On Thursday, it was announced by the companies that Boeing will be buying a controlling stake in the commercial aircraft arm of Brazilian planemaker Embraer under a new joint venture worth $4.75-billion leading to the cementing of global passenger jet duopoly.
Encompassing the commercial aircraft and services businesses of Embraer, the new company should make Boeing the market leader for smaller passenger jets, creating stiffer competition for the CSeries aircraft program designed by Canada’s Bombardier and backed by the European rival, Airbus.
As per the information to the sources, the deal values the commercial aircraft operations of Embraer, the world’s third-largest, at $4.75 billion and Boeing’s 80-percent ownership stake in the joint venture at $3.8 billion.
According to the statement of a person familiar with the matter, Boeing is, expected to pay for its share of the venture in cash. The statement, however, gave no indication of any payment Boeing was making under the deal.
Embraer will hold the remaining 20 percent of the venture and keep control of its defense and business jet operations. Concern over U.S. influence in Brazilian military programs had raised red flags in Brasilia, which can still veto the deal.
The recent signals from Brazil’s President Michel Temer and military officials suggested the government is satisfied with the new structure of the tie-up, as long as Brazilian jobs are maintained and Embraer continues to develop new technology.
With timely approval from the government, regulators, and shareholders, Boeing and Embraer said they expect to close the deal by the end of next year.
The companies said that the partnership is expected to add to Boeing’s earnings per share from 2020, generating annual pre-tax cost savings of about $150 million by the third year.
As per information of internal sources, the deal took shape more than two years after the idea was first presented internally to Boeing’s board and reflects a longstanding affinity between the two plane makers.
However, the pressure for a tie-up accelerated when Airbus last year announced it would take control of the CSeries jet from rival Bombardier, which had been struggling in its long-running battle with Embraer in the 70- to a 130-seat segment of the market.
For Embraer, the Canadian deal put real marketing weight behind a fragile competitor, while for Boeing the transatlantic tie-up threatened to expand the revenue base and cash-generating potential of its European arch-rival.
The two deals represent the biggest realignment in the global aerospace market in decades. The new two-tier duopoly, putting Airbus and Bombardier on one side against Boeing and Embraer on the other, strengthens established Western plane makers against new entrants such as China, analysts say.
The analysts also informed that other than all these, Boeing and Embraer will be putting up a sales and services partnership on the new KC-390 military cargo jet with another joint venture to promote and develop new markets and applications for defense products and services.