Boeing, Embraer Finalize Terms of Joint Venture

Planemakers Boeing Co. and Embraer SA on Monday had finalized the terms of the joint venture that will give the US aircraft firm 80 percent control over the Brazilian group’s commercial aviation business, bringing the value of the division at $5.26 billion.

That valuation is 11 percent higher than the $4.75 billion offered when the agreement involving Embraer’s commercial arm was first announced in July. The company now expects to receive $3 billion from the agreement, after accounting for closing costs.

The Boeing-Embraer partnership represents the largest realignment in the global aerospace market in decades, bolstering Western aircraft manufacturers against newcomers from China, Russia, and Japan.

Shares of Embraer rose 4.5 percent in early-morning trading, before easing to trade up 3.6 percent to R$21.48, while Boeing fell 0.6 percent to $316.37.

Green Light from Brazilian Government

The long-awaited deal still needs the approval of regulatory authorities as well as the Brazilian government, which has veto power over crucial business decisions at Embraer and has a golden share in the company.

The transaction remains subject to approval by the government of Brazil, after which Embraer and Boeing intend to execute definitive transaction documents, the two firms said.

A final decision would come from the shareholders of Embraer, but they must first receive a go signal from the Brazilian government.

Earlier this month, a Brazilian federal court decided to block the finalization of the deal until the new government of Bolsonaro takes office in January 1.

Analysts said the transaction is likely to pass as Bolsonaro’s economic chief Paulo is pro-privatization.

A source with knowledge of the negotiations, however, said they were positive about the prospects. President-elect Jair Bolsonaro’s and his entourage’s comments about the Boeing-Embraer agreement were also optimistic.

Executives from both firms have also said they were confident their deal would win regulatory and shareholder approvals by the end of 2019.

Embraer has stated that the deal is vital for its survival.

Embraer’s defense division will stay outside the commercial aircraft unit to ease Brazilian government worries, with the two planemakers establishing a separate business for Embraer’s new KC-390 military transport jet.

Under that proposed partnership, the Brazilian aerospace firm will hold a 51 percent stake in the operation, while Boeing will own the remaining 49 percent.

Other terms of the arrangement, as publicly stated on Monday, remain unchanged from when the joint venture was first announced.

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