Boeing deal, “crucial to Embraer survival,” in doubt

Update, Dec. 7: Embraer to appeal injunction.

According to the Google translation of a Brazilian newspaper, the injunction appears to be intended to halt any completion of the deal during the interim between the November presidential election and the assumption of office by the president-elect. The Google translation does not appear to indicate the injunction is based on any specific objection to the proposed JV.

ANALYSIS

Dec. 6, 2018, © Leeham News: In a stunning piece of news, a Brazilian court blocked the proposed joint venture between Boeing and Embraer.

If the action holds, this is a major blow to Boeing’s future plans.

The new joint venture, which LNC dubs NewCo for the lack of a name, was to be responsible for all future Boeing aircraft of 150 seats and below, according to a Memorandum of Understanding revealed by Embraer’s labor unions.

This is critical to Boeing’s long-term future for the 2030 decade.

737-7 rejected by market

Legacy Boeing, faced with the prospect of launching the New Midmarket Aircraft next year with a target-EIS of 2025, faces replacing the 737 after the NMA.

The 737-7 has been rejected by the market, with fewer than 70 sold since the MAX program was launched in 2011.

Embraer, which specializes in smaller aircraft ranging from 76 seats to 122-seats (two-class, EJet E2), could concentrate on the below-150-seat market while Boeing would focus on the NMA and the so-called heart-of-the-market of 165 or more seats now filled by the 737-800/8.

Embraer was also expected to provide engineering talent for the NMA because some 5,000 Boeing engineers and technicians are eligible to retire in the next 5-10 years.

Embraer needs Boeing

As much as Boeing needs Embraer for the small airplane sector, Embraer needs Boeing, perhaps even more.

The E2 has been slow-selling (in part, waiting for the JV to be approved). The E175-E2 is too heavy for US labor union Scope Clauses with American, Delta and United airlines. Embraer has a conditional order with Skywest Airlines, a Delta and United operator, for 100 E175-E2s, and no others worldwide.

With the engineering on E2 program largely wrapped up and doubts whether the E175 E2 will ever be built, Embraer Commercial Airplanes needs Boeing and its NMA-JV work.

Indeed, Reuters wrote, citing Embraer that the Boeing deal “is crucial to its survival.”

More reporting may be expected as details of the court’s decision become available.

37 Comments on “Boeing deal, “crucial to Embraer survival,” in doubt

  1. I concur that this deal is more critical to Boeing than to Embraer that seemed to be the losing side of the initial deal.

    May be a version 2 will bring more value to the Brazilian side 😉

    • Not so quick, these lawsuits are nothing new and I’ve read they have a 80% failure rate

    • Brazil didn’t like to get the soul in aviation to go to Boeing. Boeing is bige enough to kill Embraer from Brazil owned.
      Boeing tried that with Bombardier.

  2. What we need to know is what the appeal process is and how sound a legal ground the ruling on it was.

  3. This blockage will not last long. The judge argued that since the Brazilian Federal Government is changing, the decision is aimed at preserving the possibility of reversing the deal, avoiding unreversable actions by the companies in the mean time, in the case the new government is against it. We all know the new governement is in favor of the deal, only the leftists are against, as they always are by the way.

    • Things have changed…. Now the further you go to the right, the more opposition you find to any kind of outsourcing 😉

      • Quite frankly, the leftists had a long time chance. Not very good results!
        Very high time for a change!

          • Thank you, politics aside, the E series would fill a spot in Boeing’s line up that is non existent. The 75-110 seat frame is growing among many airlines and with the 50 seat RJ’s on the way out, larger RJ’s are needed to fill many routes.

  4. Well as I have read elsewhere the joint venture in on hold till the newly ellected goverment take office early 2019. I think the new president Jair Bolsonaro as said he was in favor of the deal if I remember correctly. The goverment hold a ”golden ticket” that if they don’t agree to the deal it can’t go through. We will see what happen it might just be a bump on the road.

  5. Imagine the Brazilian Government wants a sweetend deal with more job creation in the country, etc.

    • Up to now it looked like a very one sided arrangement and to Boeing’s sole advantage.
      Brazil should not give away control of a technological asset
      with such high national importance. Looking around the globe this has never been a good move.
      “Partner” is a concept alien to US companies. ( or it means something completely different to them 🙂

  6. Not sure it would hold as it was blocked due to giving away for free the airliner division: it was not, Boeing acquires 80% of the JV (valued at $4.75 billion) for $3.8 billion. Maybe a good ground for a higher valuation and/or lower share.

    • $3.8 billion?
      That’s strange because “The statement gave no indication of any payment Boeing was making under the deal”
      PR works like that, making people think one thing based on a supposed JV value. I can’t see them putting in $380 mill. Maybe the rest will be Boeing’s IP contribution ?

  7. The Saab trainer thingy and the upcoming Embraer deal
    seem to give a hint how Boeing expects
    to “make developement a quantum step cheap”.
    Have the work done solely by a competent offshore “partner” and
    reduce direct involvement to doing just the PR ( and applying Boeing stickers 🙂

  8. I have always seen this as a one sided grab by Boeing. Embraer has become something very significant from a zero base over the past 30 years and in spite of near term issues stands to be a strong national and regional champion. By entering into any arrangement with Boeing it will be destroyed as an independent entity. Look at the Airbus A200 deal and the impact on BBD. At least that deal was clear to both parties signing on the dotted line. this deal appears to entered into for very different reasons and with the desire of very different outcomes, partnership vs takeover/ cash flow vs skills / indigenous production vs subcontractor that the relationship will be one of master and servant.

    My question is what is forcing Brazil to throw away its aerospace business?

    • I guess you didn’t read the article:

      As much as Boeing needs Embraer for the small airplane sector, Embraer needs Boeing, perhaps even more.

      The E2 has been slow-selling (in part, waiting for the JV to be approved). The E175-E2 is too heavy for US labor union Scope Clauses with American, Delta and United airlines. Embraer has a conditional order with Skywest Airlines, a Delta and United operator, for 100 E175-E2s, and no others worldwide.

      With the engineering on E2 program largely wrapped up and doubts whether the E175 E2 will ever be built, Embraer Commercial Airplanes needs Boeing and its NMA-JV work.

      Indeed, Reuters wrote, citing Embraer that the Boeing deal “is crucial to its survival.”

      • The critical phrase was ‘Embraer Commercial Airplanes needs Boeing and its NMA-JV work.’

        Boeing works with lots of major sub contractors, adding a new one with actual design capability and selling completed planes would seem to resolve the problem with sub contractors used for the 787.
        Why have a JV. Do they do that for Spirit or Alenia or Kawasaki who worked on their 787?

        • Yep.

          Called Risk Sharing. Boeing did not put out a dime (well until the whole thing hit the Trent 1000 fans…. (grin) – then it was lots and lots of billions buying out the plant in Charleston (ultimately) from Alenia and LTV and making its own stabilizer in (Utah?)

          Basically it did not work out so good.

          After all, we have been told you don’t get something for nothing and its true.

          • Boeing would have paid much more before Alenia had problems. A cheap acquisition.
            negativists like me could even see this as in a way intentional.

      • @booch221

        I guess you have no original thought. The article is a viewpoint based upon recent events at BBD and AIrbus. The underlying competitiveness of Embraer has not suddenly disappeared. They have issues with the E2 in particular with scope clause but they also have massive opportunities by the implosion of wider BBD. Although the short-term is a bit troublesome the strong position of the past 10 years does not suddenly evaporate.

  9. Does anyone else see a gab, 122-165 seats, 2 class. Not what I would call a niche..

    • I’ll bite. Way too big to be a regional, but generally way too small for much profit as a hub airliner, given mainline costs. Yep, niche. Fits with the Air Baltics of the world.

      • Yes correct and e.g. Southwest, it has a few 737-700s up for replacement. 500?

        They delayed a 23 737-7 order until 2024, so everything is just fine.

        • Southwest delaying it’s Max 7 deliveries is probably because it’s been buying dozens of used 737-700s.

  10. So with the new BBD-Airbus partnership (completed on a deal for $1 US), will Embraer survive on its own?

    • They currently compete in different segments in the US which is the biggest market.

      The out of scope E1XX can’t compete in the US.

      Its either under scope or the A220 now. You have to be up in the A220-100 size to make it work with a full airline paid crew.

      So Embraer is down to a single product in the US and not big enough to compete with AB in the world market longer term.

      AB can undercut anyone’s deal.

      • AB has always been able to undercut anyone’s deal.
        Government ‘Launch Aid’ and bribery made John Leahy a super salesman.

  11. Can’t see why Embraer would need Boeing at all.
    The are profitable, have a new faimily in their pipeline and with Bombadier out of business they are pretty much the only ones left who actually have flying planes to sell between 80-130 pax for regional routes.
    CRJ is done, CS is grown out of that space, they have some 200+ orders.

    If i would be Embraer, i would be super relaxed.

    • Maybe some decision making people can comfortably retire and life the good life if the take-over succeeds.

    • Southwest could get the 195E2 with 130 seats. I wonder if they are as locked in to scope clause as the big 3? Slightly lower pilot pay and maybe it would work in secondary markets for WN.

    • “BRASILIA (Reuters) – A Brazilian federal court has overturned a provisional injunction that blocked a proposed tie-up between planemakers Embraer and Boeing, Embraer said on Monday in a securities filing.”

      “The injunction emerged from a class action brought by four congressmen from Brazil’s left-wing Workers Party and had been granted on Thursday.

      Brazil’s solicitor general’s office confirmed the injunction that halted Embraer’s negotiations with Boeing had been thrown out.

      The government’s top lawyer had asked the court to overturn the injunction, arguing that it violated the constitutional right to freedom of enterprise by interfering in the negotiations between two private companies.”

      https://finance.yahoo.com/news/brazil-court-overturns-injunction-blocking-180018166.html

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