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 canceled: Boeing has terminated the contract to take over Embraer’s civil aircraft division. Mutual blame for the deal’s failure has already begun. But what does the move mean for Boeing?
First of all, the American aircraft manufacturer saves the purchase price of $ 4.2 billion. That is probably the main reason for the cancellation, even if Boeing officially allegedly neglected Embraer. Because it is highly questionable whether the aircraft manufacturer could have financed the takeover financially. And even if: How should Boeing have argued to apply for state aid and layoffs in the United States while making a huge investment abroad?
No access to Embraer’s engineers
With this billion-dollar saving, even possible contractual penalties should be manageable if Embraer should be able to prevail in court. We’re talking about $ 100 million in the contract. The question is whether the Brazilians make further claims and how successful they are.
As far as the strategic consequences are concerned, it is worth taking a look at the advantages that Boeing once hoped for from the takeover. For one thing, the American aircraft manufacturer wanted to counter something when Airbus took over the Bombardier C-Series and turned it into the Airbus A220. Embraer’s new E2 family was perfect. On the other hand, Boeing also wanted to secure access to Embraer’s highly acclaimed research and development – as well as the cheaper production costs in Brazil. All of this now becomes nothing.
Boeing 737 Max more decisive than ever
Boeing Embraer’s engineering skills will not be able to be used 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 the aircraft manufacturer without Embraer’s regional aircraft will only be offering three civil passenger jets for 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 just collected a little more than 300 orders. In addition, the recovery in business with long-haul airlines is likely to be generally slow after the Corona crisis. 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.
Do Chinese Manufacturers Benefit?
In the race with Airbus, Boeing is likely to fall behind. The manufacturer from the USA cannot currently oppose the Airbus A220, nor the long-range versions LR and XLR of the A321. And smaller aircraft in particular could now be particularly important. “It is becoming increasingly clear that the recovery begins with the smallest aircraft – turboprops and regional aircraft. The smallest aircraft from Boeing is the Max 7, which nobody wants. As a result, Boeing will wait the longest for a recovery, »said Air Insight analysts. The group from the USA has the advantage only in the case of freighter planes with Boeing 767-300 F, 777 F and 747-8 F on offer.
With this in mind, the analysis portal Leeham predicts: “The 2020s will be Boeing’s lost decade.” If this really happens, the question arises as to whether another manufacturer besides Airbus can use it. There is already speculation that the Chinese aircraft manufacturers Comac or Avic could keep an eye on Embraer.
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