LONDON – America’s Boeing and Brazil’s Embraer have finally come through with a much-expected collaboration by signing a Memorandum of Understanding (MoU) that will combine efforts to catch up to lost ground against its competitors.
Both manufacturers will enter into a joint venture that will see the commercial aircraft and services business of Embraer, aligning with Boeing’s commercial development, production, marketing and lifecycle services operations.
RELEASE: Proud to build on our partnership with @embraer in a proposed joint venture of Embraer’s commercial aircraft and services business. We will accelerate aerospace growth together.
— The Boeing Company (@Boeing) July 5, 2018
The new company, product of this joint venture, will have Boeing holding an 80% ownership stake, and Embraer the remaining 20%.
The transaction places a 100% valuation of Embraer’s commercial aircraft operations at $4.75 billion and generates a value of $3.8 billion for Boeing’s 80% stake in the joint venture.
The joint venture will have its main management offices in Brazil, where a new President and CEO will be based, reporting directly to Boeing’s CEO, Dennis Muilenburg.
Catching Up With Airbus/Bombardier
This new joint venture between Boeing and Embraer means that both manufacturers will catch up with the recent C Series Aircraft Limited Partnership, which has both Airbus and Bombardier working together on the program.
The collaboration between Boeing and Embraer signifies the culmination of many years of talks between both manufacturers, which in the 1990s began with Embraer supplying parts to Boeing’s MD-11 program.
Embraer/Boeing will now offer an aircraft portfolio that ranges in the 60 to 450-seat market, as well as freighters catering for either small or large demand.
“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 Muilenburg, Boeing’s Chairman, President, and CEO.
“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 added.
Our partnership with @Embraer brings together two incredible aerospace companies and world-class teams. Thrilled to build on our history together and grow our complementary products and services. https://t.co/SzCvxKpDzZ
— Dennis A. Muilenburg (@BoeingCEO) July 5, 2018
According to Boeing, the financial details of this partnership are expected to continue in the upcoming months, all subject to shareholder and regulatory approvals from both U.S. and Brazil governments.
However, both companies clarified that should all approvals arrive on time, the new company should be alive by the end of 2019.
Embraer Seems Happy
Even though Embraer’s CEO Paulo Cesar de Souza e Silva told Airways in April that his company did not need a partnership with Boeing, the finalization of this joint venture seems to be the right way to go for the Brazilian manufacturer.
“The agreement with Boeing will create the most important strategic partnership in the aerospace industry, strengthening both companies’ leadership in the global market,” said the CEO during the joint venture announcement.
Embraer will now take advantage of Boeing’s worldwide resources, including its massive supply chain and robust sales and marketing departments.
Likewise, Boeing will get its hands on the much desired 70-150-seat market, catching up with its European counterpart which has just claimed ownership in the sector with the finalization of the CSeries program investment.
“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,” added Paulo Cesar.
In another set of surprising news, this joint venture will include Boeing’s participation in the marketing and sales of Embraer’s military KC-390 project, which at first, seemed to be completely off-limits for any potential collaboration with the American manufacturer.
“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, Financial and Investor Relations.
Embraer will, therefore, keep full ownership and control of its military and business jets programs, as part of the 20% stake the Brazilian manufacturer will have in the joint venture with Boeing.
Overall, Boeing and Embraer are set to reshape the commercial aviation industrial landscape by establishing a duopoly against Airbus and Bombardier.
With the upcoming Farnborough International Air Show in two weeks, both Airbus/Bombardier and Boeing/Embraer will surely be in the spotlight for further announcements, especially the rebranding of the CSeries program under the new Airbus portfolio.