Boeing Brasil–Commercial was a proposed, but failed joint venture between Boeing and Embraer to design, build, and sell commercial airliners worldwide. The partnership was established in February 2019, after Boeing agreed to purchase an 80% stake in Embraer's commercial aircraft division. The deal was approved by Embraer's shareholders and was expected to close in June 2020 pending antitrust reviews, but in April 2020 Boeing terminated the joint venture deal due to impact of the 2019–20 coronavirus pandemic on aviation and market uncertainty. Embraer alleges that the financial impact of the Boeing 737 MAX groundings contributed to the demise of the deal, while others allege that U.S. labor and political considerations played a role.
History
In December 2017, The Wall Street Journal reported Boeing had been in takeover talks with Embraer and was planning to offer more than the Brazilian company's $3.7 billion market value and was awaiting Brazilian government approval. The two companies confirmed that a potential combination was being discussed, with a transaction subject to approval by the Brazilian government and regulators, the two companies' boards and shareholders. Aviation industry analysts saw the potential deal as a reaction to the Airbus–Bombardier deal on the CSeries.
In the early years of Embraer, it was a state-run company and although it was privatized in the early 1990s, the Brazilian government retained interest in the company through possession of golden shares, which allow it veto power.
On December 22, 2017, Brazilian President Michel Temer said the sale of Embraer to Boeing was "out of the question", adding that the government was in favor allowing other companies, like Boeing, to establish partnerships with the company, but warning that it would veto changes in stock control. On December 28, defense minister Raul Jungmann opposed transferring control of the parent company Embraer S.A., because he believed that Embraer's defense business could not be separated from its commercial operations, but would welcome a deal maintaining local control of the company. On January 2, 2018, Brazilian financial newspaper Valor Econômico reported that the companies were now looking at forming a joint venture to avoid changing control of Embraer to appease Brazilian regulators.
July 2018 Memorandum of Understanding
On July 5, 2018, a Memorandum of Understanding was announced for a strategic partnership: for $3.8 billion Boeing would have an 80% stake in a joint venture with Embraer, which would produce and service Embraer's commercial airliners (the ERJ, E-Jet and the E-Jet E2), a business that at the time was valued at $4.75 billion and offer $150 million worth of corporate synergy opportunities. Under the proposed joint venture, Embraer would retain its executive business jet and its defense industry businesses, but the two companies could explore a second joint venture for the C-390 Millennium defense aircraft. Boeing would control the new company, which would be managed from Brazil with leaders who report to Boeing's CEO. A lock-up agreement would prevent Embraer or Boeing from selling their shares for 10 years. A put option would protect the minority stake value, allowing Embraer to sell its shares at the same price, inflation adjusted. At the time of the announcement, the deal was expected to be approved by shareholders and government regulators by the end of 2019.
Despite the proposed deal being converted from a takeover to a joint venture, it remained controversial within the Brazilian government. The lame-duck government of embattled Brazilian President Michel Temer opposed the deal, but president-elect Jair Bolsonaro, who would take office on January 1, 2019, supported it. The deal was also opposed by the left-wing Brazilian Workers Party, and four congressmen obtained an injunction from the Brazilian federal court Judge Victor Giuizo Neto to block the joint venture, saying that it would give away the profitable airliner division and would remove it from the Brazilian Government control. The following week, the injunction was overturned by an appeals court.
Aviation industry publication Leeham News noted that the deal would be good for both companies, as Boeing needed Embraer's smaller jets and Embraer needed Boeing's marketing power as the E-Jet E2 family was selling slowly, in part due customers were waiting for the joint venture deal to close, and the E175-E2 being too heavy to be sold to U.S. airlines due to scope clause limitations.