US aircraft firm Boeing Co. is set to take over the $4.75 billion commercial jet business of Brazilian aerospace conglomerate Embraer SA, as the two companies form an alliance that could revive the duopoly between Boeing and its European rival Airbus SE.
The establishment of the deal puts an end to Boeing’s long courting of Embraer. The transaction is expected to close by the end of 2019, pending the required approvals.
As part of the deal, the Chicago-based group will own 80 percent, valued at $3.8 billion of the new joint venture, while the São Paulo-based conglomerate will take the remaining 20 percent. The new company is also forecast to generate about $150 million in annual pre-tax cost saving by the third year.
Analysts stated that the Boeing-Embraer tie-up represents the biggest shift in the global aerospace market in decades, strengthening Western aircraft companies against newcomers from China, Russia, and Japan.
Through the alliance, Boeing Chief Executive Dennis Muilenburg said they are ideally positioned to provide great value for their and Embraer’s customers, employees, and shareholders, as well as for Brazil and the US.
The two planemakers also intend to create another joint venture to support and create new markets as well as applications for defense products and services, particularly the Embraer’s KC-390 military transport aircraft, based on jointly-established results.
Boeing has long been trying to form a pact with Embraer, but the Brazilian government had been rejecting its attempts, as the government was highly sensitive to an agreement that largely centers on Embraer’s defense business unit.
Embraer, being a major manufacturer of military systems, is deeply involved in Brazil’s defense industry and is considered as a national technological champion.
Securing the government’s approval could clear the final hurdle to the creation of a long negotiated merger between Boeing and Embraer.
The Boeing-Embraer tie-up, if it proceeds, also increases the odds of restoring the duopoly between Boeing and Airbus.
That could mean Bombardier Inc.’s CSeries, which is backed by Airbus, could face stronger competition, as Boeing’s alliance with Embraer offers the US planemaker the opportunity to be the new market leader in the smaller jet market.
Spokesman for Airbus stated that the Boeing-Embraer announcement confirms the market potential in the 100 to 150-seat category and that Boeing and Embraer are following Airbus and Bombardier.
Boeing and Airbus have long been competing in the big aircraft market, while Embraer and Canada’s Bombardier were rivals in the smaller aircraft market.
However, when Bombardier introduced the CSeries and Embraer followed suit with its E195-E2 commercial jet, both have showed that they can rise above their station.
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