Embraer E2 in-flight

Embraer alleges Boeing wrongfully terminated tie-up pact

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In the midst of a deeply challenging time for the aviation industry, Boeing has terminated its agreement to take control of Embraer’s commercial jet division. Boeing claims Embraer “did not satisfy the necessary conditions” of their Master Transaction Agreement (MTA). But the Brazilian airframer has hit back, saying it “believes strongly that Boeing has wrongfully terminated the MTA”. It vows to pursue all remedies against Boeing for damages incurred.

The pact envisaged the creation of a joint venture made up of Embraer’s commercial aircraft operations, including its re-engined E2 line. Boeing was to own 80% of the new company, called Boeing Brasil-Commercial, while Embraer was to hold the remaining 20%.

Boeing says the MTA with Embraer stipulated April 24, 2020 as the initial termination date, subject to extension by either party if certain conditions were met.

“Boeing has worked diligently over more than two years to finalize its transaction with Embraer. Over the past several months, we had productive but ultimately unsuccessful negotiations about unsatisfied MTA conditions. We all aimed to resolve those by the initial termination date, but it didn’t happen,” says Marc Allen, a senior executive at Boeing who serves as president of the Embraer Partnership & Group Operations.

He continues: “It is deeply disappointing. But we have reached a point where continued negotiation within the framework of the MTA is not going to resolve the outstanding issues.”

For its part, Embraer alleges Boeing “has manufactured false claims as a pretext to seek to avoid its commitments to close the transaction and pay Embraer the US4.2 billion purchase price”.

It states:

We believe Boeing has engaged in a systematic pattern of delay and repeated violations of the MTA, because of its unwillingness to complete the transaction in light of its own financial condition and 737 MAX and other business and reputational problems.

Embraer believes it is in full compliance with its obligations under the MTA and that it has satisfied all conditions required to be accomplished by April 24, 2020.

Embraer says it will pursue “all remedies against Boeing for the damages incurred by Embraer” for what it alleges is Boeing’s “wrongful termination and violation of the MTA”.

The planned partnership between Boeing and Embraer had received unconditional approval from all necessary regulatory authorities, with the exception of the European Commission. Boeing says the two firms will maintain an existing agreement, originally signed in 2012 and expanded in 2016, to jointly market and support the Embraer C-390 Millennium military aircraft.

Boeing’s 737 MAX twinjet has been grounded since March 2019, following two fatal accidents. Like virtually all aviation industry stakeholders, the US airframer is challenged by the coronavirus pandemic, which has seen air traffic demand plummet amid government-imposed stay-home orders and travel restrictions.