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Embraer looks towards government support

written by Dylan Nicholson | May 7, 2020

A file image of the now-departed Cobham Embraer E190 VH-NJA. (Rob Finlayson)

Brazilian aircraft manufacturer Embraer has sought advisory assistance in an move towards formally requesting Brazilian government support after a deal with Boeing fell through.

Embraer has hired an investment bank, Itau BBA, to advise in talks with the Brazilian Development Bank (BNDES) for government support. The plane manufacturer is seeking credit lines of between $1 billion and $1.5 billion.

The deal with Boeing would have been a huge injection of cash to help shore up its finances during the crisis but has now been left high and dry by the Boeing pull out with Embraer reportedly seeking damages from Boeing as a result.

The Boeing deal planned with Embraer would have been worth $4.2 billion and would have formed Boeing Embraer – Defense, a joint venture largely aimed at promoting Embraer’s commercial and defence aircraft outside of the South American nation.

In a statement released by Boeing, the company announced that it would be discontinuing talks with the São Paulo-based corporation.

The joint venture was awaiting final European Commission approval but was already operating under a preliminary agreement known as a “Master Transaction Agreement” (MTA).

According to sources including Reuters, Boeing alleges that Embraer failed to meet unspecified requirements within that MTA by midnight 24 April.

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In response to Boeing’s cancellation of the JV, Embraer quickly announced that it “will pursue all remedies against Boeing”. This is in addition to seeking payment of a $100 million breakup fee contained in the contract.

In April, the Brazilian company suggested that Boeing’s financial woes are to blame for its reluctance. Embraer referred to the 737 MAX grounding and the COVID-19 outbreak, both of which have cost Boeing billions.

A separate agreement, to support and market Embraer’s C-390 Millennium transport craft outside of Brazil, is planned to continue.

The company has delivered two C-390 Millennium (or KC-390) to the Brazilian Air Force since September, and has outstanding orders for a further 25. According to Cirium fleet data, orders for the model have also been commissioned from Portugal, Argentina, Chile, Colombia and the Czech Republic.

In a further blow to Embraer, its latest jet, the E2 next-generation variant of the popular E170-family, has not been selling terribly well. In the wake of this crisis, some airlines may also alter their orders for the E2 jets to reduce liabilities.

However, as Embraer is still a major supplier to the Brazilian Air Force, government assistance is more than likely in order to keep future aircraft design, operations, and maintenance in the country. Part of the aid could come in the form of a government order for defence aircraft. Although, it is unclear if the Brazilian Air Force would want more jets.

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