Boeing to Take Over Brazil's Embraer Commercial-Jet Business--Update
July 05 2018 - 10:31AM
Dow Jones News
By Andrew Tangel and Robert Wall
Boeing Co. will take control of Brazil's Embraer SA's commercial
business, extending the U.S. aerospace giant's reach into the
market for smaller passenger jets.
Boeing said Thursday that it will take an 80% stake in Embraer's
commercial airplane and services business. Embraer will own the
remaining 20% of what the two plane makers described as a joint
venture they valued at $4.75 billion.
The agreement marks another big step in the restructuring of the
global aerospace landscape that left Boeing and Airbus with an
effective duopoly in the market for planes with more than 150
seats. Now, Boeing and Airbus are bracing for new competition in
the coming years from China and Russia, where aerospace companies
are working on new single-aisle and wide-body planes.
Boeing's stock is up 13% so far this year, while the broader Dow
Jones industrial average is down about 2%. The company has an order
backlog of about 6,000 jets valued at more than $400 billion.
Chicago-based Boeing said executives will run the joint venture
from Brazil, where Embraer is based. Those managers will report
directly to Boeing Chief Executive Dennis Muilenburg.
Mr. Muilenburg said the partnership fits Boeing's strategy to
make investments "that enhance and accelerate our growth
plans."
The Wall Street Journal reported that Boeing and Embraer were in
takeover talks in December. The companies had been working to
assuage the Brazilian government's concerns that the deal would
compromise the independence of Embraer's defense business.
Boeing is seeking greater scale and cost savings from its
partnership with Embraer. The joint venture would create about $150
million in annual pretax cost savings by its third year, Boeing
said.
Airbus is also looking for efficiencies through its partnership
with Canada's Bombardier Inc. Airbus completed its takeover of
Bombardier's CSeries narrow-body plane-making unit Sunday.
The larger version of the CSeries plane, the CS300, seats around
140 people and competes with smaller versions of Airbus and Boeing
narrow-bodies. The 120-seat CS100 competes with Embraer's largest
plane. The CSeries has struggled against those rivals, garnering
just 400 orders since it was introduced a decade ago.
Airbus believes it can boost CSeries sales in what it estimates
to be a market for about 6,000 planes that size. Airbus is expected
to announce some airline commitments for the CSeries at this
month's Farnborough Air Show outside London, the industry's largest
gathering this year.
Airbus plans to assemble some CSeries planes in the U.S. The
company has said the first CSeries should be delivered from its
Mobile, Ala., facility in 2020. The European plane maker also makes
some A320 single-aisle planes there.
Aerospace executives have said the partnership between Airbus
and Bombardier spurred other companies to pursue their own
joint-venture talks.
Boeing and Embraer also said Thursday that they will create a
separate joint venture "to promote and develop new markets and
applications for defense products and services," such as Embraer's
KC-390 military transport jet.
Embraer, based in the state of São Paulo, is the world's
third-largest commercial-jet manufacturer by revenue and has some
18,000 employees. It is best known for making regional jets in the
70- to 100-seat range, used heavily on routes that don't warrant
larger Boeing or Airbus planes.
Boeing is the world's largest aerospace company with a market
value of about $194 billion. It makes commercial jetliners and
defense, space and security systems as well as military aircraft,
weapons, satellites and helicopters.
The deal is expected to close by late 2019 and will require
regulatory approval. The companies said the deal isn't binding.
--Kimberly Chin and Doug Cameron contributed to this
article.
(END) Dow Jones Newswires
July 05, 2018 10:16 ET (14:16 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Embraer (NYSE:ERJ)
Historical Stock Chart
From Jun 2024 to Jul 2024
Embraer (NYSE:ERJ)
Historical Stock Chart
From Jul 2023 to Jul 2024