Boeing and Embraer at Odds Over Strategic Partnership Agreement

Embraer’s market value currently worth considerably less than the value of the original deal.

Embraer 195-E2
Boeing was slated to absorb 80 percent of Embraer’s commercial aircraft business including aircraft like this Embraer 195-E2.Courtesy Embraer

News released over the weekend is traditionally bad. A Boeing announcement on Saturday, April 25, certainly fit that bill. The aerospace giant said it had “terminated its Master Transaction Agreement (MTA) with Embraer, under which the two companies sought to establish a new level of strategic partnership. The parties had planned to create a joint venture comprising Embraer's commercial aviation business and a second joint venture to develop new markets for the C-390 Millennium medium airlift and air mobility aircraft.” The agreement would have given Boeing approximately 80 percent of Embraer’s commercial aircraft business. Boeing said it simply “exercised its rights to terminate after Embraer did not satisfy the necessary conditions.”

Within hours of Boeing’s statement Embraer claimed 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. 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.” One source on Monday, April 27, reported Embarer’s market cap as approximately $1.1 billion.

Boeing’s termination announcement was not a surprise to most industry experts as the Chicago-based aircraft maker has watched demand for its products crumble. At the end of 2019, Boeing stock was trading at about $325 a share, despite the chaos surrounding the halt in production of the 737 Max airplanes. Once the COVID-19 virus issue began devastating the airline industry however, Boeing stock tumbled to as low as $98 per share by the middle of last month. As of April 27, per share price had recovered to approximately $128. Earlier in April, Boeing asked the US government for some $60 billion in bailout funding for itself and its suppliers.

In the April 25 statement, Embraer said it “will pursue all remedies against Boeing for the damages incurred by Embraer as a result of Boeing’s wrongful termination and violation of the MTA.” Embraer’s CEO did say there was no hope for reviving the deal. Under terms of the agreement, Boeing is required to pay Embraer a $75 million termination fee.