By Marcelo Rochabrun, Tim Hepher and Tatiana Bautzer
SAO PAULO/PARIS (Reuters) – Boeing Co on Saturday pulled out of a $4.2 billion deal to buy the commercial jets division of Brazil’s Embraer, unraveling years of work on a transformative move driven by expanding competition with Europe’s Airbus.
The deal’s collapse, first reported by Reuters, is expected to trigger a legal battle as hopes for an alliance spanning from regional to jumbo jets dissolve into behind-the-scenes bickering, though a separate military transporter marketing pact will remain intact.
“Over the past several months, we had productive but ultimately unsuccessful negotiations … We all aimed to resolve those by the initial termination date, but it didn’t happen,” Boeing senior vice-president Marc Allen, the president of the proposed Embraer partnership, said in a statement.
Embraer had no immediate comment.
The collapse of talks halts the second half of a major reshaping of the global duopoly between Boeing and Airbus as both companies sought to expand into regional jets, adding potential new revenues and fresh resources or technology.
In July 2018, Boeing agreed to buy 80% of Embraer’s commercial jet unit after Airbus bought Embraer’s main rival, the CSeries developed by Canada’s Bombardier and since renamed A220. It also eyed lower-cost engineering and manufacturing.
The prospect of an abrupt collapse of the talks was first reported by Reuters on Friday after discussions over contractual clauses turned sour and sources reported that progress was slow as the clock ticked towards a midnight deadline.
On Saturday, plans for a simultaneous announcement were abandoned after Reuters quoted sources as saying Boeing had notified Embraer late on Friday that it would refuse to extend an April 24 deadline, effectively blocking the deal.
People familiar with the matter said Boeing had raised objections during talks about funding and legal matters, which Embraer regarded as a deliberate bid to frustrate the deal.
“Boeing was hard-hit by the world (coronavirus) crisis and found mechanisms in the contract to break it,” said a Brazil-based source directly familiar with the talks.
Boeing is preparing for job cuts in its own workforce and steep production cuts next week due to the coronavirus crisis.
Others said the dispute revolved around how much Embraer had invested in the commercial aerospace unit pending a final deal, as well as the progress of technical and contractual paperwork.
A U.S. source denied Boeing had deliberately scuppered the deal and said Embraer had known for more than a year about the deadline and the various conditions for implementation.
The deal calls for a $100 million breakup fee. However, sources said Embraer was weighing whether to sue for more after the long period of uncertainty cost it aircraft sales for the A220.
The April 24 deadline been baked into the deal since January last year, but antitrust hiccups had forced the two companies to try to work out a new deadline.
While the transaction received antitrust approvals from most countries, the European Union delayed a decision until August.
Amid opposition from labor unions and prosecutors who thought Boeing would slash jobs, Embraer had defended the sale, saying it was crucial for its future.
Analysts expect it will now move to reassure investors over its financial position. At the end of 2019, it had $2.3 bln in cash and cash equivalents.
Brazil President Jair Bolsonaro had supported the deal, which needed government approval to go through, but expressed worry that Boeing might at some point take over all of Embraer.
Boeing Chief Executive Dave Calhoun earlier this year upheld the strategic value to Boeing of going ahead with the deal, which would have seen Embraer contribute to future Boeing jets.
(Reporting by Marcelo Rochabrun, Tim Hepher; Editing by Kevin Liffey and Chizu Nomiyama)