An Embraer E190-E2. REUTERS/Nacho Doce Boeing will hold an 80% stake in the new joint venture, while Embraer, long considered a beacon of Brazilian industrial might, will retain the rest. Embraer, a jewel of Brazilian industry, plans to use the proceeds of the joint venture for high-return investments and reducing debt, as well as a special dividend payment and a potential share buyback program.
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, they said.
The two companies have a history of cooperation, but the latest round of negotiations had to tread a fine line between Boeing's desire to beef up its competitive position in the small-size jet market and the Brazilian government's desire to preserve one of the country's most strategically valuable companies.
"Ultimately, we view the product portfolio as being enhanced under both deals, as each JV will be able to offer a more fulsome suite of aircraft types", Spracklin wrote, adding that Bombardier's regional jets, such as the CRJ, that compete with Embraer's are not part of the Airbus partnership.
The companies expect to finalize the agreement over the next several months and present it in November for formal approval by Brazil's government, which has veto power, Souza e Silva said.
Boeing will pay $3.8 billion for its stake in the venture - a valuation that prompted Embraer investors to look for the exits.
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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.
At the same time, both joint ventures solidify the duopoly between Airbus and Boeing in the commercial aircraft space, which Moody's vice president Jonathan Root says is well balanced.
The partnership is expected to add to Boeing's earnings per share from 2020 and would generate estimated annual pre-tax cost savings of about $150 million by the third year. The company will be led from Brazil, with Boeing retaining operational and management control. The U.S. International Trade Commission struck down the tariff proposal, but the dispute sparked the Airbus-Bombardier partnership. In today's statement, Boeing said Embraer's offerings were "highly complementary" to its own, which range downward to the 737 MAX 7 with 138 seats.
The Embraer-Boeing tie-up took shape more than 2 years after the idea was first presented internally to Boeing's board and reflects a longstanding affinity between the two planemakers, a person familiar with the discussions said.
Richard Aboulafia, an aerospace industry analyst for the Teal Group consulting firm, noted that Airbus basically "got a jet for free", thanks to the terms of its C Series deal with Bombardier.