Breaking news this morning in the United States that Boeing has terminated its joint venture agreement with Embraer. According to the manufacturer, Embraer did not meet some of the conditions of the deal which resulted in Boeing’s termination of the plan.
Boeing terminates deal with Embraer
Boeing announced that Embraer had not satisfied certain conditions for the deal to proceed on April 24th, 2020. Rather than accept an extension, Boeing chose to terminate the Master Transaction Agreement (MTA).
The head of Embraer Partnership & Group Operations, Marc Allen, had the following statement:
“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.”
The two manufacturers were to create a joint venture partnership to develop commercial aircraft. This would give Boeing a stake in the smaller, 90-120 seat market that the Airbus A220 currently dominates. Airbus had taken over the A220 from Bombardier– one of Embraer’s largest regional aircraft competitors. The agreement also could have resulted in a brand new turboprop.
In the lead-up to this agreement, Boeing and Embraer had a previous agreement to support the C-390 Millennium military aircraft. This deal was last expanded in 2016. Boeing indicated that this tie-up would continue despite this deal falling out.
Reuters reported on April 24th that the deal was in some jeopardy over implementation. One concern was the way the tie-up would be funded. The venture would be an 80-20% deal with Boeing taking the mammoth share. Importantly for Brazil, Embraer would maintain the defense arm in-house.
A rocky road
In 2018, Boeing announced that it would work to create a joint venture with Brazilian manufacturer Embraer. There was blocking (and unblocking) of the deal by courts, EU investigations, and delays. Although, the deal did gain some support from the Brazilian government and the CEO of Lufthansa Group. Less than a month ago, Embraer expected that the deal would go through this year– although delayed until after June.
What could the future hold?
This end is a significant blow both to Embraer and Boeing. Both had hoped to use this partnership to expand on commercial opportunities and take back some of the market segments that Airbus has been able to dominate. Boeing’s sizeable commercial arm would have been able to market and sell the E2 jets in a way that Embraer could not.
The volatility of the current aircraft market is not to be overlooked. Both manufacturers understand that it may take some time before orders start flowing. This could have been part of the reasoning behind terminating this deal. Boeing could have worked with Embraer to extend the deadline. However, the American manufacturer chose not to.
The small aircraft market is turning out to be fairly sizeable, as shown by the A220’s success. The last American aircraft that could readily compete in this segment was the 717. Although, a re-engined 717 is likely out of the question.
Currently, Boeing has yet to announce (or kill) the 797. If the 797 is dead, then a small aircraft in the 100-seat market could be the way forward once the MAX is recertified. Down the line, Embraer and Boeing could perhaps come back to the table to try and work things out. Embraer knows small aircraft and has a tried and tested portfolio of regional jets. Moreover, as this industry has shown, anything is possible.
What do you make about the end of this deal? Let us know in the comments!