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Embraer's E190-E2 and Boeing's 737 MAX 7
The Boeing-Embraer deal would add regional jets such as Embraer’s E190-E2 to a lineup that also includes Boeing’s 737 MAX 7 and larger jets. (Embraer Illustration)

The Brazilian government today approved the creation of a joint venture that would give Boeing control over Embraer’s commercial airplane operation.

That approval is crucial to the $4.2 billion deal, because the government holds a “golden share” in Embraer that could have been used to veto the arrangement. Some observers wondered whether the country’s newly inaugurated president, Jair Bolsonaro, would give the OK.

Today the government said that the agreement “preserves sovereignty and national interests,” and that the “golden share would not be exercised.”

The arrangement calls for Boeing to acquire an 80 percent ownership stake in a joint venture that would take in Embraer’s commercial aircraft and services operations.

The joint venture would be led by Brazil-based management, including its own president and CEO. Boeing would have operational and management control of the new company, which would report directly to Boeing CEO Dennis Muilenburg. Embraer would retain consent rights for some decisions, such as transfer of operations from Brazil.

A separate joint venture, 51 percent owned by Embraer, would promote and develop new markets for the Brazilian company’s KC-390 military transport plane.

In a joint statement, Boeing and Embraer said they “welcomed approval by the government of Brazil of the strategic partnership that will position both companies to accelerate growth in global aerospace markets.”

The Boeing-Embraer partnership counters a deal between Boeing’s European archrival, Airbus, and Canada’s Bombardier. Both Embraer and Bombardier focus on the lower end of the commercial airplane market, and the two international teams are likely to compete fiercely in the years ahead.

Boeing and Embraer are due to execute definitive transaction documents once the Brazilian company’s board of directors ratifies its prior approval. The closing of the transaction is still subject to shareholder and regulatory approvals and customary closing conditions. If all goes as planned, the transaction could close by the end of 2019. However, the deal could be subject to legal challenges from Brazilian labor unions, politicians and minority shareholders.

Update for 12:23 a.m. PT Jan. 14: Embraer says its board of directors has given the go-ahead for execution of the agreements for the commercial airplane joint venture as well as for the marketing partnership for military planes.

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