Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing 3Q deliveries up despite strike October 8, 2024
- Strike slows Boeing’s march toward improving safety culture October 7, 2024
- Aerospace supply chain still ailing; Sustainable Aviation Fuel isn’t the answer to go green October 4, 2024
- Bjorn’s Corner: New engine development. Part 27. Long developments October 4, 2024
- Longshoreman strike adds to Airbus, Boeing woes October 1, 2024
Embraer versus Boeing JV arbitration decision results in $150m cash payment
By the Leeham News team
September 16, 2024, © Leeham News: Embraer issued a short investor release today stating that the arbitration was concluded regarding Boeing’s unilateral termination of the agreement of a Commercial Aircraft Joint Venture and a partnership regarding the C-390 aircraft. Boeing did the M&A termination in April 2020.
The resu
lt is that Embraer will receive a $150 m cash payment from Boeing. The payment is below the market expectations, which were around $300m to cover the Embraer carve out and carve in costs. The issue of the Boeing merger and its effects on Embraer is now history, which is positive even though Boeing’s damages payment was lower than expected.
Embraer will most likely use the cash injection to lower its net debt, which is already at a low $1.3bn and has a leverage to EBITDA of 2.0.
It was in July 2018 that Embraer announced it would sell 80% of its Commercial Aviation business, then valued at a 100% value of $5.25bn to Boeing. The Master Transaction Agreement was signed in January 2019. It included a joint venture for marketing the C-390 Millenium multi-mission military cargo jet.
Embraer wants to keep the door open for Boeing, when finally cracks starts to show up in the tight NationGuard- Congress- LM C130 triangle.
USAF seems out of the loop for decades already.
https://www.ngaus.org/newsroom/guard-c-130-community-makes-case-congress
What can Boeing possibly offer Embraer…?
Embraer is currently looking to India — much more to be had there, for both sides.
Political acceptance is key.
It’s no rocket science to see the 50 years younger then Hercules KC390 carries more, is bigger, quieter, flies further, costs less, can refill helicopters and fighters and move people at acceptable comfort levels/ speed. Without expensive special versions.
But it just is more political viable if it’s a Boeing KC-64 aircraft, assembled in Everett, Washington.
https://www.flightglobal.com/fixed-wing/value-and-versatility-embraer-pitches-kc-390-to-the-usa/155028.article
The USAF has enough jet airlift with the C-17 and C-5.
The advantage of the C-130 has over the C-390 is its rough field capability which is exactly what the USMC and USAF use if for – the last 100km right close for the front line
The C-390 is fine for smaller countries who need long distance route flying or into smaller but paved airports
Pentagon doesnt have enough money for nice to haves , the only real gap is US Navys new submarine communications relay plane which they are suggesting the C-130 ( it will just transit to certain locations and fly in circles.
The USN also operates C-40s which are cargo 737 , that could be the C390, but I think that order is filled
The “Js”, like their predecessors, are “getting the job done”. You’ve got training, parts inventory, maintenance, etc. Check, check, check. From before Nam through the Stans. And, actually, valuable to all services. What’s not to like?
Slower, lower ceiling, lower payload, lower range, …
And a C172 is beyond belief lower ceiling, lower payload (snort) and range.
But an A350 sure does not work as a pilot trainer!
You car is not designed to run the Indy 500 either, you have zero need to go 220 mph, but it sure does what you need.
You need to get your stuff inside the trailer.
– Stryker with armor: no
– M1224 MaxxPro: no
– Bradley: no
– Troops: yes
So why not a C-172 to move troops?
Just look at all the inventory of under armored vehilces of the US Army made to fit inside a C-130.
Keesje:
While I think the C390 is both interesting and has some great features, I don’t know its a 1-1 replacement for the C130 mission.
So, starting with the Embraer Myth trying to sell C390 (and all mfgs have their myth, much like Leahy and the Frankenplane garbage when in fact mising and matching fuselaes and wings has been going on since the dawn of flight)
The C130J is a fully up to date modernized aircraft. Avionics are modern built in the same as the C390. The Airframe is not close to the same, its been changed over the years with the new versions and the J is not different. Engines are the same. The C130 Missions does not empahises SFC, its ability to deal with dust and dirt and reliability.
Its focus is on in theater deliveries into rugged airstrips. With 4 engine it has better combat margins in case of an engine loss for any reason.
From what I can tell there is cherry picking of range and payload going on.
The C390 is clearly more flexible. It can fly long missions faster and as noted, quieter fro the occupants. Its more a min C-17 than a C130.
Its not that the C390 is not capable of landing on a rough field, its can it do it with a max load day in day out and not wreck the engines or impact the airframe.
Carrying troops which are a bulk out vs weigh out, a far nicer ride.
Unless the US changes its mission requirements and approach, its not going to sell in the US.
Embraer does have assembly facilitates in the US (Florida) and could well partner with NG or Sierra Nevada.
But like the A400, where does it fit or not and is there any interest in another program in the current budgets? Or as much does it really fill a need or a nice to have?
A small fleet for special long range missions maybe yes, but not bulk replacement.
TW I agree with most observations. Buts as MontanaOsprey says, “getting the job done” is not truth. The USAF/Army have been adjusting to the Herc for more then 25 years.
They want bigger heavier armored vehicles, to be moved closer to operations, use civil airways, refuel other aircraft without calling in e.g. an expensive C17 strategic transport. But they just can’t do it, so they loyally adjust to realities.
LM, the ANG and their local congressmen have a tight grip on C130 production. Lockheed C-130 ifs often used as a text book example of pork barrel politics,
Yea the ANG is an interesting player in the mix.
They have not gotten wholesale replacement of the H models so not sure what is in play there.
No Air Transporter is really suited to moving armor, I think the C-17 can move one M1 tank. That would be 100 trips for a US Armored Brigade (or Calvary regiments ).
Then throw in the Bradly’s and artillery and ammo and fuel and some MREs, not feasible.
One fallacy of the A400 was carrying a Puma (from memory) but one does not good and all the ammo, fuel, parts to sustain and ……)
What they are good for is supplies but still limited to high value (and personal movements) .
The C390 is going to suite some countries in their mission sets, a C-130 others.
The Army wanted the C-27 as they did not need the Herc capacity for their missions at the time. Politics by USAF took it away and then they dumped it (USCG got a nice aircraft).
At least their Chinooks can fly as far as possible unlike the V-22s (that last loss was Mentour Pilot with his worst crash in the amount of stupidity by the pilots.)
Airbus went with the TP for their offering. V2500 is a commercial engine not a military one.
I just look at it as a coin flip. The Herc is popular and the C390 will fit in others well and probably be more economical to operate.
These days its how close they dare get to a combat zone that has modern Air to Air systems and the longer range air to air missiles with built in tracking.
USMC fact sheets MV-22
Mission Range:Amphibious Pre-Assault Raid 200 nm
Amphibious External Lift with 10,000 lb load 50 nm
Land Assault External Lift 50nm
Troop Seating, 24 Combat Troops
Self-Deployment 2100 nm
Cruise Airspeed: MV-22 240 kts CV-22 230 kts
Chinook cant do all that apart from being 50% more capacity
We can all agree the Chinook still has amazing capability. The Germans concluded the same recently & they looked carefully at all options and mostly prefer European products. Merlin seems closest, but can’t lift 10 tonnes by a margin.
Chinook is faster than an Apache, has a huge cabin, great cg tolerance. Thinking about it, amazingly nobody was able to design something better in 65 years..
On the C130 Hercules vs KC390; in my opinion Boeing, Lockheed waited too long developing a replacement. A cash-cow, job machine, kept alive by local ANG units / congress.
Now the KC-390 will take over. Bigger, cheaper, superior performance. LM/Boeing only did powerpoints and are too late to step it. Boeing still can join in as a partner.
Don’t spend it all in one place Embraer.
Here’s a radical idea : Embraer to purchase BCA when Boeing is split up with its defence and space interests being sold to LM, RTX, GD, NG ++
Sadly its Brazil and they don’t have the money and of course it would not be allowed per national interests.
Clearly better run than Boeing!
The IAM folks on strike see this and think: Hey what about us??
Stupid is as stupid does…. Calhoun 🤷♂️
Actually, this deal would have helped the IAM. This deal was “mostly” about engineering talent. The IAM is not engineering talent and would have been beneficiary of future products.
You forget the other Boeing union (SPEA?) that is engineering talent.
They are up next contract wise though I don’t know when.
Leeham news was bang when they described this deal as basically a move to suck the blood of Embraers young engineers and I’m guessing that $150million is value good value money for what they got.This compensation should have been billions.If you are going to decimate your skills base,at least have something like this lined up first.
I wonder what has become of Boeings Russian design engineers?How many have made it to the states?How many have become sausages and beef burgers on the battlefield,or are busy supporting Russian defence companies?
I have friends in the Russian far east – they have never had it so good over there. Business and the economy in general is booming with intense competition for qualified engineers.
I do wish it were for good reasons, and when the cause crashes down, hmm
HUH, the way things are going for Boeing, maybe Embraer buys Boeing for a bargain deal 🙂
“Embraer visits India in search of supply chain expansion”
“A delegation from Brazilian OEM Embraer has visited India to assess the expansion of its supply chain into the country, as the company foresees business potential.
“Embraer is particularly interested in ventures related to aerostructures, machining, sheet metal, composites, forgings, wire harnesses, and hardware and software development for commercial aviation and executive jets.
““India has a robust aviation and defence industry, and we see strong viability for manufacturers and systems developers in India to be key suppliers to Embraer,” said Roberto Chaves, Executive Vice-President of Global Procurement and Supply Chain at Embraer. “We are driven by a common vision, which is to drive the aviation capabilities of Brazil and India to greater heights and to deliver value to our customers around the world.”
“Embraer has previously commented on working to introduce E2s into India, considering the country as a valuable emerging market for aviation.”
https://www.laranews.net/embraer-visits-india-in-search-of-supply-chain-expansion/
Related:
“Brazil may be in talks to buy Indian HAL Tejas fighter jet”
“Brazil and India are considering a potential swap deal that has generated quite a buzz. A Brazilian delegation is currently in India to discuss this intriguing possibility. Analysts foresee a scenario where India might purchase Embraer C-390 Millennium military transport aircraft, while Brazil could acquire HAL Tejas fighter jets.”
“If this swap deal goes through, Brazil stands to benefit by purchasing new fourth-generation fighters, offering a viable alternative to the aging F-16s. Similarly, India could secure top-notch military transport aircraft at a competitive price. ”
“Don’t overlook India’s “Make in India” initiative. Collaboration between Brazil and India, including sharing technical expertise, could open new opportunities in South Asia and the Indo-Pacific regions.”
https://bulgarianmilitary.com/2024/09/12/brazil-may-be-in-talks-to-buy-indian-hal-tejas-fighter-jet/8
Brazil already has a co production with Sweden on a top rated single engined fighter jet
India has old for its time ( first flight 2001) low rated single engined fighter jet.
the C-390 could be a good buy for India though as it has for other customers
The Gripen first flew in 1996 — so it’s older than the Tejas.
The Gripen is also twice the price of the Tejas ($85M vs $43M).
And there’s a Tejas Mk 2 in the pipeline — with first flight expected in 2026.
Thats not what Brazil is building/buying the A/B/C version
the Gripen E is heavily modified in the version Sweden and Brazil are building now
Just as the Tejas Mk 2 is heavily modified…
I haven’t seen 1 post here acknowledge that the 150 million breakup fee was a component of the original merger agreement. Embraer was paid what it was owed. No more, no less. Here is the height of misunderstanding…….
grubbie wrote
Leeham news was bang when they described this deal as basically a move to suck the blood of Embraers young engineers and I’m guessing that $150million is value good value money for what they got.This compensation should have been billions.If you are going to decimate your skills base,at least have something like this lined up first.
Grubbie and all…… Nobody shifted anything. No employees were moved, EMBs skill base is unharmed……
Sheesh
That’s not my understanding.Senior management at Boeing stated that the “carve out” was well under way well before the “merger”was cancelled.At the absolute minimum they got a huge amount of information about who they might want to recruit
Some commentators here will know more
It not like they can’t hire head hunters. And Boeing wanted low cost, aka cheap. You would want to think twice
Grubbie weote
That’s not my understanding.Senior management at Boeing stated that the “carve out” was well under way………….
Yes the carveout was well under way. The carveout was the internal partitioning of Embraer IP and personnel assignments to either military or commercial entities. Embraer went to arbitration to get more than the 150 million breakup fee in the agreement stating they spent more processing the changes needed to make the sale work and unwinding those changes whem the deal was called off. The arbitrator said the 150m in the contract was agreed to by both parties as the payment for sale termination and was all EMB was entitled to……. Some thought the ARB request would succceed, but as a point of contract law, 150m was all EMB was due as was pointed out in the decision
“Embraer was paid what it was owed. No more, no less”
From the link:
“Although the settlement amount fell below analysts’ expectations, who predicted between US$300 million and US$400 million, Embraer is using the funds to help reduce its debt. ”
https://airwaysmag.com/new-post/boeing-settles-embraer-us-150m
For those you continue to think/fantasize that BA has anything whatsoever to offer Embraer, ponder on this folly:
“Boeing Lays Off ‘Vital’ Contractors in Sweeping Cost Cuts”
“Boeing is laying off several experienced contractors as part of broad cost-cutting measures announced by the company’s finance chief on Monday. The manufacturing giant said it was considering furloughs for some management and executive-level staff.
“The Seattle Times reports that some layoffs have already begun. The manufacturer reportedly removed “dozens” of engineering contractor positions with only a day’s notice.
“These contractors are largely retired employees who were brought back to help fix ongoing manufacturing issues with the Boeing 777X, 787 Dreamliner, and 737 MAX. Speaking to The Seattle Times, one engineer described the contractors as “vital,” calling the move “just another very bad decision in a continuing long line of bad decisions.””
https://airlinegeeks.com/2024/09/17/boeing-lays-off-vital-contractors-in-sweeping-cost-cuts/#
just a fyi
“Special WARN Act situations: strikes and some exceptions
Non-striking employees impacted by job loss as a direct or indirect result of a strike – as well as workers not part of the bargaining unit involved in labor negotiations that led to the lockout – are still entitled to WARN Act advance notice.”
David.
Good find but perhaps non-applicable. Warn notices are about job loss. Furloughs are not job losses per se as they are temporary..
Sure hope something good comes out of this situation at Boeing. For years I’ve been hoping w’ve seen the bottom of the barrel but then additional bad news comes in. Another delay, grounding, certification issue, incident, financial update Boeing can do without. And now this strike of frustrated employees.
Looking back I see the 2010-2020 period as root cause, a period of over promising, artificial stock price boosting, misinformation, political interventions that basically drained the company. And there are not a few culprits “management”, but many (BESPP, WSJ, greed, quarterly-capitalism).
Now radical intervention might have become necessary to turn around the company culture and reinstall a realistic long term market strategy.
“After a full day of mediation, we are frustrated, the company was not prepared and was unwilling to address the issues you’ve made clear are essential for ending this strike: Wages and Pension.” the union representing more than 30,000 Boeing factory workers said, opens new tab on X following Tuesday’s meeting.”
“The company doesn’t seem to be taking mediation seriously. With a 96% strike vote, we thought Boeing would finally understand that IAM 751 Machinists are demanding more. We are fighting for what is right and just – for what we have earned over the past 16 years,” it added.”
Maybe the IAM leadership needs to understand they are not going to 40% pay raise. Do you see anyone except IAM 751 supporting their position? Reality is setting in, time to write those personal checks for October 2024 healthcare coverage!
If this is not solved in two weeks, this will go on for months.
Sorry, Boeing employees, you don’t have the media or political pull the UAW had. If you did, the White House would be making phone calls to the Boeing HQ.
In a way, the workers have nothing to lose, because the company probably won’t last much longer anyway — strike or no strike.
So, in such a situation, why not bet the house?
And/or: why not go out with a bang?
Some people just want to watch the world burn…
—
Apart from such considerations, for Boeing this is a matter of simple logic — although hubris, ignorance and pig-headedness seem to be getting in the way of rationale. The company needs to choose the path of least resistance — which, in this case, is to please the union as quickly as possible. That path represents the lesser of two evils — as well as maximizing the possibility of a radical turnaround in worker motivation.
That is as poorly a supported assertion as I have seen.
The lack of logic is eye watering.
The United Work Front meme generator was playing up for our patriotic volunteers
“If this is not solved in two weeks…”
How soon will BA be downgraded to junk credit rating?
elsewhere in the IAM world
“WICHITA—As negotiators enter the final stages of labor contract negotiations, Textron Aviation workers represented by the International Association of Machinists and Aerospace Workers rallied in downtown Wichita in a show of solidarity Sept. 17, blowing whistles and carrying signs that read “We Will Strike for Better Healthcare,” “Fair ETO For Fair Work” and “Proud to be Union.”
Machinist union members of Local Lodge #774 vote Saturday, Sept. 21, on whether to accept Textron Aviation’s upcoming final offer of a new labor contract or reject it and strike”
“The furloughs will affect tens of thousands of Boeing employees, a company spokesperson said.”
just a fyi
“The WARN Act’s requirements generally do not apply to furloughs if employers communicate to employees that the furlough is temporary and that employees will return to their jobs within six months.”
Does it really matter?
yes to the Boeing furloughed workers in WS
“Being furloughed means you’re still an employee of the company, but it’s currently not paying you because it’s unable to provide you with work. However, as you’re still an employee, you’re generally still entitled to receive healthcare benefits. “
“The furloughed employees will keep their benefits and they will be off work for one week out of every four on a rolling basis for the duration of the strike in order to limit the impact on each individual, according to the note. But the furloughs “will impact a large number of US-based executives, managers and employees,” the memo said.”
One week out of every four.
Looks like BA is expecting this strike to last a long time.
So, nothing to do with Embraer and all about things we have no control over. Not technically interesting.
Shrug
We can all close our eyes and pretend there’s no bad news.
“With production paused across many key programs in the Pacific Northwest, our business faces substantial challenges, and it is important that we take difficult steps to preserve cash and ensure that Boeing is able to successfully recover,” wrote Ortberg in his morning message to employees”
“IAM District 751 President Jon Holden identified the Boeing labor strike as an “unfair labor practice strike” against the “discriminatory conduct, coercive questioning, and unlawful surveillance” faced by the workers.”
Seems a bit rich, changing from wage and pension demands?
Is this a new order for Boeing from China?
“Hong Kong Stock Exchange – September 18, 2024 – The board of directors (the “Board”) of China Development Bank Financial Leasing Co., Ltd. (the “Company”) is pleased to announce that in line with the Company’s strategies and in order to optimize the fleet structure and increase the proportion of next-generation aircraft with advanced technologies, high fuel efficiency and wide market penetration, on 18 September 2024, the Company and its wholly-owned subsidiary CDB Aviation Lease Finance DAC (“CDBALF”) entered into aircraft purchase agreements with The Boeing Company (the “Seller”) for the purchase of fifty (50) 737 MAX-8 aircraft (the “Transaction”).
The Company and CDBALF expect to take delivery of the aircraft under the Transaction between 2028 and 2031.”
Well, it’s an order from a Chinese lessor, which has customers in 38 countries/regions.
It will be interesting to see what airlines take them.
https://www.bloomberg.com/news/articles/2024-09-19/cdb-leasing-to-buy-50-boeing-max-jets-in-second-major-order/
https://www.cdbaviation.aero/
“Brian Bryant, the IAM’s international president, said actions like furloughs and the cutback in salaries amounted to “smoke and mirrors,” given earlier company spending on bonuses and compensation for top executives.
“This is just part of their plan to make it look like they’re trying to save money,” added Bryant who was in the Seattle area picketing on Wednesday with the “resilient” membership.
“The ball is in Boeing’s court. They could settle this strike tomorrow,” Bryant said, adding it would take fair pay, pension, restoring a bonus and health insurance”
With that type of reasoning from the IAM…its going to be a long strike
what about… The ball is in IAM court. They could settle this strike tomorrow by excepting 25% pay raise offered by Boeing?
Talks have now stalled, with no date set for another try.
https://finance.yahoo.com/news/talks-between-boeing-striking-union-030121255.html
So much for Ortberg’s “reset of relations”.
October Healthcare checks due in 11 days!
I wonder if Embraer’s assembly workers are being compensated (relatively) better than those at BA?
This defies belief:
“Davon Smith, 37, earns under $28 (£21) an hour attaching the wings to Boeing 777X planes, which sell for over $400m (£300m) each. He also works as a security guard at a bar to make ends meet.
““That kind of keeps me afloat, a little bit,” he says about the part-time security job.
“His fiancée, who works as a secretary for Seattle schools, earns more than him.
“Smith, who has worked at Boeing for only a year, says his pay rate doesn’t compensate him for the level of safety that goes into ensuring that the planes don’t fail.
“”He says he’s concerned he could be held criminally liable if his work isn’t done correctly.”
—
“Marc Cisneros, 29, says he is striking “because for the amount of work I do and the quality that I produce, it seems unfair that I’m unable to afford my rent”.
“He says Boeing is “putting me in essential poverty even though I’m working 40, 50, 60 hours per week”.”
—
https://www.bbc.com/news/articles/cm24l46ye4go
New hires are much lessor paid that those fully trained and years of experience.
This dude sounds like he just 1st year unskilled work , and needs to train up for a few years
Current wage rates as linked in Leeham
$20.00 per hour ($41,600 year) basic
$27.00 per hour ($56,160 year) medium
$48.81 per hour ($101,524 year) high
The Offer was
$30.68 per hour ($63,814 per year) = 53% increase basic new join
$39.23 per hour ($81,598 per year) = 45% increase medium
$62.68 per hour ($130,374 per year) = 28% increase
I understand the rejection wasnt the pay offer but the benefits package and retirement
what about overtime added?
Do the math , its per hour rate and standard work weeks .
Longer hours more money
here is the math
The Offer was
$30.68 per hour OT $46.02 per hour
$39.23 per hour OT $58.84 per hour
$62.68 per hour OT $94.02 per hour
The Offer was
$30.68 per hour ($63,814 per year) plus 10 hours a week OT $23k = $86k per year (for basic)
$39.23 per hour ($81,598 per year) plus OT $29K =$110k per year
$62.68 per hour ($130,374 per year) plus OT $47K =$174k per yr
Boeing fired BDS chief Ted Colbert. Who want to handle this mess?
I wonder how big his golden handshake was?
Plenty of money to pay that, of course.
Seattle Times
Hit by strike, Boeing flies in out-of-state janitors, applies furloughs broadly
https://t.co/5FVBXH92tz
Regarding furlouhs:
“Boeing’s other large labour union rejects request for furloughs”
“Boeing’s second largest labour union has denied a request from the company for its members to be furloughed alongside other Boeing workers amid the ongoing machinists strike.”
https://www.flightglobal.com/airframers/boeings-other-large-labour-union-rejects-request-for-furloughs/160049.article
Ouch
The Air Current
Boeing becomes its own ‘burning platform’
“The challenges facing Ortberg and the enterprise, all predating his August arrival, are almost too numerous to list and prioritize, but none can be solved without first ending the work stoppage that prevents Boeing from building its 737s, 767s and 777s.”
memo to IAM 751 leadership…you are living in the past
Boeing union members are angry they lost their pension plan. They’re not likely to get it back
“In the past 40 years, traditional pension plans have been largely replaced by individual retirement plans, such as 401(k)s.”
“Defined benefit plans are only available to about 8% of workers at US businesses today, according to data from the Employee Benefit Research Institute, down from 39% in 1980. The decline has greatly mirrored the decline in union membership at businesses, from about 17% in 1983 to 6% in 2023.”
“even with the company offering to increase its contributions to the 401(k) plans by up to $10,800 a year.”
https://www.cnn.com/2024/09/22/business/boeing-strike-pensions/index.html