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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. (www.cnbc.com) More...
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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.
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.
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"
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"
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?
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.
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.
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.
As Mike stated, Boeing is looking for financial help.If you can afford 4.2B fore a company, you do not need help.
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.