Boeing Scraps $4 Billion Deal With Brazilian Aviation Giant

Boeing has halted its $4.2 billion contract with Brazilian plane manufacturer Embraer, the US corporation reported Saturday. The agreement would have offered Boeing a greater share in the smaller aircraft and would have helped the firm produce jets at a more affordable price.

Embraer responded in a media release on Saturday that it would "pursue all options against Boeing for the losses incurred." Embraer called Boeing's decision a wrongful abandonment.

Earlier on Saturday, Boeing said it terminated talks that would have given the aviation company based in Chicago an 80 per cent stake in the passenger jet unit of Embraer. Boeing disclosed that under the deal, which expired late Friday, Embraer did not meet the requirements but Boeing refused to go into details.

The two companies had intended to work together on the commercial aviation business of Embraer and to create new ventures for their C-390 Millennium planes. For two years, they had been collaborating towards a deal.

The companies have had positive but ultimately unsuccessful talks over the last few months about the unsatisfied terms, which was "deeply frustrating," Marc Allen, Boeing's chairman of Embraer's alliance and group operations, disclosed in a media statement.

The development comes as a worldwide air travel shutdown created by the pandemic has rendered Boeing's passenger jet unit struggling for financial bailout. And it proves how the global health crisis already is having long-term impact on the aviation firm's global competitiveness.

Boeing announced a multi-year backlog in 2017, billions of cash on its balance sheet and a plan to expand further. Rival Airbus had bought Bombardier's small-jet C-Series line and Boeing saw joining forces with Brazil's Embraer as a way to combat the threat from the C-Series and compete effectively in the small-jet arena.

Boeing agreed to pay $4.2 billion for an 80 per cent interest in the commercial jet business of Embraer, at the time a rich but fair value.

However, Embraer's overall market capitalization has plummeted to around $1 billion in the midst of the pandemic, which has caused travel demand to collapse and rendered airlines ill-equipped to purchase new aircraft.

The Brazilian company in its news release referred to the two fatal crashes of the Boeing 737 Max which cost the airplane manufacturer at least $18.7 billion. Embraer claimed the company made "false statements" to avoid having to pay the $4.2 billion due to its own financial situation and 737 Max and other market and reputational issues.

Boeing is mandated to pay $100 million if antitrust approvals for the contract are not secured, based on a corporate filing, but a Boeing spokesperson divulged the company does not believe that the abandonment penalty has any relevance in this matter.