The buyout deal between the recently troubled US plane manufacturing company, Boeing Co. or Boeing and the debt-laden Brazilian, Embraer SA or Embraer worth $4.2 Billion remains uncertain due to the shrinking of the global market of the aviation industry.
Despite the deal was supported by Brazil, Boeing’s proposal to buy the jet-making unit of Embraer has been facing critics in US Congress. Moreover, the widespread coronavirus outbreak, which forced to shut the aviation industry and led to shrinking markets across the globe, raised questions over the significance of the deal.
Boeing, which had been putting some of its fleet grounded over several months due to two fatal crashes, has offered to pay $4.2 billion in cash for buying 80% of Embraer’s commercial unit.
On Wednesday, March 18, 2020, the Brazilian antitrust regulator has approved the deal for buying out Embraer’s unit, which builds jetliners for 70 to 150-seat segments. With this deal, the Brazilian jet-maker is expected to compete with its rival, Canadian-designed A220 program recently acquired by Europe’s Airbus.
However, the recurrence of the virus epidemic, which has led to lockdown air travels and impacts on the global economy, posed a major challenge to the deal since both the companies have been facing a sharp decline of shares. Besides that, the delay of approval by the European Union (EU) regulatory has put the deal in ambiguity.
According to Refinitiv Eikon data, the shares in Boeing were completed shattered that witnessed a fall of 14% on Wednesday which means its market value has dipped about $1.3 billion due to the fall by two-thirds of its capital since the deal was initiated in 2018. Canaccord Genuity analyst Ken Herbert said that the recent development on the virus effects “have increased the chances that this deal does not get done.”
Expected Fallout of the Deal
The newly elected chief executive officer of Boeing, Dave Calhoun said in January that the company was committed to the deal even though he needed the approval of board executives of the company besides the strong critics in Congress. Calhoun intended to make this deal happened due to his $7 million performance bonus, part of a three-year package of Boeing’s share price, which was dependent upon his ability to close the Embraer deal, assuming regulatory approval.
Through this deal, the Brazilian company led by John Slattery would place a new Boeing-led venture competing against Airbus’ A220 and would pay a $1.6 billion special dividend to its shareholders out of cash transition. The deal would allow Embraer to keep aside some $1 billion of net cash for its remaining military and private-jet units.
Citing the financial conditions of Boeing, Herbert said, “They are going to Washington with their hands out for a bailout and then, on the other hand, looking at spending $4.2 billion to complete the deal.”
A Boeing spokeswoman said, “We don’t comment publicly on discussions between the parties or market speculation. We are addressing the regulatory approvals process and outstanding closing conditions.” Meanwhile, Embraer has expressed its optimistic views on the deal and focused to expand the market for its latest carrier, the E195-E2, which was displayed in a showcase in England this week.
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