Embraer Has Begun Arbitration Process Over Boeing's Cancellation of Deal

By Jeffrey T. Lewis

SAO PAULO--Brazilian aircraft maker Embraer SA said Monday it has started an arbitration process over the decision by U.S. aerospace giant Boeing Co. to cancel a plan to buy control of the Brazilian company's commercial jet business.

Embraer declined to give further details on the arbitration.

Boeing, which will save about $4 billion in cash from the decision, said Saturday the companies had failed to agree on final terms by the deal's initial termination date and that it instead chose to abandon the plan to buy 80% of the commercial plane business, along with another joint venture in a unit producing Embraer's new military cargo plane.

Embraer told Boeing earlier this month that the Brazilian company wanted to extend the negotiation process, but the U.S. company instead chose to terminate the agreement and used false claims as a pretext to avoid its commitments to close the transaction, according to Embraer executives on a conference call Monday morning.

Boeing had pursued Embraer to acquire access to smaller jetliners seating around 100 passengers and engineering expertise, but the Brazilian company's market value has fallen by two-thirds since the start of the year as the coronavirus upended air travel and led to the grounding of much of the global airline fleet.

The Brazilian company said it intends to use all remedies available regarding the damages incurred by Embraer because of Boeing's decision, without providing more details. The cost to Embraer of ending the process will be substantial, but the company said it hasn't finished calculating the figure.

The deal was first announced in 2018, and Embraer had already begun the process of separating the commercial jet business from the rest of the company.

Embraer's business remains attractive, and the commercial jet unit should benefit when the sector recovers from the coronavirus crisis, the company said. Embraer executives said they're reviewing their strategy for the unit, but declined to comment on other possible partners.

Embraer doesn't expect its business jet unit to feel much impact from the coronavirus crisis, though some orders are likely to be deferred, the company said. Its cash position is solid and the company has enough working capital to get through the year, executives said.

-Doug Cameron contributed to this article

Write to Jeffrey T. Lewis at [e-mail]

(END) Dow Jones Newswires

April 27, 2020 09:32 ET (13:32 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.