Why Was Embraer Left at the Altar?
The collapse of Boeing's four point two billion dollar deal to acquire an eighty percent state in Embraer's commercial aviation operations has sent a jolt through an already grilling industry here to talk about it. Our Aviation Week Editors Jens float out and Michael Bruno Aviation. Week guest columnist. Richard Offiah of the Children Mike. Let's start with you. Of what the heck happened. Boeing kept saying this deal is on on on Sundays off. Yeah and that remains the four point. Two billion dollar question is what exactly happened. we can all surmise as to what might happen but You know to give their you. GotTa review the chronology of events so Let me take you back to December. Twenty Seventeen When word leaks out through the press certain with Wall Street Journal that Boeing might be looking at buying embryonic or at least some part of it. We really were quite sure at the time. But there was big news. Leaking rumors going around and that was not necessarily to be unexpected. Since Airbus did Secured Lombardi the series from Bombarded and so You know it was Slightly expected them. At least the two sides were exploring this. By the summer of two thousand eighteen they reach him memorandum of Understanding over the terms of the agreement that was originally going to be more. Expensive deal for Boeing. Perhaps as much as four point six billion dollars but the price eventually get ratcheted down to four point two by the end of twenty eighteen and then they were among the formal path of trying to get this acquisition approved by everybody. When I say everybody I mean just about everybody had to approve this deal one way or another whether it was regulators in the United States in Europe in Brazil. Of course you might imagine that There was a lot of resistance to giving over the crown jewel of the aerospace industrial marketplace in in Brazil to a foreign owner particularly in the United States and so that had to go on political lines of judicial lines. There were a lot of lawsuits than etiquette resolved. Finally we're getting to the point where it was Pretty much just a matter of when not if this was going to happen. And then all of a sudden the EU regulators Decided to push back their approval of the steel and that sturdy to open up questions as to whether this deal would actually take place and even as that was happening through the latter half of last year both sides on the industrial point. Emberg Boeing. Were saying that they were pretty sure. This thing was gonna get approved any day now by the EU the last regulators to approve it and that basically they were ready to sign the paper and call it quits and move on as a single company and then. Kobe nineteen happened. Of course amd we can go off on a tangent of of how the sense. Some pretty much collapsed. The air traffic industry as we know in bringing down the manufacturers to a related degree but luxury short four point. Two billion dollars that Boeing doesn't spend is really for point two billion dollars naked really really us better somewhere else and while we don't know exactly what the terms were. That couldn't be agreed to in the end just last weekend. On April twenty fifth Boeing announced that it was walking away from the deal embry ourselves. That was a mistake in that they were going to pursue alternatives to try to perhaps force bowing to Back to the deal or try to pay some kind of compensation for it and that's where we are. Now there's there's no deal there's only m recriminations and accusations and we'll see what happens next Richard. I'd love to hear what you think about what might have happened and also wrote in your column about winners and losers from the deals collapsed. You WanNa tell us what you wrote. Yeah you know. I think there are four principles involved here and obviously what's Embraer's lost as Airbus's gain and to a lesser extent Mitsubishi? But basically the name of the game see get. Embraer's costs down in line with the larger. Oem's and the way to do that. Of course is what the kind of aggressive by Jane Management? That only a big company like Boeing. Or Airbus can do. That's what made the series a success as the twenty in Airbus's ends. That's what I think would have really helped each series. Allot in billings hands. Embraer doesn't get that benefit and they're up against somebody Airbus that does have that benefit so there's a pretty clear loser a pretty clear winner sort of tangential winners Mitsubishi. That I think really did not relish the thought of having to compete at the regional level with Boeing backed product. That would have been really painful. And now it's going to be more of appeared. Appear to small air framers going head to head sort of situation So the big question is is Boeing. A winner or a loser. I'm the one level exactly as Michael said you know. This is four point. One billion or so that's been added to their rather beleaguered balance sheet. That's not a bad thing And there's also a little bit of additional political risk in Brazil these days that they're avoiding Whatever management challenges associated with bringing this unit online? That's avoided too but on the loss level you know. They're kind of being boxed in by Airbus on the single-aisle front the 737 Max aid is doing fine. When it comes back to service but against the eighty three twenty one neo at the top of that single market. They're losing very badly and now they have exactly nothing to respond to the bottom of the single end morale market to at the twenty level so basically boy is fast becoming a niche company in the single market arena. That's not a good thing and of course the idea of joint venture with the Casey's re ninety might have had some promise in terms of selling into the US dod market depending upon. Who you believe that joint venture to might be at risk because of the fallout acrimony associated with the end of the jetliner. Jv So it's kind of a mixed bag One you know significant loser. That hopefully can recover two winners. Airbus and Mitsubishi and expect for Boeing.