Boeing launches Airbus Challenge as part of a $ 4.75 billion wrecking contract

Boeing Co. is building a $ 4.75 billion business with a long-time industrial partner Embraer SA, a move that will strengthen its arsenal in the new battlefront with Airbus SE: the market of small airliners. Boeing will own 80% of a partnership controlling Embraer's aircraft and services business while the Brazilian manufacturer holds 20%, the companies said in a statement released Thursday. The merger strengthens the duopoly held by Boeing and Airbus as competitors from Russia, Japan and China face competing threats

By adding the Embraer E-Jet family to its portfolio, Boeing will expand its manufacturing base overseas while expanding its presence in the aircraft market 100 seats. While the two companies have been discussing the combination for more than a decade, the talks have gained urgency in recent months as Airbus was preparing to take control of the C Series – the only one in the world. an advanced airliner that has drained billions of dollars. Airbus is preparing to detail its plans for the family of Canadian jet aircraft on July 10, before a major aviation trade show in Farnborough, England

"To Embraer, it means that we will have better market access with Boeing, "said Paulo Cesar de Souza e Silva, CEO of Embraer, during a conference call." Boeing also greatly appreciates how Embraer designs, develops and manufactures aircraft. "

Boeing will pay $ 3.8 billion for its stake in the company – an assessment that prompted Embraer's investors to look for exits. 14% to 23.07 reais at 13:03 in Sao Paulo, after falling by 16% for the largest intraday decline since the days following the terrorist attacks of September 11. Embraer had jumped 35% this year in anticipation of the trans

"The valuation was below our expectations, but we see a 20% increase in the closing price of yesterday" of 26.95 reais, said Renato Mimica, analyst of BTG Pactual. a note.

Boeing advanced less than 1% to $ 334.09 in New York. After the close of trading on July 3, stocks had gained 13% this year, the fourth best performance among the 30 members of the Dow Jones Industrial Average.

Defense Plan

The Commercial Enterprise Will Be Led By A Brazil Boeing CEO, Dennis Muilenburg, will have ultimate control. Embraer, a flagship of the Brazilian industry, plans to use the proceeds of the joint venture to make high-return investments and reduce its debt, as well as a special dividend and a possible buyout program. # 39; s shares.

Sao Jose dos Campos, Brazil The base-based manufacturer will remain a separate company that makes both military and private jets while reaping a source of revenue from the new partnership. The structure, as well as the decreasing sales of the company and an increasingly difficult market, have won the support of the Brazilian government.

Boeing and Embraer plan to form a second joint venture to develop new markets for defense products and applications. the military portfolio of the Brazilian company, including its cargo plane KC-390

Segment Sales

Embraer's revenues come mainly from its commercial aviation division

Source: Bloomberg

Companies plan to finalize the agreement over the next several months and will present it in November for official approval by the Government of Brazil, which has a veto, said Souza e Silva. He will go before the shareholders in December, he said. Once the transaction is ratified by the government, there will be no need to involve the next president in the talks, the CEO said. Brazil will hold presidential elections in October.

The agreement is expected to be completed by the end of next year, a goal that Embraer 's chief financial officer, Nelson Salgado, has called conservative. Companies anticipate the need to obtain antitrust approvals in at least 10 countries in which they operate jointly. Boeing said the partnership would increase its profits as of 2020.

Engineering Expertise

For years, Boeing and Airbus have focused on larger, more profitable airliners and moved away from larger aircraft. small for lower prices. The Airbus contract with Bombardier and the Boeing Pact with Embraer indicate that major planners have the intention of refusing to gain a foothold on the lucrative market of narrow bodies of ambitious newcomers, such as Commercial Aircraft Corp. from China

. could pull on the new mid-range jet on his drawing board, nicknamed the 797 by analysts. Embraer also has lower cost production capabilities that the Chicago planner could use to build components such as actuators and landing gear because it brings more work from the internal supplier, said the company. Canaccord Genuity's Kenaccord Analyst

Bombardier is the largest manufacturer of regional jets while enhancing its reputation in engineering. In an industry where product delays are the norm, Embraer has introduced 10 new aircraft over the past 15 years, largely on budget and on schedule, wrote Ron Epstein, an analyst at Bank of America Corp.

For a glimpse into the impact of the Boeing-Embraer agreement on Bombardier, click here

The Brazilian planner this year launched the first of his family of E2 enhanced jets. The E190-E2 is in direct competition with the smaller Bombardier C Series, seating up to 114 passengers and powered by the same Pratt & Whitney jet aircraft as the Canadian jet.

Established in 1969 by the Brazilian government and privatized in 1994, Embraer has been touted as a source of national pride for the commodity-driven country and an example of efficiency and innovation, even if the corruption scandals in recent years tainted this image.

– With the help of Brandon Kochkodin and Vinicius Andrade