Brazilian President Jair Bolsonaru told reporters that the aircraft manufacturing conglomerate Embraer could find a new foreign partner after the American corporation Boeing withdrew from the deal to create a joint venture.
“We are still thinking. The gold share belongs to us, the decision is mine (the leadership of Brazil can influence the decisions made by the company. - RT ). If the deal really breaks, maybe we will start negotiations with another company, ”the Brazilian business publication Valor Econômico quotes Bolsonaru.
Earlier, Reuters, citing a statement by the Brazilian company, said that Embraer was going to take measures to save resources due to the cancellation of the agreement with Boeing.
“We are taking additional measures to maintain our liquidity and stable financial situation in these turbulent times,” the document says.
On the break of one of the largest transactions in the aircraft market in recent years, it became known on April 25. This is the agreement that Boeing and Embraer concluded in 2018. This month, the implementation of contractual obligations was at the final stage.
Boeing argued its decision by the fact that the counterparty constantly violated the terms of the transaction. The American side tried to rectify the situation, but its "efforts were in vain."
“For more than two years, Boeing has been working hard to complete the deal with Embraer. In recent months, we have been conducting productive, but ultimately fruitless negotiations on the MTA's unfulfilled conditions (Master Transaction Agreement - type of transaction concluded between Boeing and Embraer. - RT ) ... We are deeply disappointed with this situation. However, in the current conditions, the continuation of negotiations within the MTA will not solve the remaining problems, ”Boeing noted.
At the same time, the Brazilian company claims to have complied with the clauses of the agreement. From the point of view of Embraer, American partners "illegally" out of the deal. The conglomerate said Boeing “uses far-fetched false accusations as an excuse to evade commitments to close the deal and pay Embraer a $ 4.2 billion purchase price.”
“We believe that Boeing systematically delayed the deadlines and repeatedly violated the MTA due to the reluctance to complete the transaction in the light of its own financial situation, the situation around the 737 MAX and other commercial and reputational problems,” Embraer said.
As the Brazilian company emphasized, “all legal remedies will be used against American partners in order to recover damages incurred as a result of unlawful termination and violation of the MTA”. Under the terms of the agreement, Embraer may receive $ 100 million in compensation from Boeing.
Embraer is one of the largest aerospace companies in the world. The conglomerate specializes in the production of passenger aircraft with a capacity of up to 120 people and military products for the needs of the Brazilian army.
Expectations and Result
The agreement between Boeing and Embraer contained an obligation to create two joint ventures. The first company was to produce medium-haul passenger liners, the second was a military transport aircraft KC-390. The total investment of the Americans in the implementation of the Master Transaction Agreement was estimated at $ 4.2 billion.
It was assumed that the share of Boeing in the joint venture for the production of civilian vehicles will be 80% (20% - in the ownership of Embraer), in the enterprise manufacturing KC-390 - 49% (51% - in Embraer). From the statement of the American corporation on the termination of the MTA, it follows that the agreement on the creation of the second joint venture remains in force. Brazilians have not yet commented on this information.
- Brazilian aircraft Phenom300E
- © @embraer
Western analysts linked the 2018 deal between Boeing and Embraer with a change in the configuration of the global regional aircraft market. The corporations decided to combine assets in the wake of increased competition from the European aerospace concern Airbus and the Canadian company Bombardier.
Shortly before the conclusion of the Master Transaction Agreement, Bombardier sold Airbus a 50.01% stake in its C Series medium-range narrow-body aircraft manufacturing program (renamed A220).
The cooperation of Boeing and Embraer in a joint venture was designed to optimize the cost of manufacturing civilian liners and increase their competitive advantages. According to the forecast of the American side, by the third year of operation of the joint venture, annual savings on the production of machines could amount to $ 150 million.
Interviewed by RT experts believe that Boeing went to break the MTA mainly due to serious internal problems. The corporation management plans to seek financial assistance from the US authorities. In mid-March, the company said it needed $ 60 billion. This amount, according to Boeing, is needed to support the country's entire aerospace industry.
According to the S&P Global Ratings rating agency, Boeing is suffering from a sharp drop in air traffic (as a result of the coronavirus pandemic) and the failure of many leading airlines to operate the latest 737 MAX airliners.
The company is virtually deprived of the opportunity to market these machines after the crash in Ethiopia and Indonesia on March 10, 2019 and October 29, 2018, respectively. Both accidents occurred with the Boeing 737 MAX 8. The preliminary cause of the crash in both cases is called defects in the flight control system.
Against this negative information background, American and foreign carriers began to abandon the planned purchases of 737 MAX family aircraft. Later, the flights of these machines were completely suspended.
“Boeing has gripped a massive crisis. To the difficulties in implementing the 737 MAX program, a sharp decrease in demand for aircraft was added due to the spread of coronavirus infection. And in the near future the situation for the American company is unlikely to improve, it will continue to incur financial losses, ”said Oleg Panteleev, Executive Director of Aviaport, in a conversation with RT.
- Boeing Corporation Plant
- © Boeing
Hoping for help
In an interview with RT, Director General of the Center for Strategic Research in Civil Aviation Anton Koren suggested that the break in the deal with Embraer was dictated by Boeing’s desire to receive financial support from the US authorities. In this regard, the overseas company found an excuse for refusing to invest in a civilian project involving Embraer.
“Boeing claims to receive financial assistance from the US federal government. Under the $ 60 billion request for help, the acquisition of assets may look ambiguous and lead to the blocking of a solution beneficial for Boeing, ”says Root.
At the same time, according to the expert, Embraer will be able to overcome the difficulties created by the American partners. This, according to Koren, is evidenced by the high demand for regional airplanes, which continues despite the crisis caused by the pandemic.
“At the end of 2019, Embraer had financial balances of $ 2.3 billion on its accounts. Also, the Brazilian company may well become the recipient of state guarantees of its own government,” said Root.
A similar point of view is shared by Oleg Panteleev. According to him, the Brazilian company will suffer "moderate losses" from the break of the transaction - the world is not expected to cancel orders for aircraft manufactured by Embraer. At the same time, according to the interlocutor of RT, Boeing will be harder to get out of the crisis.
“The current state of affairs in the world market, to put it mildly, does not contribute to the implementation of large-scale transactions. In this context, the cancellation of the agreement that Boeing agreed to seems logical. The company is in a situation where it itself needs large-scale outside help, ”Panteleev stated.