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Boeing’s purchase of Embraer’s civil aviation area, the largest aerospace business in Brazil’s history, was canceled.
The announcement was made this Saturday morning (25) by the US company, which said it had terminated the contract because the Brazilian manufacturer would not have fulfilled all its contractual obligations to execute the separation of its line of regional aircraft.
But Boeing’s financial difficulties due to the combination of an internal crisis, with the production of the best-selling 737 MAX due to technical problems that caused fatal accidents, with the fall in world demand for the new coronavirus pandemic, are factors considered central for The result of those involved in the negotiations on the Brazilian side.
The Covid-19 crisis brutally devalued Embraer as well, raising doubts about the price the Brazilian will pay.
The companies had until midnight on Friday (24) to close the agreement in technical terms. This did not happen, with two different versions for that matter.
“Boeing has worked diligently for the past two years to complete the transaction with Embraer. For several months we have had productive negotiations regarding contract conditions that have not been met, but ultimately these negotiations have been unsuccessful, “said Marc Allen, Boeing president for the Embraer partnership and operations.
According to him, “it is a profound disappointment.” Allen did not detail what items would be missed by the Brazilians.
Embraer has not yet officially commented. Company executives say the details would be minimal and that Boeing did not renegotiate the deadline because it decided that the purchase would not be feasible now.
They also hypothesize that the American wanted to avoid paying contractual fines estimated at up to $ 75 million (R $ 420 million this Friday) due to a withdrawal.
Americans are experiencing a double crisis. The 737 MAX is the largest in Boeing’s history, but the pandemic has made life even more difficult for the American manufacturer due to falling demand from the airline industry. Their participation cost R $ 1,820 on the last day of 2019 and R $ 716 on Friday.
Embraer is already under the impact of Covid-19, with postponed deliveries and order reviews. Its shares in the United States cost R $ 109 on December 31, and this Friday closed at R $ 32.50.
Furthermore, the European Union was also complicating the deal, as its regulatory body was the last to need to approve the deal: it left the decision for August 7, in what Brazilians and Americans saw simply as protection for European Airbus.
The reassessment of the purchase has been on Boeing’s radar since the start of the crisis, as Folha showed last month. Whatever the truth about the case, the business implosion is a major setback for both companies.
The Boeing-Embraer deal began sewing in 2017, when the U.S. automaker’s biggest rival, the European Airbus, bought Canada’s Bombardier C-Series line of regional jets.
The company is Embraer’s biggest rival, ranking second in the regional market. With the absorption of the line, renowned A220, the Europeans began to have an aircraft in a niche in which they did not work, counting on the enormous commercial capillarity to sell it worldwide.
This alarmed Boeing and Embraer as well, who began to consider options to increase their sales scale. Americans also urgently needed to renovate their engineering area, which had been experiencing weaknesses and sluggishness in projects even before the 737 MAX crisis.
The coincidence of interests led to the agreement, which was strongly framed by the Brazilian government, which then carried out a special action (“gold participation”) that would allow it to veto any agreement. The action was a remnant of Embraer’s privatization process in 1994.
For a year, the Ministry of Defense worked with the two companies on a formula that covered everyone involved. Initially, Boeing wanted to buy the entire Embraer, including its business and military aviation areas.
To avoid losing muscle when deciding on strategic projects, the military ended up favoring the final design. In it, Boeing would take Embraer’s civil aviation area, forming a company in which it would have 80% control, for US $ 4.2 billion (R $ 23.5 billion).
And Embraer’s military area would have the remaining national company, as well as the business jet sector. In addition, a joint venture would be formed, with 51% control of the Brazilians, for the sale of the C-390 military freighter.
Boeing is already part of the aircraft’s international marketing campaign and will continue this partnership with Embraer. However, the end of the joint venture largely disrupts plans to capitalize on the sale of the freighter in the international market: the C-390 would be the star of the new company’s portfolio.
Another problem for Brazilians is that of the market, since before the agreement, analysts’ forecasts were that perhaps in five years Embraer would have positioning problems in civil aviation if it did not integrate into one of the two main world aeronautical chains.
The agreement had the plateau’s approval under Michel Temer (MDB) and was ratified by Jair Bolsonaro (without a party) in early 2019.
Last year went smoothly, with the intricate operation to disassociate part of the companies, a process called “separation” internally, which is carried out gradually. Boeing considered him practically ready, but there were open questions.
The American even created a name for the new company, Boeing Brasil – Comercial, and established an office in São José dos Campos (SP), the headquarters of the Brazilian manufacturer.
The double crisis that Boeing faced resolved the adverse scenario. The crashes that led to the 737 MAX disrupting production and the fall of the company’s president, after being the most-ordered (5,000) aircraft in Boeing’s history, created enormous uncertainty about the investment capacity of the company.
With annual pre-crisis revenue of around $ 100 billion (R $ 560 billion), Boeing could absorb the civilian area with no problems, anyway. But the arrival of Covid-19, which banned the global airline industry, has reduced its window of maneuver.