Boeing grabs Embraer’s controls

Boeing has agreed to take control of Embraer’s commercial jetliner business.

Boeing has agreed to take control of Embraer’s commercial jetliner business, a deal that extends the US aerospace giant’s reach into the market for smaller passenger planes.

The agreement with the Brazilian company, cast as a joint venture valued at $US4.75 billion ($6.4bn), marks an extension of what has become effectively a global duopoly of Boeing and European rival Airbus for planes with more than 150 seats to even smaller jets. Now, the two aircraft makers are bracing for new competition in coming years from China and Russia, where aerospace companies are working on new single-aisle and wide-body planes

Boeing yesterday said it would take an 80 per cent stake in Embraer’s commercial aeroplane and services business. Embraer would own the remaining 20 per cent, with the right to force Boeing to buy it out over the next decade.

Boeing would pay its new partner $US3.8bn in cash once the deal closes, Embraer executives said. Embraer would also commit cash and debt to the commercial joint venture, they said, without providing more details. The executives said the two sides were also exploring a joint venture for defence products.

Boeing shares, up 13 per cent this year, were little changed yesterday, while Embraer’s shares fell 14 per cent as analysts said investors were expecting a higher purchase price.

The deal also must survive the political uncertainty besetting Brazil in the run-up to presidential elections in October. While Embraer would retain a significant stake in the business at the outset, the prospect of exiting a commercial aircraft sector developed with government funding over nearly 50 years would be controversial.

Boeing chief executive Dennis Muilenburg said the Embraer partnership fitted his company’s strategy to make investments “that enhance and accelerate our growth plans”.

Embraer is best known for making regional jets in the 70 to 100-seat range, used heavily on routes that don’t warrant larger Boeing or Airbus planes.

Boeing wants the added scale to compete against Airbus as its European rival moves into the market for small jets. It also said the joint venture, which will be run from Embraer’s base in ­Brazil, would create about $US150 million in annual pretax cost savings by its third year.

Embraer executives envision Boeing’s global network of airline customers helping to generate new sales for Embraer jets. That marketing clout has become more important to the Brazilian company since Airbus said in October that it would make some smaller passenger jets with Canada’s Bombardier.

Airbus, which is also looking for efficiencies, last Sunday completed its takeover of the Bombardier unit that makes the Canadian company’s CSeries narrow-body planes.

The larger version of the CSeries plane, the CS300, seats about 140 people and competes with smaller versions of Airbus and Boeing narrow-bodies.