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% ownership stake in the joint venture and Embraer will own the remaining 20% 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% of Embraer's commercial aircraft operations at $4.75 billion, and contemplates a value of $3.8 billion for Boeing's 80% 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.
The strategic partnership will bring together more than 150 years of combined leadership in aerospace and leverage the two companies' highly complementary commercial product lines. The partnership is a natural evolution of a long-standing history of collaboration between Boeing and Embraer throughout more than 20 years.
On finalization, the commercial aviation joint venture will be led by Brazil-based management, including a president and chief executive officer. Boeing will have operational and management control of the new company, which will report directly to Muilenburg.
The joint venture will become one of Boeing's centers of excellence for end-to-end design, manufacturing, and support of commercial passenger aircraft, and will be fully integrated into Boeing's broader production and supply chain.
Boeing and the joint venture would be positioned to offer a comprehensive, highly complementary commercial airplane portfolio that ranges from 70 seats to more than 450 seats and freighters, offering best-in-class products and services to better serve the global customer base.
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.
"Joint investments in the global marketing of the KC-390, as well as a series of specific agreements in the fields of engineering, research and development and the supply chain, will enhance mutual benefits and further enhance the competitiveness of Boeing and Embraer," said Nelson Salgado, Embraer's executive vice president of financial and investor relations.
Finalization of the financial and operational details of the strategic partnership and negotiation of definitive transaction agreements are expected to continue in the coming months. Upon execution of these agreements, the transaction would then be subject to shareholder and regulatory approvals, including approval from the Brazilian government, as well as other customary closing conditions. 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 Boeing and Embraer announcement comes five days after Airbus’ majority stake in C Series partnership with Bombardier and Investissement Québec came into effect. Airbus now owns a 50.01% majority stake in C Series Aircraft Limited Partnership, while Bombardier and Investissement Québec own approximately 34% and 16% respectively.