Embraer expects to receive approval from the Brazilian government to move forward with its proposed joint venture with Boeing in December, following consultation between the current government of Michel Temer with the incoming administration of far-right president-elect Jair Bolsonaro. Speaking during the company’s third-quarter earnings call with investment analysts on Tuesday, Embraer CEO Paulo Cesar de Souza e Silva said he expects to present the final agreement to the outgoing administration before it leaves office. “We are still in the final stages with Boeing to finalize the last details,” said Silva. “As soon as we materialize this final agreement, we’ll bring the deal to be approved by the government of the current administration.”
However, the current government has said it will share the agreement terms with the Bolsonaro transition team before issuing approval. Until recently, Embraer didn’t know whether or not the Temer administration would enter consultations with Bolsonaro’s government.
“That was not 100 percent clear a month ago,” said Silva. “But now it is clear that Mr. Temer would like to share our request for approval with the new administration.” Happily for Embraer, the incoming administration has sent signals that it takes a favorable view of the proposed joint venture. Once the JV receives the blessing of both administrations, the next step involves calling a general assembly. “Our expectation is this will happen in December,” confirmed Silva.
The deal would close after it gains shareholder approval and passes antitrust scrutiny with the applicable authorities, sometime in the second half of 2019, he estimated.
Under the terms of the preliminary agreement reached in July, Boeing will take an 80-percent share of Embraer’s commercial aviation business. The memorandum of understanding proposes the formation of a joint venture meant to “strategically align” the companies’ commercial development, production, marketing, and lifecycle services operations.
The transaction values 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. Boeing said it expects the partnership will result in a positive effect on its earnings starting in 2020 and to generate annual pre-tax cost “synergies” of some $150 million by its third year.
A joint statement announcing the deal indicated that Boeing will take full operational and management control of the new company, but that a Brazil-based management team, including a president and CEO, will lead the joint venture and report to Boeing CEO Dennis Muilenburg.