Boeing’s plan to acquire the regional jet business of Brazil’s Embraer hung in the balance on Friday as the two sides haggled over conditions attached to the multibillion-dollar tie-up just hours ahead of a deadline giving each the right to walk away.
The US aircraft maker, which is haemorrhaging billions of dollars of cash as a result of the year-long grounding of the 737 Max and the global aviation crisis, is weighing whether to abandon the deal.
People close to the matter said no decision would be taken until the midnight São Paulo deadline had passed, but an announcement could come as soon as this weekend.
The break point was agreed in a contract signed in January, which set a timetable for each side to meet certain conditions.
If Boeing decides to walk away rather than extend the agreement, it is expected to cite Embraer’s failure to meet certain terms as the reason for abandoning the deal, the people said. EU approval is also still outstanding.
Industry analysts said Boeing had a big incentive to walk away. “It’s a liquidity question,” said Bank of America Merrill Lynch analyst Ron Epstein. “Is Boeing in a position to spend $4bn on an acquisition given what’s going on in the broader commercial aviation market?”
Boeing’s bid to acquire Embraer’s regional jet business followed Airbus’s acquisition of Bombardier’s C-Series, a 100-150 seater single aisle.
Under the agreement, Boeing would take an 80 per cent stake in a new company spun out of Embraer, which would own the balance. A second joint venture for the C390 military tanker would be 51 per cent owned by Embraer and 49 per cent by Boeing.
When it was announced, the two aircraft manufacturers valued the new regional jet company at $4.75bn, making Boeing’s stake worth $3.8bn.
Boeing has argued the US aerospace industry needs $60bn in state aid to survive one of the worst crises to hit aviation in recent history. Two-thirds of the global commercial fleet has been grounded as governments ban air travel in a bid to contain the coronavirus pandemic. Airlines, strapped for cash, are cancelling hundreds of aircraft orders.
Several carriers have cancelled their orders for the 737 Max, grounded in 2019 after two fatal crashes, which had been expected to return to service this summer. Boeing has said it faces a $19bn bill for the Max crisis.
The group is expected to slash production next week when it announces first-quarter results, and will have to revise cash flow expectations as a result.
It follows rival Airbus which earlier this month cut production rates by one-third, even of its best-selling A320 single-aisle family. Further cuts are possible, depending on the extent of the aviation downturn.
Embraer declined to comment on the talks with Boeing on Friday. On Wednesday evening, local media reported a statement from the Brazilian company saying it was “having discussions regarding the operation, including in relation to the extension of the initial deadline” for the conclusion of the agreement, which was originally scheduled for April 24.
Embraer said in that statement there were “no guarantees regarding the extension of the initial deadline, the consummation of the operation and the timing when it would be consummated”.