Boeing to take over Embraer’s commmercial jets in joint venture deal
Shares in Embraer crashed 7% on the São Paulo stock market on Thursday following the announcement of the agreement
Washington — Boeing will take control of the commercial business of Brazil’s Embraer, the companies announced on Thursday, better positioning the US aerospace giant to compete with rival Airbus in the market for smaller jets.
The transaction follows months of talks to allay concerns of the Brazilian government, which had veto power over the transaction and initially resisted ceding control to the US company.
Under the terms of the deal, Boeing will hold an 80% stake in the commercial part of Brazil’s Embraer which is valued at $4.75bn, the companies said. The deal would allow Boeing to offer planes with capacity up to 150 seats, a market it does not currently compete in.
It follows a similar strategic partnership by European arch-rival Airbus with Canada’s Bombardier last October.
Boeing will have operational and management control over the new venture, which will be led by a Brazil-based chief who will report to Boeing CEO Dennis Muilenburg, who said, "By forging this strategic partnership, we will be ideally positioned to generate significant value for both companies’ customers, employees and shareholders — and for Brazil and the US."
The two companies also are creating another joint venture to promote their defence products and services, especially Embraer’s KC 390, a military transport aircraft vehicle.
Embraer’s CEO and president Paulo Cesar de Souza e Silva said the tie-up would create a "virtuous cycle" for Brazilian aerospace, increasing sales potential and production and, consequently, adding value for shareholders and employees.
The companies said financial and operational details were still being finalised, a process that would continue for several months, after which the deal would be subject to shareholder and regulatory approval, including by the government of Brazil.
The leaders of Boeing and Embraer have been in negotiations since news of the talks was reported in December. Shares of Embraer have risen more than 60% since that time; however, shares in Embraer crashed 7% on the São Paulo stock market on Thursday following the announcement of the agreement.
Brazil government leaders initially opposed giving up control of Embraer to a foreign entity. However, the parties appear to have gotten around this concern by limiting Boeing’s control to the civilian part of the business. Embraer, the third largest aircraft manufacturer in the world, was founded as a state group in 1969 before being privatised in 1994, although the Brazilian government retained the right to make strategic decisions for the company.