Industry Boeing and Embraer announce partnership

The non-binding agreement proposes the formation of a joint venture comprising the commercial aircraft and services business of Embraer that would strategically align with Boeing's commercial development, production, marketing and lifecycle services operations. Under the terms of the agreement, Boeing will hold an 80 percent ownership stake in the joint venture and Embraer will own the remaining 20 percent stake.

"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 Chief Executive Officer. "This important partnership clearly aligns with Boeing's long-term strategy of investing in organic growth and returning value to shareholders, complemented by strategic arrangements that enhance and accelerate our growth plans," Muilenburg said.

"The agreement with Boeing will create the most important strategic partnership in the aerospace industry, strengthening both companies' leadership in the global market," said Paulo Cesar de Souza e Silva, Embraer Chief Executive Officer and President. "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 transaction values 100 percent of Embraer's commercial aircraft operations at $4.75 billion, and contemplates a value of $3.8 billion for Boeing's 80 percent ownership stake in the joint venture. The proposed partnership is expected to be accretive to Boeing's earnings per share beginning in 2020 and to generate estimated annual pre-tax cost synergies of approximately $150 million by year three.

In addition, both companies 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, based on jointly-identified opportunities.

Assuming the approvals are received in a timely manner, the transaction is expected to close by the end of 2019, 12-18 months after execution of the definitive agreements.

The announced agreement can be seen as reaction to the Airbus takeover of the Bombardier CSeries program in October 2017. Airbus has acquired 50,01% in the Canadian single-aisle aircraft program. Similar to the CSeries, Embraer has just started delivering the new generation of its successful E-Jet regional aircraft program. The E2-Jet family with the aircraft types E175, E190 and E195 offers seating capacity for 80 up to 132 passengers on regional routes.

Boeing and Airbus can now offer their customers a product portfolio with all kind of aircraft types, from regional aircraft with 70 seats (Embraer and CSeries) up to large long-haul jets (B747, A380). As both, Boeing and Airbus have problems to sell the smallest version of their new generation single-aisle aircraft, it is unclear if they cancel their Boeing 737 MAX 7 and Airbus A319Neo program due to the new in-house aircraft.