Boeing, Embraer forge on with tie-up after Brazil suspension reversed

The two companies had announced in July that American Boeing would take control of Brazilian Embraer's commercial aeroplane manufacturing business but the deal hit a snag last week when Bolsonaro expressed concerns over the deal (AFP Photo/ERIC PIERMONT)

Sao Paulo (AFP) - US planemaker Boeing and Brazil's Embraer said Monday they have approved the terms of a partnership to create a joint venture now worth $5.26 billion -- more than when they first announced it in July.

"The transaction remains subject to approval by the Government of Brazil, after which Embraer and Boeing intend to execute definitive transaction documents," the two companies said in a statement.

The news comes a week after a Brazil appeals court overturned a "hasty" suspension ordered by a lower court days earlier that would have prevented the outgoing Brazilian government of taking any concrete decision of the proposed tie-up.

Embraer, the third-largest aircraft manufacturer in the world, was founded as a state group in 1969 before being privatized in 1994, although the Brazilian government retains a "golden share" giving it the right to veto strategic decisions for the company.

- Boeing 'control' -

Under the planned deal, Boeing is to take an 80 percent stake in Embraer's commercial business, thus allowing it to offer planes with capacity of up to 150 seats -- a market in which Boeing currently does not compete.

Embraer's military aircraft business was excluded to overcome Brazilian government opposition to giving up a national champion to a foreign entity.

The deal initially valued the joint venture at $4.75 million. But Monday's statement said Boeing's 80-percent stake would be worth $4.2 billion, making the whole of the merged operation worth nearly $5.3 billion.

"Once the transaction has closed, the commercial aviation joint venture will be led by Brazil-based management, including a president and chief executive officer," the statement said.

"Boeing will have operational and management control of the new company, which will report directly to Dennis Muilenburg, Boeing chairman, president and chief executive officer."

It said the partnership "would position both companies to accelerate growth in global aerospace markets."

Synergies would reduce costs by $150 million annually by the third year, it said.

Embraer shares shot up five percent in beginning of trade following the joint statement.

- Boeing's eye on Airbus -

In their original July announcement of the joint venture, the planemakers said they expected to wrap up the transaction by the end of 2019.

The tie-up is seen as a response to a similar strategic partnership announced in October 2017 between Boeing's European arch-rival Airbus and Canada's Bombardier.

The Brazilian and US companies are creating another joint venture to promote their defense products and services, especially Embraer's KC 390, a military transport aircraft vehicle.

Monday's statement said that operation -- which will see Boeing hold a controlling 51-percent stake -- was also subject to approval by Brazil's government and Embraer's board.

The Boeing-Embraer rapprochement was struck under Brazil's outgoing President Michel Temer, who leaves office in two weeks' time.

He is to be succeeded by Jair Bolsonaro, a far-right politician with close ties to the military who previously had a long record as a nationalist and protectionist when it came to Brazil's economy.

But he changed tack to win over voters and investors in the run-up to his October election by advocating privatizations, and encouraging foreign investment.