The American aerospace giant Boeing announced that it is withdrawing from a joint venture with the Brazilian aircraft maker Embraer. Under the deal, Boeing will get an 80% stake in Embraer's commercial jet unit and a 49% stake in the company's transport plane C-390 Millennium.
Marc Allen, president of Boeing's Embraer partnership unit, said in a press release described the decision to terminate the partnership as "deeply disappointing." Allen explained that any continued discussion would not resolve the outstanding issues.
A number of grounded Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked at Victorville Airport in Victorville, California, U.S., March 26, 2019.
The Fate of the C-390 Plane
The decision of Boeing to back out from a $4.2 billion agreement will significantly hurt the Brazilian company and its flagship military aircraft. The breakup of the partnership put the fate of the C-390 Millennium cargo plane in an uncertain situation.
C-390 Millennium is a military transport aircraft produced by Embraer which can perform aerial refueling and carry and troops. Embraer and Boeing announced their joint venture in last year's Dubai Air Show to sell the cargo plane in the global market. With the agreement, Boeing has a military transport aircraft that can challenge Lockheed Martin's C-130.
Aerospace analyst Richard Aboulafia of the Teal Group told Defense News that without Boeing, the future of the cargo plane "isn't all that great." However, despite the collapse of the agreement, Boeing said that it would support Embraer in the global marketing of C-390 Millennium.
It will be interesting to observe the next move of Embraer and what will be the future of the C-390 Millennium cargo plane as the upcoming months unfold.
A New Partner?
With the termination of its partnership with Boeing, Embraer can start searching for a potential new partner for the medium-lift cargo plane.
Byron Callan, an analyst from Capital Alpha Partners, said that what needs to see is whether the company will look for new partnerships elsewhere for either the C-390 or its commercial business. Callan added that Embraer could partner with Airbus since, like Boeing, it does not have a medium cargo transport aircraft that contest the dominance of C-130 in this aircraft category.
A Relationship that Turned Sour
Following the termination of the deal, Embraer stated that it would file a lawsuit against Boeing for the failed transaction.
Boeing told Defense News that for over two years, the company had worked diligently to close the deal with Embraer. However, Boeing claimed that Embraer "left some conditions of the master transaction agreement, or MTA, unresolved."
On the other hand, Embraer asserted that the company had met all its contractual obligations. The manufacturer blamed Boeing's financial issues and the fatal crash of two Boeing 737 MAX as the reason behind Boeing's withdrawal from the deal.
Embraer told Defense News that it firmly believes that Boeing has wrongfully terminated the MTA. The company added that Boeing just manufactured false claims to evade its commitments to close the deal and pay Embraer the U.S. $4.2 billion.
The Brazilian manufacturer revealed that Boeing repeatedly violated the MTA and systematically delayed the deal. It is evident, according to the company, with its "unwillingness to complete the transaction."
Defense analyst Cai Von Rumohr said that Boeing and Embraer should continue their partnership on the C-390 cargo plane. Rumohr also noted that continued collaboration between the two aircraft manufacturers highly depends on the possibility of salvaging the relationship.
The termination of the deal with Boeing and the negative impact of the COVID-19 pandemic will have implications for the financial standing of Embraer. It is a likely scenario that the company will seek stimulus funds from the Brazilian government to sustain its operation.
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