Boeing and Embraer scrap $4.2bn deal as coronavirus dampens demand

The potential tie-up could have helped Boeing compete with Airbus’s smallest single-aisle jets

(FILES) In this file photo taken on January 29, 2020, the company logo hangs above an entrance to the headquarters of The Boeing Company in Chicago, Illinois.  Boeing plans to reduce the workforce in its civil aviation unit by 10 percent to cut costs as the coronavirus causes a crisis for airlines, two sources familiar with the matter told AFP. The layoffs would impact the unit manufacturing the 787 and 777 long-haul aircraft as well as the troubled 737 MAX, the sources said. / AFP / GETTY IMAGES NORTH AMERICA / SCOTT OLSON
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Boeing is walking away from its proposed combination with Embraer’s commercial-jet business, ending more than two years of talks, as the planemakers brace for a far smaller market for aircraft after the coronavirus pandemic.

“We have reached a point where continued negotiation within the framework of the MTA is not going to resolve the outstanding issues,” Marc Allen, president of Embraer Partnership & Group Operations, said in a statement on Saturday.

The collapse turns two long-time trade partners into competitors and strengthens Airbus's hand in the lucrative market for single-aisle jets. Boeing and Embraer will, however, maintain their existing Master Teaming Agreement, originally signed in 2012 and expanded in 2016, to jointly market and support the C-390 Millennium military aircraft.

The deal would have bolstered Boeing’s ability to compete with Airbus by adding Embraer’s small jets to the US aerospace giant’s product lineup through a commercial partnership.

Boeing is abandoning the proposed tie-up weeks after chief executive Dave Calhoun warned employees that the company would need to adjust to a “new reality” as travel demand collapses and airlines prepare for a slow recovery. Embraer’s market value has tumbled to less than $1.1 billion (Dh4bn), about one-quarter of what Boeing had been poised to pay for the Brazilian company’s commercial plane operations alone.

Both the commercial landscape and Boeing’s balance sheet are far different from late 2017, when talks for the original partnership began in earnest.

At the time, the Chicago-based planemaker was flush with cash and eager to tap Embraer’s engineers to help design a new, midrange jet family that was on Boeing’s drawing board.

Two-and-a-half years later, Boeing has scrapped its product-development plans and its reputation for engineering prowess has been battered by two deadly crashes of the 737 Max, its best-selling jet.

Boeing is now trying to preserve cash as it deals with plummeting demand for jet sales and at least $19bn in costs for the Max, which has been grounded more than a year.

Preserving $4bn or so, would mean “a nice chunk of liquidity” for Boeing, aerospace analyst Richard Aboulafia said in an interview earlier last week.

Embraer will be left to face the tumultuous market and compete with Airbus without relying on Boeing’s deeper pockets. Brazil’s industrial jewel had $2.78bn of cash, equivalents and financial investments at the end of the year, down from $3.21bn a year earlier. Net debt increased 39 per cent to $612.4 million.

Embraer’s sales have also slumped due to uncertainty over the status of the Boeing venture. The Sao Jose dos Campos, Brazil-based company delivered 89 commercial jets last year, one fewer than the year before. Total sales climbed 7.7 per cent to $5.46bn on increased revenue from Embraer’s business in private jets, defense and services.

The slow commercial-plane sales stand in contrast to Airbus’s competing A220, which is “starting to really get traction” with blue-chip customers such as Delta Air Lines, Mr Aboulafia said. Embraer is still trying to establish its upgraded E2 generation of jets.

“The E2 still has not hit the mainline carriers the way the A220 is starting to,” Mr Aboulafia said. “Why? The answer was they were waiting for the Boeing deal to be inked, which was possibly the correct response.”