilities near São Paulo “will become one of Boeing’s centers of excellence for end-to-end design, manufacturing, and support of commercial passenger aircraft, and will be fully integrated into Boeing’s broader production and supply chain.”
That plan has now evaporated. With the commercial airplane market looking like it will shrink significantly and not recover for some years, instead of expanding to Brazil, Boeing instead faces the prospect of down-sizing.
Advantage Airbus
Embraer, headquartered outside São Paulo, is the world’s leading maker of regional jets. Its commercial jets, known as E-jets, are smaller and shorter-range airplanes than those built by Airbus and Boeing, used on many domestic flights on less dense routes.
Alaska Airlines, for example, flies the 76-seat E-175.
Embraer also makes corporate business jets and military airplanes. Boeing was proposing to buy only the E-jet business, with a separate agreement to form a joint venture that would promote Embraer’s defense products, especially its KC-390 military transport and air refueling tanker aircraft.
After years of collaborating with Embraer and considering a purchase, Boeing announced in December 2017 that it was in talks to acquire Embraer’s commercial business.
The proposed acquisition was propelled by a need for competitive balance after Airbus acquired the small C-Series jet, known now as the Airbus A220, from Embraer’s Canadian competitor Bombardier.
The A220 has already proven a sales success for Airbus. And when the pandemic recedes and the airline world resumes flying with smaller passenger loads, its small may make it even more attractive to airlines.
Now Boeing has lost its planned contending line-up in that category, leaving Airbus at a competitive advantage.
The Embraer deal was originally expected to close by this spring but was delayed pending regulatory approval by the European Union. That delay may have been fortuitous, preventing an expansion and a big outlay of cash at a moment when neither are appropriate.
According to the terms of the agreement signed by both parties in January 2019, Boeing would be required to pay Embraer a termination fee of $75 million if it pulled out with all the closing conditions met.
However, Boeing spokeswoman Allison Bone said Saturday that with the lack of final agreement on those conditions, “we don’t believe a termination fee applies in the circumstances.”
Dominic Gates: 206-464-2963 or [email protected]; on Twitter: @dominicgates.
April 25, 2020 at 7:30 am
By Dominic Gates
Seattle Times aerospace reporter
After more than two years of negotiations, Boeing on Friday abruptly terminated its proposed $4.2 billion deal to acquire the commercial jet business of Brazilian regional jetmaker Embraer.
Boeing let a midnight Friday deadline to extend negotiations over the closing terms of the deal, citing an inability to come to a final agreement. “Boeing exercised its rights to terminate after Embraer did not satisfy the necessary conditions,” the company said in a statement.
However, industry observers who had been expecting the decision believe the key reason for terminating the deal is the collapse in demand for airplanes due to the coronavirus pandemic and Boeing’s urgent need to conserve cash as revenue dries up.
The pandemic has so changed Boeing’s circumstances that killing the acquisition plan has looked inevitable.
Politically, going forward with a major foreign investment could have derailed Boeing’s negotiations with the U.S. government for a massive loan to survive the brutal business downturn.
The deal would have been Boeing’s largest acquisition since it bought McDonnell Douglas in 1997. While its failure seems a short-term necessity, it’s nevertheless a blow to the jetmaker’s long-term strategy and to its competitive position against European rival Airbus.
Boeing had seen Embraer as providing a new line-up of smaller jets to extend its airplane offerings. It had also hoped to gain from Embraer’s substantial engineering talent in Brazil.
Boeing had said Embraer’s facilities near São Paulo “will become one of Boeing’s centers of excellence for end-to-end design, manufacturing, and support of commercial passenger aircraft, and will be fully integrated into Boeing’s broader production and supply chain.”
That plan has now evaporated. With the commercial airplane market looking like it will shrink significantly and not recover for some years, instead of expanding to Brazil, Boeing instead faces the prospect of down-sizing.
Advantage Airbus
Embraer, headquartered outside São Paulo, is the world’s leading maker of regional jets. Its commercial jets, known as E-jets, are smaller and shorter-range airplanes than those built by Airbus and Boeing, used on many domestic flights on less dense routes.
Alaska Airlines, for example, flies the 76-seat E-175.
Embraer also makes corporate business jets and military airplanes. Boeing was proposing to buy only the E-jet business, with a separate agreement to form a joint venture that would promote Embraer’s defense products, especially its KC-390 military transport and air refueling tanker aircraft.
After years of collaborating with Embraer and considering a purchase, Boeing announced in December 2017 that it was in talks to acquire Embraer’s commercial business.
The proposed acquisition was propelled by a need for competitive balance after Airbus acquired the small C-Series jet, known now as the Airbus A220, from Embraer’s Canadian competitor Bombardier.
The A220 has already proven a sales success for Airbus. And when the pandemic recedes and the airline world resumes flying with smaller passenger loads, its small may make it even more attractive to airlines.
Now Boeing has lost its planned contending line-up in that category, leaving Airbus at a competitive advantage.
The Embraer deal was originally expected to close by this spring but was delayed pending regulatory approval by the European Union. That delay may have been fortuitous, preventing an expansion and a big outlay of cash at a moment when neither are appropriate.
According to the terms of the agreement signed by both parties in January 2019, Boeing would be required to pay Embraer a termination fee of $75 million if it pulled out with all the closing conditions met.
However, Boeing spokeswoman Allison Bone said Saturday that with the lack of final agreement on those conditions, “we don’t believe a termination fee applies in the circumstances.”
Dominic Gates: 206-464-2963 or [email protected]; on Twitter: @dominicgates.
I doubt we'll see the demise of Boeing, but as for Embraer ...
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Embraer over the years has developed an excellent engineering capability, in house historical engineering knowledge, and knowledge of transport airplane design requirements to the point where there is a viable third manufacturer in the world from an engineering experience standpoint. Many of us who have worked with them have been very concerned about the effects that a merger with Boeing would have on these difficult to develop and difficult to restore engineering capabilities. This cancellation may actually be a good thing overall.
The world is going to be a different place after Covid-19. Fleets of 150+ seat narrow body aircraft could well be uneconomic due to to sustained reduced pax demand possibly for years. E190 and E195 aircraft may well be in the new "sweet spot". You won't be able to give a Max away.
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Please "Note" l was not suggesting that even though Boeing is asking the US Government for financial help in this crisis, that they will fail.
I was trying to suggest that Boeing no longer has the money available for the deal.
It would not look good to those in DC where they are asking for help, that they are going to spend money on a tie up with a overseas company.
I was trying to suggest that Boeing no longer has the money available for the deal.
It would not look good to those in DC where they are asking for help, that they are going to spend money on a tie up with a overseas company.
Seems they are not going to separate as friends... "Embraer says that Boeing wrongfully terminated the Master Transaction Agreement" https://www.aviation24.be/manufactur...ion-agreement/
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Originally Posted by Mr @ Spotty
It would not look good to those in DC where they are asking for help, that they are going to spend money on a tie up with a overseas company.
As for the repercussions of cancelling the deal: when has the US ever complied with international law when it was not in their own interest? Especially with the current president...
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The world is going to be a different place after Covid-19. Fleets of 150+ seat narrow body aircraft could well be uneconomic due to to sustained reduced pax demand possibly for years. E190 and E195 aircraft may well be in the new "sweet spot". You won't be able to give a Max away.
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I read that DELTA have grounded about 50% of their aircraft, but keep the whole A220 fleet flying. Must be the right size aircraft to be economically operated in the present situation.
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Boeing needed those engineers from EMB to move engineering offshore. They let all of the engineers go in the US with early outs, and were left with whatever could not be hired elsewhere...
BA was hoping to buy EMB to get a young, experienced engineering staff...
Boeing gutted engineering years ago, as well as manufacturing....
now they are left with the people who could not get jobs elsewhere....
BA was hoping to buy EMB to get a young, experienced engineering staff...
Boeing gutted engineering years ago, as well as manufacturing....
now they are left with the people who could not get jobs elsewhere....
Ecce Homo! Loquitur...
BEA_71,
This week’s issue of AW&ST has an analysis stating precisely that in the expected market it is the Airbus A220 and the EMB aircraft which are at the sweet spot for range and payload.
This week’s issue of AW&ST has an analysis stating precisely that in the expected market it is the Airbus A220 and the EMB aircraft which are at the sweet spot for range and payload.
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Boeing is making a HUGE mistake by walking away from this deal. Brazil was counting on it, Embraer was counting on it. Now the government doesn't have the money to support its domestic airframer, and Embraer has found itself having a great engineering and manufacturing workforce it can't afford. Boeing has created a desperate situation for Embraer. And nobody can exploit desperation better than the Chinese government. Think African gold, Afghanistan copper, Uzbekistan oil. What China REALLY need now is the know-how of airplane manufacturing and marketing. Embraer has oodles of it, and Brazillian government may have no choice but to sell. Boeing is again pushing a potential ally into the hands of competitors, and making lots of enemies in the process.
If Airbus has any cash left in their coffers, now is a good time to buy Embraer on similar conditions as Bombardier. Only this time, instead of 1 dollar, Brazil may want Airbus to keep the national pride afloat. It will give Airbus absolutely nothing in terms of model range expansion (unless they want to dive into the business jets market) but will eliminate a competitor for their A220 for at least the next decade.
If Airbus has any cash left in their coffers, now is a good time to buy Embraer on similar conditions as Bombardier. Only this time, instead of 1 dollar, Brazil may want Airbus to keep the national pride afloat. It will give Airbus absolutely nothing in terms of model range expansion (unless they want to dive into the business jets market) but will eliminate a competitor for their A220 for at least the next decade.
I hope Embraer survive. If they can get through this, it is perhaps better for them to remain independent from the big two.
I have a few hundred hours on the older ERJ145, and always found the passenger experience on the current E-jets (170/190) a pleasant experience. But I don’t understand how a smaller aircraft will have advantage with lower loads. A 180-odd seat 737 or A320 with a 2/3rds load will surely have a better fuel burn per pax seat than a 100 seat aircraft (that burns perhaps 1/3rd less fuel than the larger aircraft) with a reduced passenger load. Especially as, with 2/2 seating, presumably the only option would be a half load.
I have a few hundred hours on the older ERJ145, and always found the passenger experience on the current E-jets (170/190) a pleasant experience. But I don’t understand how a smaller aircraft will have advantage with lower loads. A 180-odd seat 737 or A320 with a 2/3rds load will surely have a better fuel burn per pax seat than a 100 seat aircraft (that burns perhaps 1/3rd less fuel than the larger aircraft) with a reduced passenger load. Especially as, with 2/2 seating, presumably the only option would be a half load.
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