Summary
- Boeing will pay Embraer $150 million due to abandoned merger that was due to take place in 2020.
- Initially planning to buy 80% of Embraer’s commercial aircraft segment, Boeing aimed to compete with Airbus’ narrowbody regional aircraft.
- Despite the compensation, Embraer’s share price fell 4.5% following the announcement.
Following a lengthy arbitration process, Boeing has agreed to pay Embraer $150 million in compensation for walking away from a proposed tie-up between the US and Brazilian manufacturers. As reported by Reuters, the partnership was first announced in July 2018, with Boeing planning to buy 80% of Embraer’s commercial aircraft manufacturing operations for $4.2 billion.
Photo: Vincenzo Pace | Simple Flying
In a bid to better compete with Airbus’ A220 aircraft that the European manufacturer had recently acquired from Bombardier, Boeing wanted to offer a smaller passenger aircraft such as Embraer’s E-Jet family. In return, the Embraer would have benefited from Boeing’s global supply chain and weight in the aviation market, hoping to boost sales of its E-Jet E2 family of aircraft.
The two manufacturers also announced plans for a second joint venture that would market the C-390 Millennium defense aircraft.
A deal gone wrong
However, in 2020, as the pandemic devastated the aviation industry, and still plagued by troubles with its 737 MAX aircraft, Boeing abandoned the idea. In anticipation of the deal, Embraer had already started the process of separating its commercial aircraft division from the rest of the company and had put other projects on hold, leading to an arbitration process when the deal fell through just two months before it was due to close.
Photo: Robin Guess | Shutterstock
In a statement released today, Boeing confirmed that an agreement had been reached with the Brazilian manufacturer, saying,
“We’re pleased to have concluded the arbitration process with Embraer. More broadly, we are proud of our more than 90 years of partnership with Brazil and look forward to continuing to contribute to the aerospace industry in Brazil.”
The impact on Embraer
Although the cash injection will likely be welcomed, Embraer’s share price dropped 4.5% following the announcement, with many analysts stating that the amount to be paid by Boeing is less than what was originally expected.
The Brazilian manufacturer was founded in 1969, and started life as a state-run company, before being privatized in the 1990s. It has gone on to produce and deliver more than 8,000 aircraft. Embraer’s latest narrowbody aircraft, the E-Jet E2 family, entered commercial service in April 2018 with the Norwegian airline Widerøe.
To date, more than 120 E-Jet E2 aircraft have been built, with its primary operators including Porter Airlines, Azul Linhas Aéreas, and Royal Jordanian Airlines. In addition, Embraer recently secured a sizeable order from Virgin Australia.