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Boeing and Brazil’s Embraer SA form strategic joint venture for commercial jet business

Published: 08:37 05 Jul 2018 EDT

A Boeing aircraft model
Stocks of both plane makers rallied as the joint venture will create annual cost synergies of about US$150mln by the third year

Chicago-based Boeing Co. (NYSE:BA) and Brazil-based Embraer SA (NYSE:ERJ) announced a partnership Thursday to help both companies accelerate growth in the aerospace market.

Boeing's stock rose 0.77% to US$335.50 in premarket trade, while Embraer's US-listed shares rallied nearly 5% to US$26.21.

Under the agreement, Boeing will take control of Embraer’s commercial airplane and services business. The Chicago-based plane maker will have an 80% ownership stake in the joint venture, and Embraer will own the remaining 20%. The deal valued Embraer’s commercial aircraft operations at $4.75bn.

Reuters reported that Embraer would keep its defense division and possibly its business jet unit.

"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," said Boeing CEO Dennis Muilenburg.

Boeing said in a statement that it expects the partnership to add to earnings beginning in 2020, and create annual cost synergies of about US$150mln by the third year.

READ: Boeing crushes Wall Street's expectations thanks to new plane orders

Embraer’s Brazil-based management will lead the proposed venture, although Boeing will have operational and management control of the new company, which will report directly to Muilenburg.

The Embraer CEO defended the deal between the two plane makers as good for creating jobs.

"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," said Embraer CEO Paulo Cesar de Souza e Silva.

The joint venture will be integrated into Boeing's broader production and supply chain. It will offer global customers a comprehensive commercial airplane portfolio that ranges from 70 seats to more than 450 seats and freighters, the company said in a statement.

In addition, both companies will create another joint venture to develop new markets for defense products and services, especially the KC-390, which is the new military transport aircraft from Embraer

"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 of financial and investor relations.

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