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Cancellation with Embraer

The aftermath of the broken deal for Boeing

Boeing had little choice but to cancel the Embraer acquisition. Nevertheless, the strategic consequences for the US aircraft manufacturer are devastating.

The wedding has been cancelled: Boeing has called off the contract to take over Embraer’s civil aircraft division. The mutual recriminations for the failure of the deal have already begun. But what does this step mean for Boeing?

First of all, the American aircraft manufacturer saves the purchase price of 4.2 billion dollars. This is probably also the main reason for the cancellation, even though Boeing officially cites alleged failures by Embraer. It is highly questionable whether the aircraft manufacturer could have financed the takeover. And even if it had: How could Boeing have argued to apply for state aid in the United States and lay off employees while making a huge investment abroad?

No access to Embraer’s engineers
With this billion-dollar saving, even possible contractual penalties should be bearable, should Embraer be able to assert itself in court. We are talking about the $100 million in the contract. The question is whether the Brazilians will make any further claims and how successful they will be in doing so.

As far as the strategic consequences are concerned, it is worth looking at the benefits that Boeing once hoped to gain from the takeover. For one thing, the American aircraft manufacturer wanted to do something about it when Airbus took over Bombardier’s C-Series and turned it into the Airbus A220. Embraer’s new E2 family was a perfect fit. On the other hand, Boeing also wanted to secure access to Embraer’s highly praised research and development – as well as to the more favorable production costs in Brazil. None of this is going to happen now.

Boeing 737 Max more decisive than ever
Thus, Boeing will not be able to use Embraer’s engineering capabilities to develop a New Middle of the Market aircraft, a Future Small Airplane or any other new aircraft. At the same time, it is clear that without Embraer’s regional aircraft, the aircraft manufacturer will have only three commercial passenger jets in the foreseeable future: the Boeing 737 Max for short- and medium-haul flights and the 787 and 777 for long-haul flights.

It is unclear what will become of the new generation 777X, for which Boeing has only collected just over 300 orders. In addition, the recovery in the long-haul business after the Corona crisis is likely to be slow in general. So Boeing – and this is probably the most important consequence of the failed Embraers deal – will depend more than ever on a successful return of the 737 Max.

Will Chinese manufacturers benefit?
In the race with Airbus, Boeing will most likely fall behind. The US manufacturer can currently do nothing to counter the Airbus A220, nor the high-range LR and XLR versions of the A321. And smaller aircraft could be particularly important now. «It is becoming increasingly clear that the recovery is starting with the smallest aircraft – turboprops and regional jets. Boeing’s smallest aircraft is the Max 7, which nobody wants. That’s why Boeing will wait the longest for a recovery,» say Air Insight analysts. The US-based company only has an advantage in the freighter segment, where Boeing 767-300 F, 777 F and 747-8 F are available.

Under these omens, the analysis portal Leeham predicts: «The 2020s will be Boeing’s lost decade.» Should it really come to that, the question arises whether another manufacturer besides Airbus will be able to use this. There is already speculation that the Chinese aircraft manufacturers Comac or Avic could keep an eye on Embraer.

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