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LatinNews Daily - 06 July 2018

Boeing to form a joint venture with Brazil’s Embraer

Development: On 5 July, Boeing announced a deal to form a US$4.65bn joint venture with the Brazilian company Embraer.

Significance: For Boeing, the joint venture will allow the company to compete with Airbus in the market for smaller, 100-seat planes. For Embraer, the deal should give it greater access to global markets. The deal still needs the final approval of the Brazilian government, but it has given a strong indication that it considers the tie-up beneficial to Embraer.

  • Under the terms of the memorandum of understanding, Boeing will own 80% of a partnership controlling Embraer's commercial aircraft operations, the world's third-largest. The Brazilian company will hold 20%. The Boeing-Embraer deal follows a tie-up between Airbus and Bombardier announced last year. 
  • Initial reaction to the news was less than enthusiastic. Embraer shares fell by as much as 16% in São Paulo, the most in a single day in 17 years. Most bankers had expected Boeing to pay a higher price for the Brazilian manufacturer, causing shares to rise by 35% since the start of the year.
  • Created in 1969 by the Brazilian government and privatised in 1994, Embraer has been touted as a source of national pride for the commodities-driven country and an example of efficiency and innovation, though corruption scandals in the past few years have tainted that image.

Looking Ahead: Embraer expects the deal to be formalized by December. President Michel Temer will remain in power until 1 January 2019, meaning that for the deal to pass smoothly, it needs to be inked by the end of the year. A new president may not be so enthusiastic.

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