Boeing-Embraer Venture in Jeopardy as Talks Go Down to the Wire

(Bloomberg) -- Boeing Co. and Embraer SA executives were still in talks late Friday as they tried to hammer out final terms for a $4.2 billion deal before the clock runs out on the initial agreement, said people familiar with the matter.

Under a pact signed Jan. 24, 2019, either planemaker could terminate the tie-up if the transaction hadn’t closed within 15 months. The companies could also agree to extend talks another six months to October, a move that would allow them to better assess their prospects in a commercial market shrunken by the coronavirus pandemic.

Executives at both companies see value in the partnership, the people said, while acknowledging that the outcome of the talks remains uncertain. Boeing and Embraer are likely to announce their next steps as soon as Saturday, said one of the people, who asked not to be identified as the matter is confidential.

“Extending the deadline would be the simplest thing,” Richard Aboulafia, an aerospace analyst with Teal Group, said in an interview.

Market Value

Embraer’s market value has tumbled to less than $1.1 billion, about a quarter of what Boeing had been poised to pay for the company’s commercial-plane operations alone.

Representatives of Boeing and Sao Jose dos Campos, Brazil-based Embraer declined to comment on the talks.

The uncertainty over the tie-up, intended to create a potent competitor to Airbus SE’s smallest single-aisle jets, weighed on both companies. Boeing fell 6.4% to $128.98 at the close in New York. Embraer’s American depositary receipts plunged 13% to $5.82, the lowest in data going back to 2000.

Boeing would face a $100 million termination penalty if it decides to scrap the deal, while Embraer’s maximum penalty is $75 million. For Chicago-based Boeing, that might be a small price to preserve about $4 billion in cash at a time when it has $15 billion on hand and faces staggering costs to keep suppliers afloat and return its grounded 737 Max to service.

Airbus Competition

If the deal goes through, the venture would strengthen Boeing’s ability to compete with Airbus by adding Embraer’s small jets to the U.S. aerospace giant’s product lineup through a commercial partnership. Boeing, the second-largest U.S. defense contractor, also planned to lend its global marketing heft to the Brazilian-made C-390 cargo jet through a military venture controlled by Embraer.

European regulators signaled earlier this week that an antitrust review of combining two of the world’s three largest planemakers will likely continue through August, postponing a deal that originally was supposed to close last year.

By extending the deadline, Boeing and Embraer will “know a lot more about the terms and conditions of government aid, what the market is willing to do,” Aboulafia said. “You’ll know a lot more about the Max.”

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