As Boeing and Embraer were about to exchange their vows, Boeing abruptly stopped the marriage before it even began. The agreement between the two aircraft manufacturers set out to challenge Airbus and the A220 program was stopped on April 25, 2020. Not soon after, Embraer began arbitration processes against the United States-based manufacturer. Now, Boeing has gone down the same road and took the Brazilian manufacturer to arbitration, Embraer’s filing with the United States Securities and Exchange Commission showcases.
The news of the arbitration comes as Embraer filed its Q1 2020 results.
The Brazilian manufacturer strongly believed that Boeing “wrongfully terminated the Master Transaction Agreement (MTA) and the Contribution Agreement and that it had a continuing obligation to abide by the terms thereof.” The company defended that it was fully compliant with the obligations set out by the MTA and the Contribution Agreement and is “pursuing all remedies against Boeing for the damages incurred by Embraer” as a result of what it believes to be an illegal termination and violation of the agreement.
“No assurance can be given as to the timing or outcome of the arbitration proceedings or any recovery that Embraer may receive or loss that Embraer may incur therefrom or with respect to the arbitration that Boeing has commenced against us,” indicated the manufacturer.
Boeing reasoned that they cut the agreement due to “productive but ultimately unsuccessful negotiations about unsatisfied MTA conditions.”
The two companies planned to establish a new company called Boeing Brasil-Commercial, with Boeing holding an 80% stake, while Embraer would have held onto a 20% stake at its commercial aircraft division. Furthermore, the manufacturers agreed to market the C-390 Millennium.
New potential marriages
Not long after the MTA between the two aircraft manufacturers collapsed, the Brazilian government called it a “blessing in disguise,” stated Hamilton Mourao, Vice President of Brazil. A joint venture could be formed with China, India or Russia, indicated Embraer’s chief executive Francisco Gomes Neto.
No active negotiations are currently taking place, however, noted Neto.
Mourao said that Brazil had the “know-how,” while China had the demand, calling the potential partnership between the two countries an “inevitable marriage.”
The Brazilian manufacturer ended the first quarter of the year with a net loss of $292 million, with 14 aircraft deliveries: five commercial aircraft and nine executive jets. The company has a cash reserve of $2.5 billion at the end of the quarter and is in further discussions for new finance lines to improve its liquidity.
So far it has had no orders cancelations but airlines did defer their commercial aircraft orders, indicated the company. Embraer has a total backlog of 318 aircraft worth up to $15.9 billion at the end of the Q1.