Changes at Boeing

That might be true but you still have to deal with Bombardier, unless Airbus takes over all support. Dealing with Bombardier is not fun.

 

Boeing Terminates Embraer Deal, Bitter Fight Begins
Jens Flottau Tony Osborne April 25, 2020
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Credit: Embraer
FRANKFURT/LONDON – Embraer and Boeing are entering into a bitter public fight over who is responsible for the end of the proposed commercial aircraft joint venture, Boeing Brasil Commercial.

Embraer said April 25 it “believes strongly that Boeing has wrongfully terminated the Master Transaction Agreement (MTA), that it has manufactured false claims as a pretext to seek to avoid its commitments to close the transaction and pay Embraer the US$4.2 billion purchase price.” In a statement the company added that “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.”

Boeing earlier the same day said it is terminating plans for the tie-up with Embraer stating that the Brazilian manufacturer did not satisfy the necessary conditions.

"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. We all aimed to resolve those by the initial termination date, but it didn't happen," Marc Allen, president of Embraer Partnership & Group Operations said. "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."

The disputes include the question whether Boeing has to pay a $100 million termination fee. A Boeing spokesperson told the Seattle Times that “we don’t believe a termination fee applies in the circumstances.” Embraer believes it is entitled to receive the money.

The collapse is a huge strategic blow for Boeing that may have long term, far-reaching consequences for its ability to compete against Airbus and become re-established as an equal competitive force in the narrowbody and mid-sized aircraft market. It also means a U-turn for Embraer which will now have to compete as an independent manufacturer against industry behemoths Boeing and Embraer, putting it in an economically much weaker position. Airbus is emerging as the big winner from the fight.

While the MTA included a long list of conditions and some of them, including important regulatory approval from the European Commission, may not or may not yet have been met, industry observers believe the real reason behind Boeing’s decision is that the current financial pressures caused by the grounding of the 737 MAX and the novel coronavirus crisis are so enormous that it simply didn’t believe it could afford the transaction. Also, it would have been extremely difficult politically to ask for financial assistance from the U.S. government, cut thousands of jobs and at the same time spend more than $4 billion for an acquisition abroad, as strategically important as it may be.

Embraer’s value for Boeing was in two ways: After Airbus acquired the C Series program from Bombardier and made it into the A220, Boeing felt pressed to react at the bottom end of the narrowbody market where it cannot offer an aircraft offering the same economics as the A220. Also, Boeing was keen to get Embraer’s engineering capabilities that are regarded highly in the industry. Those capabilities would have been welcome in new aircraft programs such as the new mid-market airplane (NMA), which was undergoing a major reset even before the COVID-19 outbreak hit the industry with full force.

The lack of a viable product at the bottom-end of the narrowbody market that can compete at least to part of the A220 spectrum is now raising even more questions about the timing and design of Boeing’s next new aircraft. The manufacturer not only faces the task of designing an aircraft that eclipses Airbus’s highly successful A321neo/LR/XLR at the top end of the narrowbody market, but now also faces a gap at the bottom.

Designing a family of aircraft that can cover both segment is likely impossible.

The sale of a majority stake in its commercial aircraft division to Boeing has been a contentious, divisive decision inside Embraer, with management and the board split over its merits for a very long time. At the end, Embraer Commercial Aircraft President and CEO John Slattery managed to convince his team that it is in the company’s best interest to seek a strong partner rather than trying to compete independently.

In fact, one main reason why Embraer designed the E2 family the way it did was to avoid direct competition with Boeing and Airbus (which at the time did not own the A220).

Now, Embraer is on its own for now and needs to decide whether it will look for another strong partner, which would likely have to be outside of aerospace, or continuing as the broad, but small aerospace firm. It also has to decide whether to re-integrate Yabora Industria Aeronautica, the carved-out former commercial aircraft unit, into the group or run it as a separate entity for now.

The failed Boeing deal also puts an end to development programs for likely a long time. Slattery had said publicly for months that the company would not be able to afford the launch of its proposed new turboprop on its own, hoping to finally gain anti-trust approval by the European Commission by offering it the prospect of increased future competition in the regional aircraft market.

Boeing would have taken an 80% stake in a new company spun out of Embraer, the latter owning the balance. Another joint venture for the C-390 would be 51% owned by Embraer with the remainder owned by Boeing. The agreement allowed for either side to terminate the transaction had it not been completed by April 24. An extension was possible but only if certain conditions had been met, Boeing concluded that Embraer had not met them.

The tie-up had secured approvals from regulatory authorities apart from the European Commission, which had restarted its anti-trust probe into the joint venture earlier in April. It had been on pause since February and was due to conclude in August.

The two will however maintain their existing Master Teaming Agreement, originally signed in 2012 and expanded in 2016, to jointly market and support the C-390.

 

Airbus is hurting too.

Airbus CEO Warns Workers It’s Bleeding Cash and Needs Cuts
Charlotte Ryan and Siddharth Philip

(Bloomberg) -- Airbus SE chief Guillaume Faury warned employees that the planemaker is “bleeding cash” and needs to quickly cut costs to adapt to a radically shrinking aerospace industry.

Image Unavailable, Please Login © Bloomberg The fuselage of an Airbus A330neo passenger aircraft stands on the final assembly line at the Airbus SE factory in Toulouse, France, on Monday, Nov. 26, 2018. Known as the A330neo for New Engine Option, the model was originally scheduled to join the TAP Air Portugal fleet from the end of 2017.
With airline customers fighting to survive and unable to accept new aircraft, Airbus is juggling its delivery schedules while reassessing its long-term outlook for the aerospace industry, Faury told staff in a letter sent Friday and seen by Bloomberg News. A plan to slash production by one-third announced earlier this month may not reflect the worst-case scenario, he said.


“We’re bleeding cash at an unprecedented speed, which may threaten the very existence of our company,” Faury wrote. “We must now act urgently to reduce our cash-out, restore our financial balance and, ultimately, to regain control of our destiny.”

Airbus declined to comment on its internal communications. The company’s shares were trading down 1% at 9:25 a.m. in Paris on Monday.

The European manufacturer and its U.S. rival Boeing Co. are trying to come to grips with a plunge in demand caused by the coronavirus pandemic that’s rocked a commercial aerospace industry they dominate. Airbus has increased its liquidity by 15 billion euros ($16.2 billion) to weather the crisis, while Boeing is in talks for U.S. aid. Both companies are preparing for job cuts as they seek to gauge the depth of the downturn and the pace of the recovery.

Embraer Implosion
Boeing on Saturday walked away from a $4.2 billion plan to combine its jetliner business with Brazil’s Embraer SA. The Chicago-based company is expected to cut Dreamliner output by about half and announce workforce reductions with its scheduled first-quarter earnings report on Wednesday. Its CEO has warned of a “new reality” as he assesses the rapidly changing market.

Airbus came into the crisis healthier, and the collapse of Boeing’s Embraer deal strengthens the European company’s advantage in the important market for narrow-body aircraft, where volumes have been much higher.

Still, as with airlines, the crisis represents a mortal threat to the planemakers and their vast constellation of suppliers who’ve also been thrown into imbalance. Getting the math right on how far to cut back will determine the manufacturers’ health when a smaller industry emerges from the ruins.

“The aviation industry will emerge into this new world very much weaker and more vulnerable than we went into it,” Faury said.

The company chief has said that Airbus plans to assess production on a monthly basis as it seeks to take a realistic view of what is likely to be a long-lasting crisis.

Agency Partners analyst Sash Tusa expects the European manufacturer will ultimately have to cut production by a further 30% to match the likely fall in demand for aircraft over the next two to three years.

Conserving cash is key. The two planemakers likely burned through record amounts in the first quarter: 6.5 billion euros for Airbus and $8 billion for Boeing, according to calculations by Melius Research analyst Carter Copeland. Airbus is also set to report quarterly results on Wednesday.

Airbus has already postponed plans to add another assembly line for the A321 narrow-body at its headquarters campus in Toulouse, France, and slowed the ramp-up of its newest jet, the smaller A220 single-aisle. On Friday, the company mothballed its E-Fan X project with Rolls-Royce Holdings Plc. for hybrid-electric powered aircraft.

The company has taken actions such as furloughing about 3,000 French staff, though Faury said that more far-reaching measures may be needed.

 

I see this as more of a leasing company not wanting aircraft that cannot be placed than a statement against the MAX. It does raise questions about the definition of "excusable delay" as defined in the Purchase Agreement.

Alafco Sues Boeing for Non-delivery of Max Jets
by Gregory Polek
- April 23, 2020, 9:47 AM

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Kuwaiti leasing company Alafco placed a pair of orders for a total of 40 Boeing 737 Max 8s. (Image: Boeing)
Kuwaiti aircraft lessor Alafco has filed suit against Boeing in federal court in Chicago for failure to return payment on undelivered 737 Max 8 jets. The filing claims rights to the return of $336 million in advance payments for the first 10 of 40 aircraft on order, the first delivery of which Boeing had set for March 2019. All global aviation authorities grounded the 737 Max by March 13, when the U.S. FAA became the last to do so.

According to the lawsuit, although Boeing notified Alafco of delivery delays involving “many” of the aircraft, it has not yet given the lessor an estimate of revised delivery months.

The filing indicates that Alafco sent a letter to Boeing terminating orders for the aircraft scheduled for the March delivery based on a non-excusable delay. Boeing countered in a December 3 letter that it “respectfully disagrees” with Alafco’s assertion of non-excusable delay rights and refused to return the payment. On March 6 of this year, Alafco canceled the orders for all 40 aircraft after Boeing failed to make “timely” delivery of nine of them.

Alafco claims a provision in the contract that limits Boeing’s liability in the event of an excusable delay does not apply, arguing that fault for the grounding of the airplanes lies with the manufacturer.

In an emailed response to a query from AIN on Thursday, Boeing said it would not comment on the matter.

 

https://embraer.com/global/en/news?slug=1206709-embraer-says-that-boeing-wrongfully-terminated-the-master-transaction-agreement

"Embraer believes strongly that Boeing has wrongfully terminated the MTA, that it has manufactured false claims as a pretext to seek to avoid its commitments..."

Wow, that's a serious accusation!

 

When the real issue is likely Boeing's financial position they had to make up some excuse.

 

Wish i could do the direct link instead. There is a podcast "Why Embraer was Left at the Altar".

Interesting discussion that includes that Boeing could use the $4B during this time, Boeing might not want the political issue of getting government money while spending the $4B to buy the Embraer stake. But there is a lot more as possible reasons of corporate culture and that with the current CEO there could be a revisiting of the entire decision. A point brought up is that apparently the terms between Boeing and Embraer included that dispute resolution is via Arbitration with the thought that this could make it be public record.

Don't miss a single episode. Subscribe to Aviation Week's Check 6 podcast in iTunes.

 

The airline industry is toast until they address this problem.

https://nypost.com/2020/04/30/visualization-shows-droplets-from-one-cough-infecting-large-number-of-passengers/

 

The only solution for airline travel is a test that can be done at security that shows within seconds whether someone tests positive for the virus. If you test negative, you get to go through security and there should be no trouble flying if everyone on board has tested negative. Otherwise you'd have to fly aircraft at about 20% capacity, and that's no way to make money or even break even.

 

No covid test will be 100% sensitive, specific, or accurate so even then a test that would result that rapidly (not possible) would not even be 100%. Plus the thing stays on surfaces long enough that it could get onto the plane that way. Best bet is to screen for symptoms and then require masks. That's it.

Edit: Looks like Boeing raised $25 billion through bonds with some in 4o years duration at 5% over or thereabouts. No need for govt money (at the moment at least).

Edit #2: Looks like it was 4.5% over tbond rates, not over 5% as initially expected. Lots of demand I suppose. https://www.marketwatch.com/story/boeing-lands-25-billion-debt-deal-2020-04-30

 

All this talk about the MAX and we forget about the biggest most expensive mistake in recent airliner history, and it ain't a Boeing!!

https://simpleflying.com/emirates-a380-is-over/?utm_source=dlvr.it&utm_medium=facebook&fbclid=IwAR0g1_-pGhiYtnNYqO9DIvAdV_mksCfMBGyBVO4jl03K_79AiE_sLIm-lfU

 

Saw one of these A220's sitting by the hangar at ORD. Nice looking aircraft, but with the Bombardier customer experience being what it is can Airbus step it up and give better support??




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https://www.thestreet.com/investing/delta-airlines-to-permanently-retire-boeing-777-from-fleet

Delta said it's burning $50 million in cash each day, a rate it hopes to reduce to zero by the end of the year.

Amazing when burning zero dollars a day is a goal.

 

Does that mean they're keeping the A330? I would have expected that it would have been the first to go.

They also announced that they're retiring the MD-90, effective the end of next month! Are they still flying MD-80s or have those already departed?

 

Wonder if this is all of them or just the early ones.

 

They say they will keep the A330's and A350's wich are all parked now. I think the few routes they are using 777's or any widebody on now are all cargo. They have two roundtrip flights every day with Delta 777's to Frankfurt from ORD with cargo only.

 

I liked Delta better when they said they were committed to remaining an all-Boeing airline. Then they bought Northwest, and everything changed.

 

Jim- Affirmative, I feel the same way.

 

Ditto.

They also have MD-88s with the big engines. Those are going away also.

 

To be honest I think Delta will either delay for years or completely defer the coming A350's also including the Latam aircraft. This is going to be the worst time in airline history after the grant money runs out. UA and AA are already in bad shape with major debt issues. I can see an extension on the government money until just after the elections to delay it, but come 2021 it will get so ugly it won't be funny. By mid summer 2020 it will be to late to stop it from happening as they will have burned thru to much cash already no matter if pax loads come back or not.

 

This is eating up the rental car companies, too, especially Hertz.

 

Would the government allow a merger of 2 of the 3 - United, Delta, American?

Would the foreign ownership rules be changed so that any of the international carriers could take a high percentage or controlling interest in one of them. British Airways/IAG would be a logical partner for American under such a circumstance. would the politicians go apoplectic if Emirates, or another of the Gulf carriers, made an offer? Go in the other geographic direction and how about JAL, ANA or Korean?

 

They are all going broke.

 

Are the foreign airlines in any better shape?

 

State owned airlines certainly can have deeper pockets. I would expect some of the operators to be less hurt than others and with a desire to have full access to a massive marketplace. Having the ability to eliminate competing international flights (cost savings), ability to have a fully coordinated network for the international flights, access to airport gates at the highly congested airports, as well as a viable US domestic market could be enticing to some.

If we are talking about the US majors, there are only 3 that would be in play. I could see IAG wanting American. They tried to do a close alliance about 20 years ago - I remember Virgin Atlantic having "BA/AA - no way" on their airplanes expressing their view of the possibility. Lufthansa could be interested in United. Unfortunately for Delta their European alignment has Air France which comes with problems. But then think of someone like Emirates. What would they do if given the chance?