May 1, 2020 / 3:54 PM / a month ago

UPDATE 2-Jetmaker Embraer focuses on future after Boeing divorce "pain"

(Adds details, quotes)

By Tim Hepher and Marcelo Rochabrun

PARIS/SAO PAULO, May 1 (Reuters) - The head of Embraer's commercial aircraft unit defended the benefits of a $4.2 billion tie-up abandoned by Boeing Co last week, but said the Brazilian aerospace group was focusing on its future as a re-united company.

Commercial Aviation Chief Executive John Slattery said Embraer had incurred pain and costs in separating jetliners from defence and business-jet activities in preparation for the merger, including a loss of deliveries in January.

He declined to comment on an arbitration process Embraer launched after Boeing abruptly cancelled the deal on Saturday.

Speaking in a webinar hosted by Aviation Week, Slattery said he was convinced the commercial aerospace partnership with Boeing would have provided "extraordinary benefits" to airline customers who had expressed disappointment at its collapse.

Boeing has said Embraer failed to meet conditions for closing the deal.

Slattery said Embraer was burning cash but had capacity to raise more if needed. "I am not concerned about liquidity."

It was the first public appearance by the company's commercial boss since the deal collapsed in acrimony.

The breakdown, first reported by Reuters, has captured the attention of an industry already facing its worst crisis over the drop in travel caused by the coronavirus pandemic, with 2,000 people tuning into the previously arranged webinar.

Slattery quipped that the audience was dominated by lawyers from each side as the two companies head for what is widely expected to be a bitter divorce case.

Embraer carved out its commercial unit and shut activities for 40 days in preparation for folding it into a new venture to be 80% owned by Boeing.

It also invested $30 million on a new headquarters for the remaining core of the Brazilian aerospace champion.

Slattery said the carve-out had resulted in some duplication between core Embraer and its commercial spin-off, but that the world's third largest plane-maker would rebound as "one Embraer".

ARBITRATION ROW

The arbitration is expected to involve fierce debate over Brazilian claims that a tie-up cost Embraer spin-off costs and lost sales for its E2 against the Airbus A220, a Canadian-designed jet acquired from Embraer's historic rival, Bombardier.

Analysts say Boeing is expected to argue that Embraer needed to carry out reorganisation to prepare for potential alliances and that it failed to invest enough in the commercial arm.

Neither company agreed to comment on the case.

Slattery played up future demand for the E2, a regional jet sitting below the Boeing 737 MAX, as airlines turn post-crisis to smaller, less financially risky models.

Southeast Asia, one of the top markets for giants Boeing and Airbus, could see a move to such jets, he said.

Top aircraft buyers had backed the Boeing tie-up, saying Embraer lacked deep enough pockets to compete alone with Airbus, which can discount other jets to win A220 sales.

Brazil's government, which used to own Embraer and is its top military client, has suggested China could be a potential new partner for Embraer, even though several senior Brazilian government figures have attacked Beijing over the pandemic.

Slattery said Embraer had not initiated talks with anyone, but that he could not "legislate for the inbound calls that could come". The board will study next moves "in a very thoughtful way," he added.

Tentative plans for a new regional turboprop to compete with Europe's ATR, half-owned by Airbus, are no longer a priority because of the current crisis, Slattery said.

While the airliner's business case looked strong, he said, "it is hard to consider a new programme in this environment".

The prop plane joins other planemaker projects on the back-burner as the health crisis dents balance sheets. (Reporting by Tim Hepher, Marcelo Rochabrun; editing by Alison Williams, Jan Harvey and Barbara Lewis)

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