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Boeing to take over $ 4.75 billion unit from Embraer, targeting Airbus-Bombardier
Boeing Co ( BA.N ) has closed a deal for a controlling stake in the arm of commercial aircraft maker Brazilian aircraft maker Embraer SA ( EMBR3.SA ) under a new $ 4.75 billion joint venture, the companies said on Thursday, reshaping a global duopoly of passenger jets.
The new company, encompassing Embraer's airplane business, pushes Boeing into the lower end of the market, giving tougher competition to the CSeries jets customized by Canada's Bombardier Inc ( BBDb.TO ) and backed by European rival
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Embraer will hold the remaining 20% of the Boeing joint venture and will retain control of its executive and defense jets operations. Concern over US influence on military programs had raised flags in the Brazilian government, which has held a strategic veto at Embraer since privatization.
The Embraer-Boeing partnership took shape more than two years after the idea was presented internally to Boeing's board and reflects an old affinity between the two plan makers, a person familiar with the discussions.
The memorandum of understanding signed by Boeing and Embraer values the commercial aircraft operations of Brazilians, the third largest in the world at US $ 4.75 billion and Boeing's 80% participation in the project, at US $ 3.8 billion .
The alliance between Boeing and Embraer, shortly after the Airbus-Bombardier alliance announced last year, represents the largest realignment in the global aerospace market in decades, strengthening established Western manufacturers of plans against newcomers from China, Russia and Japan , say analysts.
Chief Executive Paulo Cesar Silva told officials in a revised review by Reuters that consolidation in the aerospace supply chain also forced Embraer's hand.
"This has been happening with our suppliers and our customers. They started to organize in large blocks, making it difficult to negotiate the size of Embraer companies, "he said.
Embraer shares fell 10% in New York and almost 15% in Sao Paulo, due to disappointment with the financial terms of the long-awaited contract.
Embraer's commercial aviation unit price was "significantly lower" than previous reports, according to analysts at Vertical Research Partners, who pointed out in a customer note that an agreement must still remove policy and regulatory barriers before closing as proposed at the end of the next. year.
"We also see strong chances that Embraer shareholders will demand a higher price for participation in the commercial segment," analysts Renato Mimica and Samuel Alves of BTG Pactual wrote in a note.
The partnership, which adds a family of 70 to 130 employees to Boeing's line, is expected to boost US company earnings per share starting in 2020, generating annual savings of about $ 150 million by the third year, they said. the companies.
Boeing's shares were little changed on Thursday.
MONEY AND DEBT
Embraer will transfer much of its debt to the new venture and will receive money from Boeing, Embraer executives told analysts.
About one-fifth of the cash payment will go to taxes and the remainder could be split between stock repurchases, a special dividend, deleveraging and new product development, they said.
Silva told employees in his note that Embraer would improve its cash position by $ 1 billion when the deal is closed, allowing more investment in new projects.
Embraer will hold the remaining 20% of the Boeing joint venture and will retain control of its executive and defense jets operations. Concern over US influence on military programs had raised flags in the Brazilian government, which has held a strategic veto at Embraer since privatization.
However, recent signs by Brazilian President Michel Temer and military officials suggest that the government is satisfied with the new structure of the agreement as long as Brazilian jobs are maintained and Embraer continues to develop new technologies.
A government official said the agreement announced on Thursday would likely be approved in Brasilia. Another official said the government's approval is not certain and will depend on the final details presented later this year. Both spoke on condition of anonymity.
In addition to the passenger jet deal, Boeing and Embraer will deepen a sales and service partnership in the new KC-390 military cargo jet through a separate defense project that is likely to receive a joint investment, Silva said.
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The Embraer-Boeing partnership took shape more than two years after the idea was presented internally to Boeing's board and reflects an old affinity between the two plan makers, a person familiar with the discussions.
However, pressure for an alliance accelerated when Airbus announced last year that it would take control of the CSeries jet, which had been struggling in the battle against Embraer at the small end of the aircraft market.
This agreement placed a huge marketing weight behind the Embraer competitor, while for Boeing the transatlantic union threatened to expand its European rivals' revenue base.
"The Boeing-Embraer announcement confirms the strong market potential in the 100 to 150 seat category," Airbus said through a spokesman. "Boeing and Embraer are following Airbus and Bombardier."
Report of Brad Haynes in São Paulo and Tim Hepher in Paris; Additional reporting by Arunima Banerjee in Bengaluru, Lisandra Paraguassu in Brasília, Paula Laier and Flavia Bohone in São Paulo; and Tracy Rucinski in Chicago; Edition of Daniel Flynn, Nick Zieminski and Lisa Shumaker
Our Standards: The Trust Principles of Thomson Reuters.
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BRAZIL
Senator Requião sends letter to ambassadors and investors warning that privatizations will be annulled by Brazil
On the one hand, Michel Temer (PMDB) is a peddler to sell his country, on the other, Senator Roberto Requião (PMDB-PR), president of National Broad Front, sends a letter to all the embassies with which Brazil has a diplomatic relationship alerting them - and investors - to the risks of buying privatized public enterprises. "The current government does not have the authorization or legitimacy to sell the Brazilian Patrimony, so those who buy will be taken as the recipient of stolen goods and, as such, can also be prosecuted," says an excerpt from the "Open Letter" against federal government privatizations .
In addition to the "Open Letter" sent by the diplomatic representatives, Requião will present during a press conference on Wednesday (30), in Brasilia, the Draft Legislative Decree of the National Congress that proposes a referendum to revoke all administrative acts of Michel Temer . Consultation with voters, as specified by Senator PMDB's bill, would be held in the upcoming elections.
In addition to the "Open Letter" sent by the diplomatic representatives, Requião will present during a press conference on Wednesday (30), in Brasilia, the Draft Legislative Decree of the National Congress that proposes a referendum to revoke all administrative acts of Michel Temer . Consultation with voters, as specified by Senator PMDB's bill, would be held in the upcoming elections.
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