Boeing–Embraer joint venture
This section is about an event or subject to be finished in December 2019, due current analysis process in contracts by institutions.
|John Slattery (President & CEO)|
|Brands||E-Jet, E-Jet E2|
Boeing Brasil–Commercial is a proposed joint venture between Boeing and Embraer to design, build, and sell commercial airliners worldwide. The partnership was established on February 26, 2019, after Boeing agreed to purchase an 80% stake in Embraer's commercial aircraft division. The deal has been approved by Embraer's shareholders and is expected to close by March 2020 pending antitrust reviews.
The two companies continue to operate their commercial aviation business independently until the deal is finalized.[importance?] Embraer's current airliners are the E-Jet and E-Jet E2 series of large regional jets.
In December 2017, the Wall Street Journal reported Boeing has been in takeover talks with the 18,000 employee strong Embraer, valuing it over its $3.7 billion market value, awaiting Brazilian government approbation. The two companies confirmed that a potential combination was being discussed, with a transaction subject to approval by the Brazilian government and regulators, the two companies’ boards and shareholders The potential deal is seen as a reaction to the Airbus-Bombardier deal on the CSeries.
On December 22, 2017, Brazilian President Michel Temer said the sale of Embraer to Boeing was "out of the question", adding that the government is in favor of partnerships with the company, but warning that it will veto changes in stock control. On December 28, defense minister Raul Jungmann opposed transferring control of Embraer SA as the defense business cannot be separated from its commercial operations, but would welcome a deal maintaining local control of the company. On January 2, 2018, Brazilian newspaper Valor Econômico reported that forming joint ventures, sharing costs and income in definite areas, was preferable to avoid changing control of Embraer.
Embraer’s engineers could work on Boeing’s future developments, the New Midsize Airplane (NMA) or a New Small Airplane, but it wants to control at least Embraer's airliners to avoid repeating the B787 debacle: it partnered with major subcontractors and handed them engineering work, but those weren’t up to the task, resulting in unprecedented delays, overruns of billions of dollars and Boeing was forced to buy out some.
July 2018 Memorandum of Understanding
On July 5, 2018, a Memorandum of Understanding was announced for a strategic partnership: for $3.8 billion Boeing will hold 80% of a joint venture for Embraers's airliners and services, valued at $4.75 billion, and Embraer will own the remaining 20%. It should generate $150 million synergies by year three and add to Boeing's earnings per share from 2020. Boeing will control the new company, managed from Brazil and reporting to Dennis Muilenburg, another defense joint venture will market the KC-390. After negotiation of definitive details, shareholder and regulatory approval is expected by the end of 2019.
The July 5 memorandum leaked in October, the deadline to finalise the transaction is set for December 5, for a closure by the end of 2019. Embraer would receive payments for five years before the joint venture would distribute 50% of its profits to shareholders. A lock-up agreement would prevent Embraer or Boeing from selling their shares for 10 years. A put option would protect the minority stake value, allowing Embraer to sell its shares at the same price, inflation adjusted. The new company scope include the designs, manufacturing, certification and sales of the ERJs, E-Jets and E-Jets E2. Embraer will retain its executive business jet and its defence business, but a joint venture for the KC-390 freighter will be explored.
On 6 December, at the demand of four congressmen of the left-wing Brazilian Workers Party, a Brazilian federal court forbade the regional plane-maker's board of directors to form the joint venture, as that would give away for free the profitable airliner division and would remove it from the Brazilian Government control. The government can veto the joint venture and is reluctant to allow it, but president-elect Jair Bolsonaro, which takes office on the first of January, is favorable to the deal. Leeham News observes Boeing needs Embraer but Embraer also needs Boeing as the E2 is selling slowly, in part due to the joint venture wait, and the E175-E2 was sold only to SkyWest but is too heavy for US scope clauses. The following week, the injunction was overturned by a panel of appeals court.
On 17 December, a strategic partnership was announced, subject to Brazilian Government approval, before the definitive transaction subjected to shareholder and regulatory approval. To market the KC-390, another joint venture will be owned for 51% by Embraer and 49% by Boeing, and will also need similar authorizations. Boeing will pay $4.2 billion for its 80% stake in the JV, up from $3.8 billion, valuing it $5.25 billion up from $4.75 billion when it was proposed on July 5.
On 20 December, in response to Embraer’s union class action, the same Judge Victor Giuizo Neto blocked again the proposed sale as “The brutal asymmetry in the shareholder structure of this venture prevents it from being carried out without compromising the survival of national interests”, an injunction contested by Embraer. On 22 December, the injunction was overturned, allowing the proposed sale to proceed. Federal Court President Therezinha Cazerta said it was outside the court’s purview. On 10 January 2019, the new Brazilian government approved the tie-up as it would "maintain the current jobs in Brazil," while no commitment was made before. However, only 120 of 400 workers on Embraer's executive jet production line agreed to move to the Araraquara region.
Boeing partnership approved
On February 26, 2019, the partnership was approved by Embraer's shareholders. It is to be followed by antitrust reviews in Brazil, the EU, the US and China before a fourth quarter closure. The joint venture should have $3.5 billion assets against $1.4 billion liabilities, for a $2.1 billion equity value. The price paid by Boeing is seen as very favorable to Embraer compared to the amount paid by Airbus for the CSeries. In March, Boeing named as President B. Marc Allen, a Boeing executive, and Embraer airliner head John Slattery as CEO.
On May 23, Boeing announced that the division will be known as Boeing Brasil–Commercial, dropping the Embraer name, but has not yet decided whether to rebrand the aircraft as Boeing models. Airliner production will remain at the São José dos Campos factory, to be taken over by Boeing Brasil; Embraer will move production of the Legacy 450/500 and Praetor 500/600 executive jets to the Gavião Peixoto factory, where Embraer Military is already based.
The EU antitrust investigation is set to issue findings from its preliminary review on 4 October, and intends to conduct a full investigation thereafter which could last up to five months. As a result of the Phase II review,[clarification needed] Boeing and Embraer now expect the transaction to close in early 2020. On 12 November, Embraer confirmed the delay until at least March 2020.
Boeing Embraer - Defense
On November 18, 2019, Boeing (49%) and Embraer (51%) announced a joint venture to promote and develop new markets for the C-390 Millennium tactical transport aircraft, called Boeing Embraer – Defense, to operate after the regulatory approvals and closing conditions.
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