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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

Airbus SE (  AIR.PA ).

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 .

RELATED COVERAGE

• Embraer CEO sees $ 1 billion increase in Boeing cash position: document

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.

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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.

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.

Open letter to ambassadors and investors on the privatizations of the Temer government

Dear Ambassadors and Investors in Brazil.

Through this open letter, we alert the diplomatic corps and investors with interests in Brazil about the risks of participating in the privatizations promoted by the current Federal Government.

All purchases of public goods and rights sold, granted, granted or authorized - finally privatized - by the illegitimate government installed in the Presidency of the Republic of Brazil shall be revoked by the first Head of State elected by popular vote.

Be careful, because these privatizations will not just be reversed. They will also be heavily investigated. Attention to what is happening in Brazil. The same rigor that Operation Lava Jato introduced in the Brazilian punitive investigation system will be used against all that the illegitimate government produces, although without the excesses and the partiality of said Operation.

Yes, those who buy assets and rights of the Brazilian people sold by this extensive and proven corrupt government will immediately be suspected of participating in corruption and then thoroughly investigated and punished.

Do not underestimate the indignation and anger that the Brazilian people accumulated due to the abuses of this illegitimate government.

During four consecutive elections, in the last 15 years, the Brazilian people rejected any privatization in the polls. Made by an illegal government scorned by 95% of the population, this means an even more marked retreat.

The Brazilian people did not give power to the current government to carry out any privatization. It does not recognize the political and legal validity of the sale of public property held in the Temer government. Worse still, the Brazilian people rightly suspect that these privatizations were and are made with bribes, corruption, cheating and illegalities.

This government, the product of a parliamentary coup and the current Congress, does not have the power to make such serious decisions without consulting the Brazilian people. Thus, Congress' approval of laws that "formalize" these privatizations does not reduce the illegitimacy and illegality of the process.

In clearer terms: the liquidation of Equity

Audience promoted by Michel Temer without the agreement of the people, will be considered by these same people as the sale of stolen goods, therefore, both the seller and the recipient will be considered criminals. Punishment will come to both!

Illegitimate privatization of Brazilian Public Patrimony will be a bad deal for buyers. Even if the price of our equity is offered at very cheap prices, it will be a bad deal because those prices are themselves more proof of the crime. And this crime will be punished relentlessly.

Investors who bribe members of the Executive, Parliamentarians or Judges to approve or "legalize" these fraudulent privatizations will be throwing their money in the trash and will still be liable to imprisonment.

The first legitimate government elected in the country will hold a referendum to repeal all privatizations. They will be reversed because we know what our people think about it. The money spent on them will be returned only after the investigations that will analyze each case and only if there has not been any kind of corruption.

From this Open Letter, no one can claim ignorance about the illegality, illegitimacy and consequences of having bought the goods of the Brazilian people. Justice has not yet come, but it will come. The patience of the people is already at an end! Do not commit such recklessness!

Roberto Requião, senator of the Republic and president of the Joint Parliamentary Front in Defense of National Sovereignty

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