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Boeing Terminates Joint Venture Agreement With Brazil’s Embraer

Boeing has ended agreements for joint ventures with Brazil’s Embraer after a deadline for the deal passed, the latest derailment at the aerospace giant. ( More...

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Simple economics. Embraer's market capitalization has fallen to $1.1 billion.

So Boeing's supposed to pay $4.2 billion for 80% of $1.1 billion?

No that can't work. Boeing is right to walk away.
Mike Boote 14
One unmentioned item - Boeing can hardly go hat in hand to the US government while looking to invest in a foreign entity.
There was some back and forth between Boeing and Treasury in March, but Boeing ended up turning down Mnuchin's proposal. There were also provisions in the recently passed legislation which could provide government backed loans that a lot of pundits were howling about as a backdoor Boeing bailout, but the provisions are for the industry in general and up to this point Boeing has not applied.

Instead of taking government aid, Boeing scaled back production, cut executive pay, suspended the shareholder dividend, drew on existing credit lines and (according to stock analysts) the markets are pricing in a secondary equity offering in the not too distant future.

As for the Embraer stake, it's just good business to walk away from a bad business deal.
djames225 2
Boeing is not done yet. As of April 22, Boeing was still pondering federal help and talks within the corp. were ongoing. Lazard and Evercore are helping decide further actions needed to "ride out this situation" with estimates Boeing will still need about $14-16B to debt service, customer support, supplier support and other incremental costs, and actions taken so far have not produced the numbers needed.
It helps when they just received the withheld $882M, from DoD, for the KC-46 tanker program, but with added airlines and lessors cancelling aircraft orders that were not factored in back in January, that costs money. Walking away from Embraer deal also cost them $100M in "cancellation agreement"
djames225 2
I do have 1 other "question". If "As for the Embraer stake, it's just good business to walk away from a bad business deal." was true, why would Boeing have increased it's offer to a company, who's market cap was only 2.36M ,at the time of initial offering, from $3.8B to 4.2B, and instead of extending the agreement deadline when asked, terminate it right at the deadline instead of days prior?
boughbw 9
So I have seen this canard before: "the market cap is what matters." It isn't.
What Embraer represented to Boeing was several fold and not captured by the market cap measure used by investors:
1. Line production space and profitable planes.
2. Engineering talent in-place.
3. Opportunities to harmonize Boeing cockpits into the regional realm as Airbus has done with the Airbus cockpits and the A220. This translates into sales and the opportunity to make fleets all-Airbus. As Delta transitions away from Boeing products for the long haul fleet, Boeing has made no progress on the NMA that Delta was interested in buying, and Delta stands as a carrier not affected by the MAX grounding, this threat is very much real.
4. A solid foothold in South America.
Lest you believe I am incorrect, I will remind you that Boeing's push for a MAX response to the Airbus A320neo was primarily to mollify investors after having been caught flat-footed. I am sure you are aware of the ramifications of not having a clean sheet redesign of the 737.
More to the point, the talks have dragged with the grounding of the MAX over a year ago. COVID-19 is not a trivial problem for Boeing either. The problem is with Boeing, not Embraer.
djames225 5
Boeing had to walk away, nothing to do with what happened to Embraer, although it added to it.
As Mike stated, Boeing is looking for financial help.If you can afford 4.2B fore a company, you do not need help.
SmokedChops 5
their market cap may be only $1.1bn (only? lemme check the cup holder in my work van...) But, Embraer is not looking at a string of huge financial liabilities (as of yet undetermined) for the 737MAX ongoing saga - which could easily go in to the billions. It's also unlikely Boeing is actually sitting on $4.2bn in liquidity. (doubtful any of the airframers have piles of cash at this point) Airbus' tab for the CS program from Bombardier was on track to be recovered fairly soon prior to this virus hoo-haa screwing everything. It's not entirely the face value, but what can be built from it. Market cap of $1.1bn = 11-12 E series(~ $90m ea.) $1.1bn seems awfully low at that point. Hopefully they both survive intact.
Embraer is in a lot worse shape than Boeing is from a financial standpoint.

Yep, market cap. was $1.1 billion last Friday. It will very likely drop below $1 billion today.
djames225 1
Market cap dropped just below 1.1M on news Boeing was terminating the agreement for as yet undisclosed reasons. Embraer had all the T's crossed and i's dotted on the agreement, but Boeing wanted more. Yes it dropped below 1M, but has rebounded back.
Remember Boeing made the offer before the whole MAX fiasco, and then COVID-19 helped push, so I can almost guarantee you that Boeing was looking for a way out, that would make it seem "non-financial" to avoid they would potentially lose.
djames225 0
Oh and btw...Embraer is not in a lot worse shape from a financial standpoint. Actually both companies are almost equal, and yet Boeing should be well ahead of the curve.
SmokedChops 0
interesting. Brazil has had their share of financial punches to deal with. I wonder what Embraer's debt loading ratio looks like, out of curiosity (and where does it lie)? (mfg. infrastructure vs. sketchy finance deals to end-use customers to make the sale)
Bror Monberg 1
There is so much liability and uncertainty in this industry. It seems in order to persevere you need be dedicated to 'flight.' Great respect for Boeing CEO Dave Calhoun. His is a job I would not want.
pilotjag -6
Try to better determine if there is already a similar post before you decide to post. Especially if your post comes right after someone who's already posted it
Andre Melgaço -1
It's a wild market! Simple like that! Boeing is not right or wrong. It's tryng to keep its head out ofthe water. As for Embraer, well maybe it won't make it. I just can't see how...hope it find some way out of China. Anyway, put it on the account of COVID-19!!

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djames225 7
His post was bad enough, you don't need to add insult to injury with you BS comments like "the USA is the greatest country to live in all others are second rate, have high taxes, high unemployment and unlike the US don't have much recreation or space to live in"
Right on! This spiel about recreation and space looks especially ill informed when a 3 second look at the basic info about the original commenter says he’s from Canada. There are better ways to express that the comment was out of line for a website devoted to aeronautics.
djames225 3
Would have been a different story if you had said, "sorry you feel so bad about where you live, but I think the USA is 1 of the greatest countries to live" and left it at that.
Flightaware has got to enable an edit function in these squawks.
bdarnell 5
Or a moderator.

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