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Boeing Backs Out of $4.2 Billion Embraer Joint Venture Deal

support@smarteranalyst.com (Ben Mahaney)

Boeing Co (BA) has pulled out of a $4.2 billion agreement to purchase Embraer SA’s (ERJ) commercial aviation business.

The aerospace company announced on Saturday that it has terminated its Master Transaction Agreement (MTA) with Embraer, after the latter did not satisfy the necessary conditions. The two companies had planned to create a joint venture with Embraer's commercial jets unit and a second joint venture to develop new markets for the C-390 Millennium medium airlift and air mobility aircraft.

Under the terms of the agreement Boeing had an option to terminate the agreement until April 24.

"Boeing has worked diligently over more than two years to finalize its transaction with Embraer. Over the past several months, we had productive but ultimately unsuccessful negotiations about unsatisfied MTA conditions," said Marc Allen, president of Embraer Partnership & Group Operations. "It is deeply disappointing. But we have reached a point where continued negotiation within the framework of the MTA is not going to resolve the outstanding issues."

Boeing and Embraer had already received approval from regulatory authorities for the planned partnership, with the exception of the European Commission.

In response Embraer lashed out at Boeing asserting  it “wrongfully terminated” the agreement, that it has manufactured “false claims” to find a way out of the transaction and pay Embraer the $4.2 billion purchase price.

"We believe Boeing has engaged in a systematic pattern of delay and repeated violations of the MTA, because of its unwillingness to complete the transaction in light of its own financial condition and 737 MAX and other business and reputational problems,” Embraer said in a statement.

Adding to its woes, a few of Boeing’s customers have in recent weeks cancelled orders of its grounded 737 MAX jets. The aerospace company, which has seen shares plunging more than 60% this year, dipped another 6.4% on Friday closing at $128.98. Embraer dropped 13% to $5.82.

Four-star analyst Jonathan Raviv, analyst at Citigroup last week cut Boeing’s stock to Hold from Buy with a $175 price target.

"We’re throwing in the towel far too late,” said Raviv. “BA has unique challenges beyond a dimmer aero picture.”

TipRanks data shows that Wall Street analysts, have a Moderate Buy consensus rating on Boeing’s stock based on 13 Holds and 5 Buys. The $179.44 average price target foresees 39% upside potential in the shares in the next 12 months. (See Boeing’s stock analysis on TipRanks).

Boeing said it will maintain its existing Master Teaming Agreement with Embraer, signed in 2012 and expanded in 2016, to jointly market and support the C-390 Millennium military aircraft.

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