Boeing to Take Over Brazil's Embraer Commercial-Jet Business -- 2nd Update
July 05 2018 - 1:12PM
Dow Jones News
By Andrew Tangel and Robert Wall
Boeing Co. is taking control of Embraer SA's commercial jetliner
business, extending the U.S. aerospace giant's reach into the
market for smaller passenger planes.
The agreement with the Brazilian company marks another big step
in the remaking of the global aerospace landscape that has left
Boeing and Airbus SE with an effective duopoly for planes with more
than 150 seats. Now, the two aircraft makers are bracing for new
competition in coming years from China and Russia, where aerospace
companies are working on new single-aisle and wide-body planes.
Chicago-based 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
cast as a joint venture valued at $4.75 billion. Boeing will pay
its new partner $3.8 billion in cash once the deal closes, Embraer
executives said. Embraer will also commit cash and debt to the
commercial joint venture, they said, without providing more
details.
Boeing shares, which are up 13% this year, were off slightly
midday Thursday, while Embraer's shares plunged 14% as analysts
said investors were expecting a higher purchase price. The Wall
Street Journal reported in December that Boeing and Embraer were in
takeover talks.
Boeing and Embraer had been working to assuage the Brazilian
government's concerns that the deal would compromise the
independence of Embraer's defense business. Workers at Embraer
plants in Brazil have protested over the deal in recent months.
Boeing said executives will run the joint venture from Embraer's
base in Brazil and report directly to Boeing Chief Executive Dennis
Muilenburg.
Boeing wants the added scale and cost savings to help it compete
against Airbus and other rivals. The joint venture would create
about $150 million in annual pretax cost savings by its third year,
Boeing said.
Mr. Muilenburg said the Embraer partnership fits Boeing's
strategy to make investments "that enhance and accelerate our
growth plans."
Embraer executives said they want Boeing's global network of
airline customers to help generate new sales for Embraer jets. That
marketing clout has become more important to Embraer since Airbus
said in October that it would make some planes jointly with
Canada's Bombardier Inc. Embraer and Bombardier compete directly to
make smaller passenger jets.
Airbus is also looking for efficiencies through its partnership
with Bombardier. The European aerospace company completed its
takeover of Bombardier's CSeries narrow-body plane-making unit on
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 of 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.
Aerospace executives have said the partnership between Airbus
and Bombardier spurred other companies to pursue their own
joint-venture talks.
"It's in Embraer's best interest to get a deal done," said
Carter Copeland, an analyst at Melius Research. "Their commercial
business faces a pretty big challenge."
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 executives said the Brazilian company would have a
majority interest in the defense unit but that the details haven't
been worked out.
Embraer, which is based in the state of São Paulo, has been a
cornerstone of Brazil's manufacturing sector for almost 50 years.
The company 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 and an order backlog of about 6,000
jets valued at more than $400 billion. It makes commercial
jetliners and defense, space and security systems as well as
military aircraft, weapons and satellites.
The deal is expected to close by late 2019 and will require
regulatory approval. The companies said the deal isn't binding.
Embraer said it has the right to force Boeing to buy the remaining
20% of the joint venture anytime over the next decade.
--Jeffrey T. Lewis contributed to this article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Robert Wall
at robert.wall@wsj.com
(END) Dow Jones Newswires
July 05, 2018 12:57 ET (16:57 GMT)
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