Boeing and Embraer have signed a memorandum of understanding to create a joint venture, the two aerospace companies announced on Thursday.
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The partnership, which aims to challenge a similar joint venture between Airbus and Canada’s Bombardier, would include the commercial aircraft and services business of Brazil’s Embraer and Boeing’s commercial development, production, marketing and lifecycle services operations. The Chicago-based company will hold an 80% stake in the joint venture and Embraer will own the remaining 20%.
The deal values Embraer’s commercial aircraft operations at $4.75 billion, while Boeing’s stake is valued at $3.8 billion. Boeing said it expects the deal to add to its earnings per share starting in 2020 and generate estimated annual pre-tax cost savings of approximately $150 million in the third year.
“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,” Boeing CEO Dennis Muilenburg said in a statement.
Upon finalization, the joint venture will be led by Brazil-based management who will report to Muilenburg, and Boeing will have operational and management control of the new company.
Both companies will also create another joint venture to “promote and develop new markets and applications for defense products and services,” with a focus on Embraer’s KC-390 multi-mission aircraft, the companies said.
Brazil’s government has been less than lukewarm to an all-out purchase of Embraer, citing security concerns as a reason for not wanting a foreign entity to control a key defense contractor.
The companies said the deal would have no impact on either company’s financial guidance for 2018, and that they expect to close the transaction by the end of next year.
Boeing’s move to form the joint venture with Embraer comes after its biggest rival, Airbus, acquired a majority stake in Bombardier’s C Series jet. The smallest C Series aircraft, the CS1000, competes directly with Embraer’s E190-E2, which holds 114 passengers in a single-class configuration.