The ongoing Coronavirus crisis has already led to some devastating outcomes – Flybe running out of business, and carriers like Air Mauritius and Virgin Australia hanging by a thread. And now, even the airplane manufacturer giant, Boeing, has shown visible laceration after its deal with Brazilian aircraft maker, Embraer has fallen apart. According to reports, Boeing has decided to turn down the deal of $4bn to acquire the Brazil’s Embraer as it reels from the impact of the current crisis in aviation.
According to a pact jointly agreed between the two entities dated January 24, 2019, either company could terminate the tie-up if the transaction hadn’t closed within 15 months.
Boeing stated on April 24, 2020 (Saturday), that it had tried hard for two years to end up on a deal that could be agreed by both the manufacturers before the termination date which fell on April 23, 2020 (Friday), but ultimately negotiations were unsuccessful.
This debacle shall be a blow to Boeing which was determined to broaden its paraphernalia to compete with Airbus, which in 2017, had acquired Bombardier’s C-Series program, later rebranded as Airbus A220.
This result could adversely affect Embraer as well, given that post the ongoing crisis, demand for new aircraft shall be substantially less, and to thrive through the slump in cash flow, giant, and now competitor, like Airbus will be better equipped, thanks to their sheer size and financial backing. The tie-up between Boeing and Embraer had faced a multitude of impediments over the past months, with substantial political opposition in Brazil. In Europe too, regulatory approval necessary for the deal to go ahead has taken much longer than earlier anticipated.
Boeing is under pressure to conserve cash amidst the 737MAX debacle alongside the coronavirus pandemic, with demand for new planes evaporating and the agreed-upon price of $4.2bn was looking increasingly rich with Embraer’s market value tumbling almost 75% to $1.1bn Reports state that Boeing will now pay a termination fee of $75mn to revert the deal.
This could potentially mean that in the battle of the smaller jets, Airbus could come on top as the ultimate winner! The A220 series aircraft is already selling well, with numerous carriers operating a good number of flights. The Embraer E2 series, on the other hand, is yet to make any significant mark in the market.
With Boeing out of the Embraer deal, and the 737MAX family of aircraft still grounded, Airbus has a free-to-go license to dominate the short and ultra-short haul market with its A220 and A320 series aircraft!
What do you think of this fall-out between Boeing and Embraer? Who would it hurt the most?
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