Boeing to add Embraer commercial arm in joint venture
Boeing and Embraer this morning announced they have signed a Memorandum of Understanding to establish a joint venture comprising the commercial aircraft and services business of Embraer. The companies also state they are working to create another defence-focused joint venture around the KC-390 aircraft.
July 5, 2018 By Wings Staff
Once definitive agreements are completed, the transaction will then be subject to shareholder and regulatory approvals, including approval from the government of Brazil, as well as other customary closing conditions. Assuming the approvals then run in a normal course, the transaction is expected to close by the end of 2019.
Under the terms of the current non-binding agreement for the commercial aircraft transaction, Boeing will hold an 80 per cent ownership stake in the joint venture and Embraer will own the remaining 20 per cent. The transaction values 100 per cent of Embraer’s commercial aircraft operations at $4.8 billion, and contemplates a value of $3.8 billion for Boeing’s 80 per cent ownership stake in the joint venture.
The proposed partnership is expected to generate annual pre-tax cost savings of approximately $150 million by year three, as the joint venture would strategically align with Boeing’s commercial development, production, marketing and lifecycle services operations. “By forging this strategic partnership, we will be ideally positioned to generate significant value for both companies’ customers, employees and shareholders – and for Brazil and the United States,” said Dennis Muilenburg, Boeing’s chairman, president and CEO.
Describing the agreement with Boeing as one of the most important strategic partnerships in the aerospace industry, Paulo Cesar de Souza e Silva, Embraer CEO and president, added, “The business combination with Boeing is expected to create 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.”
The companies describe the partnership as a natural evolution of a long-standing history of collaboration between Boeing and Embraer over more than 20 years. On finalization, the commercial aviation joint venture will be led by Brazil-based management, including a president and CEO. 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. Boeing’s commercial airplane portfolio ranges from 70 seats to more than 450 seats and freighters.
In addition, the two companies state they will create another joint venture to promote and develop new markets and applications for defense products and services, especially the KC-390 multi-mission aircraft.
“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,” said Nelson Salgado, Embraer’s executive VP, financial and investor relations.