Embraer says Boeing used “false claims” to terminate partnership agreement

Brazilian company accuses Americans of using “false claims” to cancel merger and says it will demand compensation. Business involving Embraer’s commercial aviation area had been valued at US $ 4.2 billion. Embraer said on Saturday (25/04) that Boeing unduly terminated the partnership agreement announced between the two companies in 2018. In a note, Embraer accuses Boeing of making “false claims” to avoid complying with the closing of the transaction and paying Embraer the purchase price of $ 4.2 billion.

“The company believes that Boeing has adopted a systematic pattern of delay and repeated violations of the MTA [Acordo Global da Operação, na sigla em inglês], due to the unwillingness to complete the transaction, its financial condition, the 737 MAX and other commercial and reputation problems, “says the note.

Embraer also informed that it did not breach the contractual obligations, reason given by Boeing to terminate the contract, and that it will seek appropriate measures against the American manufacturer, “for the damages suffered as a result of the undue cancellation and violation of the MTA”.

Embraer’s position was disclosed after Boeing held Embraer responsible for the cancellation. The Americans had said that they exercised “their right to terminate (the contract) after Embraer did not meet the necessary conditions”. The Americans did not specify what these conditions were.

Despite the note’s tone, other factors appear to have played a decisive role in Boeing’s decision. At the moment, the American aerospace is facing the biggest crisis in its history, which involves problems with its 737 MAX aircraft and the vertiginous retraction in the aviation market caused by the covid-19 pandemic.

Boeing’s stock price plummeted because of the double crisis. At the end of 2019, its shares were valued at 1,820 reais. Last Friday, they were no more than 716 reais. Boeing even asked the US government for 60 billion dollars to help the American aviation industry overcome the crisis. All of this raised doubts about whether the company would be able to pay the $ 4.2 billion for Embraer’s civil aviation sector.

Under the agreement, Boeing and Embraer would be partners in two joint ventures. The main one, involving Embraer’s commercial aviation area, would be controlled by the Americans, who would have an 80% stake. The remaining 20% would remain under the control of the Brazilian company.

Over the course of two years, the two companies overcame resistance from shareholders, the Brazilian government (which had the prerogative to veto the deal), the Administrative Council for Economic Defense (Cade), and even Justice (which even suspended the merger) ). But European Union regulatory bodies have not yet given their approval, and the European Commission has even opened an in-depth investigation into the matter, due to a potential threat to competition in prices and product developments in the aviation sector.

Under the negotiated terms of the agreement, Boeing would have 80% of the joint venture to be created with the division and Embraer could sell its remaining part later. If it had been completed, Embraer would still have the defense and executive jets business.

The business was seen as strategic by both companies. For Boeing, it would allow it to enter the regional jet market heavily. It could also compete in this area with the European Airbus, which in 2017 acquired a line of regional jets from Canadian Bombardier.

The negotiations also contemplated the creation of a second joint venture aimed at the production of the military transport aircraft Embraer C-390 Millennium, with 51% participation by Embraer and 49% by Boeing. With the abandonment of the business, this joint venture also sank, but the American company still claims that it intends to maintain an agreement for the joint commercialization and maintenance of the aircraft. www.explica.co