By Samantha Pearson and Jeffrey Lewis
SÃO PAULO -- Boeing Co.'s takeover of Embraer SA's commercial
jetliner business marks the end of an era for one of Brazil's most
successful companies, and the beginning of a potentially bitter
political dispute.
Coming ahead of Brazil's hotly contested October elections, the
$3.8 billion deal announced Thursday is shaping up to become a
divisive campaign issue here, analysts said, evoking nationalist
ire in much the same way that Harley-Davidson in the U.S. has
recently been lambasted by President Donald Trump for shifting some
operations overseas.
Embraer was privatized in 1994, but "it is still seen as a
national asset by Brazilians, and one they don't want to lose,"
said Sérgio Lazzarini, a professor at São Paulo business school
Insper and author of books on crony capitalism in Brazil.
The front-runner in Brazil's elections, Jair Bolsonaro, a
right-wing former army captain, has largely backed the partnership
with Boeing. Brazil, one of the most closed emerging-market
economies, "cannot isolate itself from the world," he said in a
recent television interview.
But swaths of left-leaning politicians have opposed the
takeover. The president of the Workers' Party, Sen. Gleisi
Hoffmann, called it an attack on national sovereignty and decried
the sale of national technology "for the price of a banana." Ciro
Gomes, a center-left politician who ranks third in most polls,
vowed to reverse the deal should he become president -- a scenario
that is possible, but viewed as somewhat unlikely, analysts
say.
Unions have called on the government to veto the deal with
Boeing via its so-called golden share in Embraer, while others have
accused the companies of trying to sneak through the takeover at a
time when the soccer-mad nation is distracted by the World Cup.
Set up by Brazil's military government in 1969, Embraer has gone
from an unprofitable state company to one of the world's biggest
producers of commercial jets. It is held up by many as a shining
example of first-rate manufacturing in a developing country better
known for producing soybeans, cattle and iron ore, and a cherished
reminder of the nation's proud aviation history.
It was with mixed feelings, then, that Brazilians received the
news Thursday that Embraer's commercial business, responsible for
58% of the company's revenue last year, was being sold off.
Boeing will take an 80% stake in Embraer's commercial airplane
and services business. Embraer will own the remaining 20%, with the
right to force Boeing to buy it out over the next decade.
"Everything in Brazil that has any value" gets sold to
foreigners, said Tatia Jois, 40 years old, a film and television
extra from São Paulo. "We produce a lot, but foreigners own most
companies with any value."
Embraer's success, though, has come because of its focus on
global markets and independence from the government.
"The real question we should be asking," said Mr. Lazzarini, "is
not why it's being sold, but why aren't there more companies like
Embraer in Brazil?"
Embraer's early bet on midsize plane production for the growing
regional aviation market began to win the company orders in the
U.S. in the 1980s. The company is now heavily dependent on the U.S.
market, with more than 2000 employees in the U.S. and a factory in
Florida. The North American market generated 57% of sales in 2017,
while Brazil accounted for only 13%.
Brazil's government has given Embraer relative freedom, standing
back as the company purchased most of its parts from foreign
players and announced heavy layoffs in the wake of the 2008
financial crisis to remain nimble.
The result of these efforts can be seen from the air above the
lush sugar-cane fields of Gavião Peixoto in rural São Paulo, home
to one of Embraer's gleaming production facilities. A vast campus
of manicured green lawns and white and blue buildings extends
across the horizon, punctuated by the longest private runway in the
Southern Hemisphere, once an alternate landing site for the U.S.
space shuttle.
In Gavião Peixoto, the company is building its new KC-390
military transport aircraft along with other planes, which on a
recent day were scattered about the vast hangars like the abandoned
toys of a child's playroom.
The defense business was excluded from Thursday's deal, but the
two companies said they would explore a joint venture for certain
defense products.
Boeing and Embraer resumed talks about a joint venture in
commercial aviation last year after rivals Airbus SE and Bombardier
Inc. started developing their own partnership plans at the Paris
Air Show, according to people familiar with the situation.
"The powerful partnership between Bombardier and Airbus had been
threatening Embraer's leading position in the market for regional
aviation," said Victor Mizusaki at investment bank Bradesco BBI in
São Paulo.
Aside from boosting Embraer's position in an increasingly
challenging market, the deal will also give the company access to
Boeing's sales network. The U.S. company's ability to negotiate
lower prices from suppliers will also benefit Embraer.
The companies said Thursday they plan to get the approval of
Brazil's government while President Michel Temer is still in power.
His successor may try to put up roadblocks to the deal while it
goes through final regulatory approvals next year, although this is
unlikely, analysts said.
"Brazil has kept its agreements in recent years...but it really
depends on who wins in October," said Shin Lai, an investment
strategist at São Paulo-based research company Upside Investor.
"Right now the situation is very cloudy because we just don't know
if the next president will see that keeping this kind of commitment
is important."
Write to Samantha Pearson at samantha.pearson@wsj.com
(END) Dow Jones Newswires
July 06, 2018 12:01 ET (16:01 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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