Boeing and Embraer joint venture under threat from coronavirus crisis

Worsening financial situation for the two planemakers could make $ 4.2 billion deal by commercial jet division uncertain
Boeing and Embraer: deal at risk

Announced in 2018, the creation of a joint company between Boeing and Embraer to take over the commercial aircraft division of the Brazilian manufacturer faces a huge challenge with the worsening of the global crisis caused by the new coronavirus (Covid-19).

According to Reuters, the $ 4.2 billion deal has become uncertain given the financial situation of the two planemakers. Embraer, for example, has lost two thirds of its market value since the announcement of the partnership – on Wednesday its shares plunged 14%. In the meantime, Boeing is going through a deep financial crisis after the problems faced with the grounding of the 737 Max.

The manufacturer has been pleading for $ 60 billion in financial aid from the US government to stay active while the pandemic is not controlled and it would be somewhat contradictory to spend more than $ 4 billion at a time like this. In addition, this sum represents three times Embraer’s market value today – including business defense and aviation units.

A possible renegotiation of the agreement would come up against promises made to the Brazilian government, one of Embraer’s shareholders, in addition to further delaying the entire process that is currently being carried out by the European Commission, which is analyzing whether the merger can reduce competition in this market.

Unbalanced competition

The agreement between Boeing and Embraer is considered crucial for most airlines and lessors. In the current scenario, Airbus has accumulated a lot of power by taking over the Bombardier A220 jet line and seeing the A320 family dominate sales in the 150 to 240 seat segment.

Without the same bargaining power, the Brazilian manufacturer has seen its backlog shrink in recent years even with its new E2 series starting to be produced on a larger scale.

The negotiation between the two companies is seen by many critics in Brazil as a defeat for the country, who accuse the government of allowing Embraer to be swallowed up by Boeing, which will assume all the company’s engineering potential, one of its main assets. This week, the Brazilian antitrust agency (CADE) dismissed an appeal by the state attorney’s office that called for an end to the joint venture.

Airbus A220: unbalanced competition (Airbus)

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