Boeing is to take an 80% stake in a Embraer's commercial aircraft and services business under a joint-venture arrangement, with the Brazilian airframer retaining the other 20%.
The proposed JV is part of a nonbinding memorandum of understanding, disclosed by Boeing, to establish a strategic partnership with Embraer.
Boeing chief executive Dennis Muilenburg expects the partnership to generate "significant value for both companies' customers, employees and shareholders – and for Brazil and the United States".
He states: "This important partnership clearly aligns with Boeing's long-term strategy of investing in organic growth and returning value to shareholders, complemented by strategic arrangements that enhance and accelerate our growth plans."
Embraer chief Paulo Cesar de Souza e Silva describes the deal as "the most important strategic partnership in the aerospace industry".
He foresees "a virtuous cycle for the Brazilian aerospace industry, increasing its sales potential, production, creating jobs and income, investments and exports, and in doing so, adding more value to customers, shareholders and employees".
Boeing says the transaction values Embraer's commercial aircraft operations at $4.75 billion. Hence, Boeing's 80% stake is worth $3.8 billion.
The US airframer expects the proposed partnership to be accretive to its earnings per share from 2020 and produce annual pre-tax cost synergies of $150 million by year three.
"The partnership is a natural evolution of a long-standing history of collaboration between Boeing and Embraer over more than 20 years," adds Boeing.
On its finalisation, the commercial aviation joint venture will be led by Brazil-based management, including a president and chief executive. Boeing will have operational and management control of the new company, which will report directly to Muilenburg.
"The joint venture will become one of Boeing's centres of excellence for end-to-end design, manufacturing, and support of commercial passenger aircraft, and will be fully integrated into Boeing's broader production and supply chain," says the US airframer, which asserts that the joint venture will "offer a comprehensive, highly complementary commercial airplane portfolio that ranges from 70 seats to more than 450 seats and freighters".
Additionally, Boeing and Embraer are to create another defence-focused joint venture. "Joint investments in the global marketing of the KC-390, as well as a series of specific agreements in the fields of engineering, research and development and the supply chain, will enhance mutual benefits and further enhance the competitiveness of Boeing and Embraer," states Nelson Salgado, Embraer's executive vice-president of financial and investor relations.
Boeing says financial and operational details of the strategic partnership are to be finalised, and definitive transaction agreements negotiated, "in the coming months". The release provides no details about several critical issues that reportedly delayed an agreement for months, including the accounting for Embraer's aftermarket sales and pool of engineers. The release also excludes any mention of Embraer Executive Jets, which appears to be omitted from the commercial partnership.
The transaction will then be subject to shareholder and regulatory approvals, including approval from the government of Brazil. If these approvals are received "in a timely manner", Boeing expects the transaction to close by the end of 2019.
Source: Cirium Dashboard
