Five months after announcing a tentative deal, the Boeing Co. and Brazil’s Embraer aerospace company say they’ve approved the terms for a joint venture that would take in Embraer’s commercial aircraft and services operations — plus another joint venture to promote and develop new markets for Embraer’s KC-390 military transport plane.
Boeing would acquire an 80 percent ownership stake in the commercial joint venture for $4.2 billion, the companies said. That amount is 10.5 percent higher than the figures cited for the tentative agreement announced in July: Back then, Boeing said it would take an 80 percent share of a joint venture valued at $4.75 billion, which would have worked out to a value of $3.8 billion for Boeing’s share.
The CEOs of both companies hailed the approval of the terms today in a news release.
“Boeing and Embraer know each other well through more than two decades of collaboration, and the respect we have for each other and the value we see in this partnership has only increased since we announced our joint efforts earlier this year,” said Dennis Muilenburg, Boeing’s chairman, president and chief executive officer.
“We are confident that this partnership will deliver great value to Brazil and the Brazilian aerospace industry as a whole. This alliance will strengthen both companies in the global market and is aligned with our long-term sustainable growth strategy,” said Paulo Cesar de Souza e Silva, Embraer president and chief executive officer.
The arrangement must still gain approval by the Brazilian government, which can exercise a veto by virtue of its “golden share” in Embraer. That’s not a slam-dunk: During the negotiations, BraziIian President Michel Temer vowed that “Embraer will never be sold.” But the country’s incoming president, Jair Bolsonaro, is said to take a positive view of the deal.
The partnership is also subject to the usual regulatory and shareholder approvals. Boeing and Embraer said they expected the transaction to close by the end of 2019.
The two companies forged their partnership to counter a tie-up between their two respective rivals, Europe’s Airbus and Canada’s Bombardier.
Boeing had sought trade sanctions against Bombardier, claiming that its C-series planes were benefiting from illegal Canadian subsidies that hurt 737 MAX sales. That complaint was turned back, however, and Airbus’ partnership has brought further complications to Boeing’s case.
Now Embraer has filed its own complaint with the World Trade Organization, alleging that Canadian subsidies to Bombardier violated international trade agreements.
Under the terms of the proposed partnership, the Boeing-Embraer joint venture for commercial aviation would be led by Brazil-based management, including its own president and CEO. Boeing will have operational and management control of the new company, which will report directly to Muilenburg. Embraer will retain consent rights for some decisions, such as transfer of operations from Brazil.
The partnership for KC-390 promotion and development would operate under different terms that are likely to address the concerns voiced by Brazilian officials. Embraer will own a 51 percent stake in the KC-390 joint venture, with Boeing owning the remaining 49 percent.