Brazil: Boeing-Embraer deal likely as defense fears soothed

Bloomberg

The Brazilian government is “optimistic” about a deal between Boeing and Embraer and initial concerns about the potential military impact have been overcome, the country’s defense chief said. The South American plane-maker rallied.

Defense Minister Joaquim Silva e Luna said he’s hopeful that talks between the two companies will wrap up by the end of the year, when the term of the current government expires. He said there have been no setbacks in the negotiations.

“All of us, Boeing and Embraer too, are optimistic,” he said in his office in Brasilia. “There was concern about preserving investments in our defense base, so that strategic projects wouldn’t be interrupted. That has been overcome.”

Embraer advanced 1.5 percent to 22.95 reais at 2:03 p.m. in Sao Paulo. Boeing climbed less than 1 percent to $356.90. The Sao Jose dos Campos, Brazil-based company declined to comment while its U.S. counterpart said talks were are ongoing and productive.

Silva e Luna’s previous comments to Bloomberg in April about the deal marked a change of tone at the defense ministry, which had been cautious about ceding control of Embraer, an industrial champion and crucial supplier of military hardware. The Brazilian government controls a so-called golden share that gives it veto power over any tie-up.

Last month, Embraer reported quarterly sales had slipped below $1 billion for the first time in eight years. At the time, Chief Executive Officer Paulo Cesar de Souza e Silva said that talks were advanced and that negotiations were “going well.” He also declined to set a deadline for a possible deal. The companies said they were in talks in December, and the expected agreement has been delayed several times, from the first quarter to the first half of 2018.

How much each side will own of the resulting company is under discussion and will depend on how much money each party has to invest in the joint venture, the minister said. “We don’t know how we’ll split or join assets, but the tendency is that there’s a marriage,” Silva e Luna said.