ERJ Embraer SA

By Andrew Tangel and Robert Wall 

Boeing Co. will take control of Brazil's Embraer SA's commercial business, extending the U.S. aerospace giant's reach into the market for smaller passenger jets.

Boeing said Thursday that it will take an 80% stake in Embraer's commercial airplane and services business. Embraer will own the remaining 20% of what the two plane makers described as a joint venture they valued at $4.75 billion.

The agreement marks another big step in the restructuring of the global aerospace landscape that left Boeing and Airbus with an effective duopoly in the market for planes with more than 150 seats. Now, Boeing and Airbus are bracing for new competition in the coming years from China and Russia, where aerospace companies are working on new single-aisle and wide-body planes.

Boeing's stock is up 13% so far this year, while the broader Dow Jones industrial average is down about 2%. The company has an order backlog of about 6,000 jets valued at more than $400 billion.

Chicago-based Boeing said executives will run the joint venture from Brazil, where Embraer is based. Those managers will report directly to Boeing Chief Executive Dennis Muilenburg.

Mr. Muilenburg said the partnership fits Boeing's strategy to make investments "that enhance and accelerate our growth plans."

The Wall Street Journal reported that Boeing and Embraer were in takeover talks in December. The companies had been working to assuage the Brazilian government's concerns that the deal would compromise the independence of Embraer's defense business.

Boeing is seeking greater scale and cost savings from its partnership with Embraer. The joint venture would create about $150 million in annual pretax cost savings by its third year, Boeing said.

Airbus is also looking for efficiencies through its partnership with Canada's Bombardier Inc. Airbus completed its takeover of Bombardier's CSeries narrow-body plane-making unit Sunday.

The larger version of the CSeries plane, the CS300, seats around 140 people and competes with smaller versions of Airbus and Boeing narrow-bodies. The 120-seat CS100 competes with Embraer's largest plane. The CSeries has struggled against those rivals, garnering just 400 orders since it was introduced a decade ago.

Airbus believes it can boost CSeries sales in what it estimates to be a market for about 6,000 planes that size. Airbus is expected to announce some airline commitments for the CSeries at this month's Farnborough Air Show outside London, the industry's largest gathering this year.

Airbus plans to assemble some CSeries planes in the U.S. The company has said the first CSeries should be delivered from its Mobile, Ala., facility in 2020. The European plane maker also makes some A320 single-aisle planes there.

Aerospace executives have said the partnership between Airbus and Bombardier spurred other companies to pursue their own joint-venture talks.

Boeing and Embraer also said Thursday that they will create a separate joint venture "to promote and develop new markets and applications for defense products and services," such as Embraer's KC-390 military transport jet.

Embraer, based in the state of São Paulo, is the world's third-largest commercial-jet manufacturer by revenue and has some 18,000 employees. It is best known for making regional jets in the 70- to 100-seat range, used heavily on routes that don't warrant larger Boeing or Airbus planes.

Boeing is the world's largest aerospace company with a market value of about $194 billion. It makes commercial jetliners and defense, space and security systems as well as military aircraft, weapons, satellites and helicopters.

The deal is expected to close by late 2019 and will require regulatory approval. The companies said the deal isn't binding.

--Kimberly Chin and Doug Cameron contributed to this article.

(END) Dow Jones Newswires

July 05, 2018 10:16 ET (14:16 GMT)

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