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Boeing-Embraer deal buoyed as Brazil minister sees 'marriage'

Brazilian Defence Minister Joaquim Silva e Luna during a meeting at the Planalto Palace in Brasilia March 20, 2018. — Reuters pic
Brazilian Defence Minister Joaquim Silva e Luna during a meeting at the Planalto Palace in Brasilia March 20, 2018. — Reuters pic

BRASILIA, April 11 — Boeing Co and Embraer SA are getting closer to a deal, Brazil’s new defence chief said, as talks advance to forge the second global alliance between major airplane manufacturers in six months.

Negotiators are deep into intricate, three-way discussions involving the planemakers and the Brazilian government amid a politically fraught environment. The parties finally “are getting closer” to an agreement, said Defence Minister Joaquim Silva e Luna.

“I would say, in short, this will end in marriage,” Silva e Luna, who was appointed six weeks ago, said in an interview Tuesday at a security trade show in Sao Paulo.

The comments marked a change of tone at the defense ministry, which has been cautious about ceding control of Embraer, a Brazilian innovator and industrial champion that is a crucial supplier of military hardware. The Brazilian government controls a so-called golden share that gives it veto power over any tie-up.

Embraer’s American depositary receipts rose 6.3 per cent to US$26.17 (RM101.18) at the close in New York, the biggest gain in a month. Boeing, which also reported strong first-quarter orders and deliveries, climbed 3.8 per cent to US$334.83. That was the biggest advance on the 30-member Dow Jones Industrial Average.

The companies declined to comment.

Commercial jets

The planemakers have been crafting a commercial joint venture, to be controlled by Boeing, that would enable them to combine their marketing, manufacturing and engineering prowess, Bloomberg reported earlier this year.

Embraer needs to keep its engineering force engaged after development ends on its new E2 family of jets, while Boeing is marshalling resources for a new mid-range airliner.

“This is something we’ve been working on for some time,” Boeing’s Chief Executive Officer Dennis Muilenburg said in February. “And when you look at product line development and where we’re at in our product cycles and how our product lines fit together, now seems to be a good time to combine forces.”

While the two companies are long-time partners, the talks to forge a closer relationship have gained urgency as Airbus SE prepares to take control of Bombardier Inc’s C Series jet, the biggest rival to Embraer’s single-aisle planes.

Boeing may be moving preemptively to prevent Commercial Aircraft Corp of China from pursuing a closer relationship with Embraer, Ronald Epstein, an analyst at Bank of America Corp, suggested in a recent note.

For Embraer, the leading manufacturer of smaller jetliners, the new competitive threat from Airbus comes as deliveries — and revenues — are slowing amid a transition from earlier-generation E-Jets to the redesigned E2.

Complex operation’

The discussions are going “very well,” Embraer Chief Executive Officer Paulo Cesar de Souza e Silva told reporters on April 4, while delivering the first E190-E2 jet to Norwegian airline Wideroe in Sao Jose dos Campos, Brazil, where the company is based.

“It’s a complex operation, and all the parts need to be comfortable,” he said.

While this is the first hint of approval from the minister to a possible deal since he took over, Silva e Luna signalled that talks still have a long way to go, noting that what’s on table are “studies, not a formal proposal.”

Marital arrangement

He provided few details of the potential transaction between Embraer and Chicago-based Boeing. “Don’t ask me which kind of marriage, if it is with total sharing of assets, with partial sharing of assets or with separation of assets,” he said.

But a deal would potentially go beyond commercial planes, Silva e Luna said, citing an opportunity for Brazil to get help from Boeing in selling Embraer’s KC-390 military-transport aircraft.

“This is one of the ‘wins’ for Embraer,” he said. “Boeing can facilitate the marketing of the KC-390. Boeing can offer that. So in these talks, this makes talks easier.” — Bloomberg

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