Embraer takes Boeing to arbitration over failed deal as Brazil eyes China tie-up

Brazil's Vice President Hamilton Mourao, a retired army general, called the turn of events a "blessing in disguise."

"We have the know-how, they have the demand," Mourao said of China. "This shows once again that a marriage (with China) needs to continue, because it is an inevitable marriage."

The deal's sudden collapse was triggered by a midnight deadline that Boeing refused to extend on Saturday, and drew an irate response from Embraer.

Embraer is in a delicate situation, having bet the company's future on Boeing only to find itself now in isolation and without a Plan B, all while the coronavirus crisis ravages the travel industry.

On Monday, Embraer executives hosted a call with analysts but largely dismissed the angry rhetoric displayed over the weekend.

Still, Embraer tried to reassure investors that it remains a solid company, although CEO Francisco Gomes Neto acknowledged that 2020 would be a "tough" year and that 2021 would be "worse than we had thought."

He added that Embraer has been able to find USD 1 billion in cash savings for 2020, and that it has not suffered any aircraft order cancellations due to the coronavirus crisis.

Gomes Neto declined to provide more details on the arbitration process and if it will be accompanied by a lawsuit in either a Brazilian or a US court.

Embraer had hoped to sell 80% of its profitable aviation unit to Boeing and benefit from the US planemaker's marketing power to scale up sales of its E2 regional jets, lauded for their fuel efficiency but also a sales laggard. It would have then used Boeing's cash to wipe out all of its previous debt and pay a USD 1.6 billion dividend to shareholders.

Boeing, meanwhile, was aiming to compete more directly with Airbus in the regional jets segment.

Embraer maintains a close relationship with the Brazilian government, which kept veto power over strategic decisions at the company following its privatization.

President Jair Bolsonaro also said on Monday that Embraer might be ripe for exploring new buyers.

"Maybe we'll begin new negotiations with a new company," Bolsonaro told reporters.

A former army captain, Bolsonaro had supported and approved of the Boeing deal even as others in the military remained suspicious that Boeing's involvement could affect Brazilian interests.

Gomes Neto did not rule out a potential new sale to a different company, but declined to comment further. He joined Embraer only a year ago and was not a part of the executive team that drew up the deal with Boeing.

On Monday, UBS also suggested China may be interested in buying up Embraer's commercial planes.

"We believe China still aspires to a global aerospace leadership position and, in our view, (Embraer) would bring both the talent for design and development," it said in a client note.