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Embraer, Boeing deal gets approval from the new Brazilian government

An Embraer E190-E2 airliner at Johannesburg’s OR Tambo International Airport, while on an international demonstration tour. This is one of the types that will fall under the Embraer/Boeing JV

An Embraer E190-E2 airliner at Johannesburg’s OR Tambo International Airport, while on an international demonstration tour. This is one of the types that will fall under the Embraer/Boeing JV

Photo by Rebecca Campbell/Creamer Media

11th January 2019

By: Rebecca Campbell

Creamer Media Senior Deputy Editor

     

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The Brazilian government announced on Thursday that it had approved the creation of two joint ventures (JVs) between Brazilian aerospace company Embraer and US aerospace group Boeing. The Brazilian government holds a “golden share” in the originally State-owned Embraer, giving it power of veto over mergers, take-overs, and any other major changes within the company. Embraer will maintain full ownership of its business aviation and all its other defence, security, systems and space businesses.

The first JV covers Embraer’s commercial aviation products, centred on its E-Jet and upgraded E-Jet E2 families of 70-seat to 146-seat airliners, but also including its 37-seat to 50-seat ERJ regional jet family. This JV will be 80%-owned by Boeing, for which the US group will be paying $4.2-billion (reportedly some 10% higher than its original offer), and 20% by Embraer. This JV is currently being referred to as NewCo.

The second, proposed, JV covers Embraer’s KC-390 multirole tanker-transport aircraft. This would be 51%-owned by Embraer and 49% by Boeing. The purpose of the KC-390 JV would be to help capture global market share in a competitive international market; gain access both to the US market and to US sales channels (such as the Foreign Military Sales and Foreign Military Financing programmes); maintain the capabilities of the Brazilian defence industry; consolidate the financial results and governance of Embraer; and provide more competitive solutions to customers.

“The final proposal preserves national sovereignty and interests,” stated the note issued by the Brazilian Presidency (more usually referred to as the Planalto, after the Presidential office building in Brasília, the Planalto Palace). Recently inaugurated Brazilian President Jair Bolsonaro indicated that it was not in the interests of the country to drag out the process of creating the JVs.

The two companies gave the Brazilian government a number of assurances regarding the JVs. These included – there would be no changes in ownership; Brazil’s strategic interests would be maintained and the golden share unconditionally respected; all defence projects now under way would be maintained; the production of the aeroplanes that had already been developed would be kept in Brazil; and the secrecy and priority of national defence projects would be maintained. The other assurances were – the current number of jobs in Brazil would be maintained; the capabilities of Embraer’s current engineering force would be kept; Embraer would receive its fair (20%) share of dividends from NewCo and would get its royalties for the KC-390 (and the A-29 light attack aircraft, although this is not included in either of the JVs); and Embraer would make an initial investment of some $1-billion (presumably in NewCo).

The deals have to be finally ratified by Embraer’s board of directors. Definitive transaction documents will then be executed by both companies and shareholder and regulatory approval obtained. It is intended that the deals will be concluded by the end of this year.

Edited by Creamer Media Reporter

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