Boeing to take 80% stake in Embraer's commercial business
05 JULY, 2018 SOURCE: FLIGHT DASHBOARD
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.
Embraer aims for Brazil approval of JV by early November
05 JULY, 2018 SOURCE: FLIGHT DASHBOARD BY: GHIM-LAY YEO WASHINGTON DC
Embraer expects to secure approval for its proposed commercial aviation joint venture with Boeing within the current administration of Brazil president Michel Temer, before a new government takes over in 2019 following elections in October.
Embraer needs to reach a definitive agreement with Boeing for the joint venture, and plans to present it for approval by the Brazilian government around end-October or early November at "the latest", says Embraer chief executive Paulo Cesar de Souza e Silva in a call with investors.
Under the proposed joint venture, neither Boeing and Embraer will be able to sell their stakes in the joint venture for a period of 10 years from the close of the deal. Boeing will pay $3.8 billion for a 80% stake in the joint venture, with Embraer holding the remaining 20%.
The Brazil government, which holds a golden share in Embraer, has the right to block the proposed joint venture. Approvals by Embraer's shareholders are expected around early to mid-December following government approvals, adds Silva.
The transaction also requires approvals by anti-trust regulators in at least 10 jurisdictions, including Europe and China, say Embraer executives.
The Brazilian manufacturer says it does not expect any major regulatory hurdles, as it points to the eight months it took for Airbus and Bombardier to gain approvals for Airbus taking a majority stake in the CSeries programme. Boeing and Embraer expect to close their proposed joint venture by end-2019.
The planned joint venture will assume all of Embraer's debt related to its commercial aviation segment. While Embraer says this constitutes a "good amount" of the company's overall debt, its executives were not able to specify an exact figure.
Silva points to several factors including industry consolidation and growing markets like China as among reasons driving the planned joint venture. "This partnership makes a lot of sense," he says. "For Embraer, it means we will have better access to markets with Boeing and access to Boeing's clients. There is also a possibility for Boeing to tap into different airlines and clients with the E2."
Boeing, Embraer form separate joint venture to boost KC-390
05 JULY, 2018 SOURCE: FLIGHTGLOBAL.COM BY: STEPHEN TRIMBLE WASHINGTON DC
Boeing and Embraer will create a joint venture to promote the KC-390 and other defence products and services for new markets and applications, the companies announced on 5 July.
The new agreement expands a six-year-old relationship between Embraer and Boeing on the KC-390 programme. A joint press release issued on 5 July includes only two sentences about the formation of the new 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,” says Nelson Salgado, Embraer's executive vice-president, for financial and investor relations.
The statement does not indicate that Boeing will assume ownership of the KC-390 programme, but rather invest in marketing, engineering and other areas. Embraer’s independence as a defence manufacturer was a key sticking point in negotiations about Boeing taking a stake in Embraer’s commercial aviation division.
The Brazilian air force formed Embraer in 1969 to re-market a military transport for the commercial sector, and the company remains the service’s primary aircraft supplier.
At the same time, Boeing has been involved in the KC-390 programme since early in the transport-tanker's development.
Boeing agreed to provide technical support to Embraer on the twin-engined KC-390 in 2012, just as the US manufacturer’s production line for the four-engined C-17 airlifter neared an end. A year later, Boeing and Embraer expanded the agreement to allow the former to provide marketing support in new markets.
The KC-390 is close to completing a nine-year-long development phase. Last month, Embraer re-affirmed that the first delivery of a production version of the KC-390 to the Brazilian air force is on track by the end of the year.
One of Embraer’s two KC-390 test aircraft sustained damage during a runway test on 5 May in Brazil.