Leeham News and Analysis
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Leeham News and Analysis
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Embraer: Boeing wrongfully terminated JV, will seek remedies
April 25, 2020: (C) Leeham News: Embraer says Boeing wrongfully terminated the joint venture agreement due to its own problems and reputational damage.
“Embraer believes strongly 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.
Will seek remedies
Embraer said it will pursue remedies against Boeing.
Here is the press release:
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Maybe its a “blessing in disguise” for Embraer?
Its an interesting twist in a couple of ways.
1. The issue of non merge was not cited as the EU problem. Legally it seems that was not part of the contract.
2. Poisons things down the road – you can’t say never but it bodes badly for something that Boeing supposedly needs badly (talent)
Shades of the BBD arrogance and chance. Standard MO, burn the bridges.
Kelly’s Heroes.
Supposedly needs talent.,… Yeah, at the top. Leadership talent. Guys that want to make planes, not just bonuses and money at the expense of the future, which has come to fruition today. See B707, B747, B757, B767, B777, B787.
Ok, conceded, they did need the top talent desperately.
That’s what surprises me. I would have thought given the total chaos in the industry now that this suspension would be a given (in a way the EU stopped a bad idea from happening through the delays) but I would have expected EMB and BA to work together on projects and where they would have combined efforts, do so on a contractual basis. Seems now maybe MHI and Boeing could partner up? That prospect makes me scratch my head, if Boeing worked closely with their longtime partner, Embraer would be in really big trouble.
How can it be?
They sold their business for 4,2 bn, today that’s worth maybe half or less?
The sales network of Boeing would have helped a lot.
You are right, Embraer. But shall not cry, because this JV was a rotten idea from a start. Boeing is ill by McB bug, and so Embraer would.
E2 is not so capable as A220, but there is a market for such a plane – less pax, less payload and less range, smaller but cheaper.
Less pax…have you checked the spec, the passenger counts are much the same
E195 is up to 146 seats right at the same level as A220-300, the smaller E190 is up to 114 seats
@Dukeofurl
Not really.
E195-E2 max. 146 pax @ Spirit pitch 28″.
A220-300 of Swiss have 145pax @ generous pitch 31-34″.
A220-300 max. 160pax.
So there is a significant difference. Moreover A220 has more spacious cabin. And A220 can be stretched to A220-500, which is good for airlines that looks in the future growth based on A220. E2 really can’t be stretched, it’s the end of the road for it.
But Bjorn wrote a whole series about A220 vs E2, and it wasn’t my point. E2 is just “less” generally, but there is a market for such a plane. I have no doubt.
“The E195-E2 and A220-300 address the segment market segment under 150 seats.
They have similarities but also differences.
These differences have made an early adopter operate both types over different types of networks….. ( subscribers)
https://leehamnews.com/2019/10/10/embraers-e195-e2-or-airbus-a220-300-under-150-seats-part-4/
The real difference is low cost carriers will go for the E195 while mainline carriers will go for the A220 with its ability to have a 4 across business/executive class
For me there is a market for both aircrafts. They have different capabilities so different missions can be assigned. A220 more versatile but for some additional cost. Airlines will choose which suits better.
From the Boeing release:
“Boeing and Embraer will 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.”
That may become an awkward relationship.
Yep. And who is going to be buying C-390 right now?
Well Boeing just recently announced 18 more P-8 builds and its other Defence work at Renton and Everett has resumed ? .
Germany is buying new build Hornets…these defence projects have long decision and build times and national governments dont worry about having no passengers.
The C-390 is essentially an low production rate product but better for a lot of countries than the C-130
Actually committed and some in service vs buying an all new capability.
Most if not all have Hercs that can do the job.
Also an adjunct, not a primary front line defense equipment.
The new build F/A 18E/F Hornets and Growlers are not an absolute certainty. Germany is presently ruled by a ‘grand coalition’ consisting of the Christian Democrat Union(The CDU who have the ministry for defence) and the Social Democrats (SPD) who have the ministry of economics. Its a world as if Tories/Labour or Republicans/Democrats formed government. The SPD was blind sided by this announcement and has strong links to the Unions, particularly the largest Union in the world the IG Metall. IG Metal has said it will cost 100,000 German Jobs and 200,000 Union when small employers are considered. It may not go through the Bundestag (Parliament) or past Caucus etc, Eurofighter Typhoons have been ordered but there is an issue in getting them certified for the B61 nuclear device in time for Panavia Tornado Replacement. In addition there are currently 15% Tariffs on the A350 which may not sit well. They may get through but there rocky roads ahead.
Left alone, Embraer has no future.
I am sure that the collapse of the Boeing – Embraer has been precipitated by the behavior of the European Community under influence of Airbus and the French Government.
It’s time now for Washington to put all its weight in support of Boeing against Airbus.
Philippe, let’s not start pointing fingers, since the complications on this Venture started becoming evident since early this year with the Traumas dealt with by Boeing with its Cash Flow, mainly due to the B737MAX flops, the Coronavirus paralyzing the Aircraft/Airline Industry, and last but not least, Dividend/Bonuses/Share Buybacks, which combined made the Boeing/Embraer JV an impossible success.
Why? After the U.S. imposed the threat of 100% tariffs against airplanes that most U.S Airlines rely on, the E.U holding up the approval of the JV was much better than say, withholding the certification of the 737MAX (although I’ve read the Trump admin is using these tariffs to threaten the MAX’s re-approval, not surprising.) The success of many U.S airlines depends on Airbus. If you want a gov’t to force airlines to buy domestic, look no further than the USSR.
Hopefully Embraer powers through this (they did for decades before), best wishes to them.
zeng:
While its an interesting analogy, the fact is that the Boeing line is fully viable against Airbus, you can argue which one suits what routes the best, but they have the situation covered.
With Covd-19 there is no need for new hulls. So that provides a hiatus.
Reality is that in 4 years at worst case, the administration changes and then negotiation begins.
As our recovery is likely 4-6 years and possibly longer, airlines merely hold their own.
And a foreign lease operation not a purchase (court case, admin gone by the time its resolved, staying action to allow until it is and ……)
Its really academic.
“”fact is that the Boeing line is fully viable against Airbus””
Without Boeing selfcertification they will go nowhere. Don’t expect that the world will accept Boeing selfcertification in the future again.
The Dreamliner couldn’t beat the A330neo with old roots.
Nothing against A321.
Lets wait for EASA flight testing MCAS, then we can talk about the chances of the Max-8.
Well the A330NEO was not selling well and the 787 was still selling (there already was a downturn)
So disagree fully that the A330NEO was a magic bullet and a big chunk of its orders were with Air Asia who always has been a questionable client.
Incorrect that Boeing will self certify, its a full on FAA area and it also is wrong in regard to self certify individual aircraft based on the approved model (they may not be allowed that again either, not sure how it works with Airbus ala EU, but its not an impediment)
Once the FAA wrings it out the EASA issues will be addressed, its going to be certified before the end of the year.
Airbus has been behind on its deliveries and its going to see much larger deferrals. There will be some cancellations.
But there will be more ramp back, A330NEO was at 3 and its going to go to 1 and only to keep the line going, A350 will be drastically affected (down to 3) and the A320 could see single digits.
“The Dreamliner couldn’t beat the a330 with old roots” huh? What source are you using? The a330neo is getting trounced in the market, single digit build rates and their biggest customer in serious trouble. Not to mention customers waiting for a350s and 787s, in many cases to replace their current a330s. In every comparison it still trails its rivals.
For A330neo time will come, because there is a lot A330s that will need replacing in next 10 years. And fuel economics will play major role again.
Before coronavirus I would had say that 777x will get its place on the market because a lot 777s need replacing, but now, I think the program will at huge loss and probably will never get significant share or profibility.
B737MAX if will be certified before the end of 2020, I’ll be surprised.
What do we have to read sometimes… This has NOTHING to do with the behaviour of the European Commission.
If it’s war how can Boeing win it. Do they have future products. They only live for share prices. The deposits they have to pay back for cancelled Max orders must be billions and more Max will be cancelled.
Brazil could just increase the fines for each Max flight. Washington is responsible for it because of criminal deregulating.
And Trump’s enemy in the EU. We all are waiting for EASA to flight test MCAS, to let Trump look into the mirror about the criminal job he (FAA) did.
It’s amazing how fast China could recover from the virus and the US is hit the most.
I’m happy Embraer won’t get boeingitis. They will suffer, same as they did to Bombardier, kind of karma. But they are not dead yet. If they really build turboprops, not the size of ATR and Dash-8, but A320 and A321 size, then they could have something special. Forget about C919 and MC-21, they will be only interesting for markets in China and Russia, what a waste.
To everyone who is surprised of Mr. Cauchi’s “opinion”: Do a little research. He’s an accomplished mouthpiece for Boeing.
Also see the comments here .
Wow, thanks Bernardo for the link.
I’m ashamed to learn that Cauchi is a Quebecer.
He must be the last remaining pro Boeing chill we have in Quebec (let’s say our love for Boeing’s vanished after the hypocrit dumping complaint against BBD…)
About Boeing, I always believed in Karma.
Another Quebecer : Vero Venia
extremely similar profile, plus AIRBUS bashing frenzy
so similar that it could be the same person
I forgot about Vero Venia. Indeed a very similar profile.
I believe that after he was let go by Bombardier some years ago, he was hired by the competition…
Phillipe , the largest airframe company taking over the 3rd largest airframe company was directly opposed to EU competition rules which unlike most other countries was focused on maintaining competition.
The US used to operate this way too but got diverted into looking only at the ‘benefits to consumers side’
Where does Embraer compete with Boeing? Really?
And of course the C-100/300/500 that does directly cause competition (blew the whole industry up as the C series) and eats at the lower edge of Boeing product is different.
Bwahhahaahhhah.
If they want to play games that is fine, can’t say I blame them, but call a spade a spade.
Bro, I like your sense of humor.
Boeing should build a statue for the EU, it saved it 4bn $ they desperatly need themselfs.
They would have got another issue, a low selling jet family in a difficult market and situation, whit multiple issues on all it’s own families.
Max is grounded, B777x is late, low demand and did burst, B787 faces def. cost and low production quality – maybe Boeing has pressured the costs too much? – and KC 46 is late, over budget and has also quality issues.
Do you think adding a low selling basically orphan E2 programm (E2 195) and a engineere workforce you can not use do to no knew program for 4.2bn would be a wise decision?
I don’t think so, especially when you have huge cash issues as Boeing has.
Some small Aircraft manufacturers are doing fine. Pilatus of Switzerland is one of them. Brains and skills both in the offices and shop floors are more imporatant than size.
We will see what the outcome of this one will be, maybe a supersized ATR72 that is a cheap, high quality, STOL 144 seater with 4ea GE Catalyst turboprops with 3-4hrs range driving seat mile cost for most trunk routes way below that of A220/A320/B737 and a FedEx cargo EC-144.
The 4 engine stol DHC-7 was a failure and the 4 engines didnt help the BAE 146 in the end either. Maybe you have guessed how the 4 engine A340 did?
The GTF with a large BPR showed the way with quiet takeoffs for 2 engines rather than 4 smaller engines.
@Philippe Cauchi
“by the behavior of the European Community under influence of Airbus and the French Government.”
Not really. With JV Boeing Embraer would be created biggest aerospace super-holding in the world – it’s a very serious problem for the market. As @Scott Hamilton pointed out other day it’s a different situation from Arbus which aquired rights to only one model of plane.
EU asked additional documents which never had been submitted by Embraer or Boeing. I suppose that Boeing wasn’t really committed to buy Embraer, except first contract.
Give it a few months and there comes COMAC with a JV proposal and e.g. commitment for 400 E2s and a few Billion to invest.
CSeries mkII..
Could this circumstances create an unexpected situation where Embraer and MHI could find mutual ground to move together, firstly in the 75-125 seat airliner business?
That crossed my mind. Not sure what it gets either side, MHI has the world wide system it needed. They don’t directly conflict product line right now but would down the road with the E1.
What would MHI gain at a large cost? Or where would that venture go product line wise?
China would be high on the list to attempt. It gets them a lot of talent that would not move to China, a modern line but not versed in composites which is what they need.
How receptive would Brazil be to that? China is aggressive in SA (well everywhere )
MHI and Japan had worked under Boeings shadow for some time and felt close enough to arrange for Boeing to be the global support partner for the MRJ when it was first announced.
Once the Boeing Embraer JV was announced, Mitsubishi released it had been dumped for a ‘more attractive Brazilian’ company and decided to forge its own destiny and the Bombardier changes gave it that opportunity to strengthen its sale and support network ( which was non existent). They wont go back now.
As for Embraer , the future might be as a ‘western assembler/marketeer’ of the MC21 as a 200 seater single aisle. Maybe called the E-210 ?
It would also give them an entree into the out of autoclave carbon fibre production which is a feature of the MC-21
And now we begin the decent into illogical speculation.
Russian give up the MC-21 let alone the tech? Over Putins dead body.
Assembler for MC-21, not hand over the tech. Those out of autoclave wings arrive by An 124
Anyway who would have thought 10 yrs ago Boeing would offer to pay $4.4 bill for 80% of Embraer.
Brazil government NEVER would accept this arrangement.
It depends only of generosity of Comac and situation inside Embraer. Embraer would be excellent outpost at the West for Comac.
Yes, China or Russia may be a high possibility. But for MHI is not likely.
If Brasilian Govt won’t be willing accept huge Comac proposal, will accept Mitsubishi at half of the price 😉 But seriously. I don’t see MHI in Brasil after they are committed to Bombardier acquisition.
Dear Mr. Cauchi, are you sure you read the same article as I? This breakup has absolutely zero to do with Europe or Airbus. That is laughable.
Neither Boeing nor Embraer have pointed to Europe or Airbus as the cause of this breakup. Instead, Boeing/Embraer are pointing fingers at each other.
One aspect not addresses is that Embraer is primarily an aluminum structure engineer force with little experience in composites.
How that would have fitted into a composite future we look not to find out but not the area of talent other than aircraft engineers Boeing would have needed.
You are correct. This will to change at Embraer, they will need to be bold and think bigger. The opportunity to get Max place is there.
No its not, a MAX competitor is 15 years off and by that time Boeing will have moved on as well Airbus in response.
According to Forbes, Embraer had lost 75% of market value in the COVID crisis, and was valued at $1.1B. It would be difficult for Boeing to proceed at $4.2B under those conditions. They likely tried to adjust the deal but Embraer felt they needed to maintain the original value.
There is merit to both views. It may be that after things settle down, this can be revisited. The deal itself still makes sense for both parties, but the crisis has drastically changed the finances.
In the meantime Embraer will get $75 million, and may get more through litigation. They are entitled to be reimbursed for their costs.
Boeing is wrong to assign blame to Embraer, beyond their reluctance to renegotiate in view of the circumstances, which is understandable. Boeing has it’s own problems which are its own fault. Embraer is right about that.
The EU played a role in delaying approval, but they could not foresee COVID, which has damaged everyone equally. had the deal gone through earlier, the current problems would still have occurred
Rob, I think you’re right, that’s really the biggest issue; the finances have changed.
Boeing is going to have enough to deal with in getting the MAX back in the air, dealing with any cancellations due to certification, and now lack of demand.
How does a company borrow money from the FED or elsewhere, and at the same time buy a company that WAS worth $4.2B but is now worth a little over $1B ? That just doesn’t make sense.
An option may be to go legal, and terminate the agreement, you may loose, but you have a larger/better legal team, and more money than the opposition so you may win, but even if you don’t win, the loss may be less than what you’d loose continuing on with the deal.
I think that there’s a possibility that after the MAX crashes, Boeing were hoping that the EU would rule against the deal, and that would get them off the hook. Unfortunately the 24th April deadline forced a decision to use plan B.
I’m not sure why the EU decision was delayed, and which party was responsible, I’d be interested to know the facts.
Word on the EU delay was that they were concerned about the competitive power of the merger, but publicly maintained it was an administrative matter of receiving adequate documentation. They requested many times that required by other regulators, millions of pages and the sales campaign records for the last 20 years.
From that you can deduce they were not happy but needed to find a reason to restrict the deal. But it’s likely they would have approved unless they found a major skeleton in the closet.
@caerthal
Why not? The Chinese could easily throw in 200 orders that will keep the Brazilian line running for years to come. On the other Comac would gain the expertise they need to complete their C919.
The E2 will be a good replacement for the ARJ21 and Chinese airline could use a lot of them. The C919 is the size of the A320 and will be not competing against the E2, in fact it will complement.
It is also possible that Embraer entered the already existing JV between Russia and China that is currently developing the CR929.
China has it’s part in the construction of the centre fuselage of the A220. Doesn’t make sense to turn their back on that project.
Of the 1500 Original E jets in service about 70 went to Chinese airlines, say 5% or so of production. No way will to they replace the 5 across ARJ21 with a smaller 4 across seater that’s a foreign import to boot
The ARJ21 is shorter so it’s seating capacity is similar to the the E2 jets.
The Chinese could easily throw in enough orders to start a 2nd manufacturing line in China while the ones in Brazil are dedicated for the worldwide orders. Further more the Chinese made E2 could possibly have a lower cost thus allowing for a more competitive pricing. But if that happens, you can be sure that boeing will file a petition as they have done against the C-series.
Just like any other big markets, even if they don’t invest in the E2, the A220 will not be getting all the orders either. The E190/195-E2 would mainly serve the 3rd tier of the Chinese domestic routes, while the A220 & A321neo will ideally serve the primary and secondary tier domestic routes as well as regional routes.
ARJ21 is not certified
China has no structure to sell an aircrat world wide even if they do get it certified (which the C919 is not either and can’t be – they mucked that process up so badly its not able for a re-do)
Less pax…have you checked the spec, the passenger counts are much the same
E195 is up to 146 seats right at the same level as A220-300, the smaller E190 is up to 114 seats
Like the idea of MC21 based E210. For sometime now I have been stating that Boeing buying a majority stake into the westernized variant of the Russian plane is the cheapest and quickest way for solving Boeing’s single isle problem. Embrace partnering the Russians get a product that can compete well against the flawed 737MAX and market leader 320neo .
I Think it is more complicated than that, every spec, design standard, standards parts, material properties and design rules that Boeing has in its computers must be incorporated into a new airframe to be certified. So every drawing has to be redone, every calculation and design report from the revised drawings redone including parts and assembly testing with its instrumentation. Still “reverse engineer an aircraft” with your own standards is quicker than doing it on your own (unless you are Dutch Kindelberger at North American and can design and build a P-51 in 100 Days).
And its not for sale.
Unlike China mess, it will be certified. It may not sell well due to lack of support, but it is certified.
Russia would buy Embraer just for the world wide support structure and experience.
They got huge money problems with oil so low and for some time to come.
As long as Embraer is in full control of any MC21 marketing and manufacturing program, and not any Russians, they could greatly enhance prospects for this program. Embraer could simply license key designs from the Russians, but greatly enhance the model with its own engineering and assume full marketing and manufacturing control of the program.
With an effective single aisle model to market against Airbus and 320 family, it could grow into larger and larger models and compete directly with the world’s largest airframers, including Boeing. Embraer can play its cards right and also focus on smaller and electric powered models, and grow bigger than ever
This is a Russian prestige project, Russia is not going to let any control of it go.
They also have huge money issues.
COMEC would have the money from the Chinese Government and would have to decide how it fits in.
The C929 will be certified (under Russian auspices) and needs the same outlets.
So who knows, Chineese money and Russian certification could be an interesting angle.
Brazil will want a piece of the pie and how that plays out .????????????????
Most likely only a FAL in Brazil with structural sections from Russia and the western engines and systems from those suppliers.
Embraer is mostly only final assembly anyway on its own designs built in sections elsewhere – some of which come from Everett!
Trouble is a major project like this still needs lots of cash which Embraer doesnt have
BRICS is the acronym for the association of Brazil, Russia, India, China and South Africa. There is a system of payments , currency exchange, regular meetings for all of this to happen. The Chair at the moment I think is with Bolsenero of Brazil. Bolsenero is sort of Trump like and prefers Brazilian autonomy.
China would gift itself by buying Embraer, even at a small premium.
Embraer would probably start talking. Boeing or Airbus will not be pleased about that.
Jair Bolsonaro had previously criticised Chinese investments in Brazil as a threat to national security and economic sovereignty …sound familiar?
Even Australia has lowered the trigger levels to very low levels for government approval on foreign takeovers based on concern local businesses could be ‘bought cheap’ by China especially
Leaders come and go, but so long as Embraer remains alone, it is vulnerable to poaching by Chinese investors.
The Canadian government played a role in influencing BBD away from China. I think they will try harder with Embraer, with a bit of influence on any successor government that is lenient to Chinese investment. May even be part of a “gesture of goodwill” to repair economies damaged by the current situation.
China previously had a deal with Embraer that you havent likely known about.
The Wuhan ERJ145 assembly line for a 50 seater regional jet
https://www.flightglobal.com/erj-145-assembly-line-in-china-moves-step-closer/44922.article
Predictable outcome, as of course China wants your IP and manufacturing know how , not the planes themselves
https://www.ainonline.com/aviation-news/aviation-international-news/2007-01-31/first-chinese-erj-145-complete-no-takers
probably plenty of senior staff in Brazil can tell of the problems that could have had.
Even if China managed to do that they would likely only succeed in killing Embraer rather than allowing Comac to flourish. The Chinese bent on “made in China” is at odds with Embraers “make it work well and be marketable” mantra. That’s why Embraer has grown to be successful, it would be a great shame if that were to go to waste.
It could be a slow death. They will keep Embraer afloat so long as until they’ve learned the tricks of the trade to hasten progress in their own aerospace industry.
I will grant you that I’m not at all familiar with Brazilian politics but for an emerging economy that has no beef with China, I see it as unlikely that all its major political spheres are against such Chinese investment. There’ll be some looking for short term gains.
Wrong and wrong, no way Brazil’s policy makers would grant China a strategic investment in EMBRAER:
– ‘ I see it as unlikely that all its major political spheres are against such Chinese investment.’
You should open your eyes and read more. Embraer will certainly want investment capital to develop new products and markets, but will not have any interest working with, or worse, working FOR a Chinese company. If the Chinese want to pay $20 billion for proprietary intellectual property and that it, perhaps that is something they would consider.
The Chinese won’t give anyone ‘easy’ money just like that.
Embraer is hurting for E2 orders, and the industry is deep in the doldrums right now. China could dangle an order in the hundreds in exchange for strategic partnerships and investments, or just about enough to ‘buy in’ political influence. But in the end, a substantial part of their money will still flow back to them. It is how they’ve been taking over strategic points of interest across the world for their benefit.
Anyways, Brazil was willing to cede 80% of Embraer to Boeing, a company with a track record for merging with and dismantling a competitor or chewing them up and spitting them out in worse shape when it had no use for it.
Embraer knows they cannot go it alone against Airbus. Their future with Boeing wasn’t likely that much better than a Chinese takeover but it would have been in the best interest of both the US and EU to keep it out of their hands with a Boeing takeover.