Brazil excludes to cede control of Embraer to Boeing

The brazilian government is not opposed to a partnership with Embraer with a foreign group but not to cede control to Boeing (Photo ERIC PIERMONT. AFP)

The brazilian government is not opposed to a partnership with Embraer with a foreign group, but exclude to relinquish control of this aircraft manufacturer strategic, said on Friday president Michel Temer in the aftermath of the announcement of talks with the American Boeing (NYSE:BA).

Its Defense minister Raul Jungmann has also said that there was no question for Brasilia to lose control of the flagship of the industry of the country which also produces military aircraft, citing national sovereignty.

“Any contribution of foreign capital is welcome”, as “any partnership agreement”, said Mr. Temer to journalists, but “the transfer of control is not in discussion,” he added in reference to the “golden share” owned by Brasilia in Embraer.

The aircraft manufacturer, the brazilian and the aircraft manufacturer Boeing had announced Thursday that talks for closer ties, less than three months after the formalization of a partnership between the european Airbus (PA:AIR) and canadian Bombardier (TO:BBDb).

They had, however, noted cautiously that”there is no guarantee that these discussions will lead to an agreement”, stressing that “any transaction would be subject to the approval of the brazilian government and their regulatory authorities, as well as of the boards of directors of both companies and to the shareholders of Embraer”.

Mr. Temer has thus confirmed the fear of the two manufacturers to see Brasilia oppose, purely and simply to a loss of control of Aircraft by using its “golden share”. This preference share gives him a right of veto on strategic decisions, where its sovereignty is at stake.

The minister of Defence, who was with Mr. Temer, abounded, insisting on “strong defence” of the group Embraer, the third manufacturer in the world.

“A transfer of control of the capital would serve the interests of our national sovereignty,” said Dr. Jungmann. The minister added that “the search for business partnerships is quite welcome” for this “government, which has a positioning pro-market”.

– Jewel of Brazil –

On Thursday, the announcement of discussions on a merger of the two manufacturers was not well received by the trade Union of the metallurgy, which was immediately rejected.

“Embraer employs 16,000 people (…) and its acquisition by Boeing would jeopardize those jobs and into manufacturing (appliances) in the country”, had indicated to the union in a press release.

Presidential statements on Friday have to do yo-yo between the green and the red to the action of Embraer, who had jumped up on the eve of 21%, then the price stabilized at around +2%.

With six billion of sales in 2016, Embraer, which was privatised in 1994, is one of the jewels of Brazil with a range of aircraft, civilian, military, but also business jets.

The aviation sector remains highly strategic for Brazil, even if it is hard for the research money to fill its coffers emptied by two years of recession.

The company is leader in the segment of devices with up to 150 seats, with 30% of the market. It delivers approximately 200 aircraft per year, private jets or airliners.

Embraer has a branch in Defence, with models like the A-29 Super Tucano for strike missions or training, and the KC-390, for the military transport.

For Boeing, an agreement with Embraer would regain ground in the face of Airbus. The european, in the lead in the segment of medium-haul remotorisés, announced in mid-October a strategic partnership with canadian Bombardier on the CSeries.

Embraer has launched in 2013 the family E-Jets E2, a new generation of devices whose entry into service is planned from 2018, and who are the future competitors to the CSeries.

The analysts of the american firm Canaccord Genuity have estimated in a note that if Boeing tried with Embraer to make part of the agreement Airbus-Bombardier, a reconciliation would not work.

“We are not surprised that the two manufacturers have been discussions, but any agreement is unlikely and we do not see the benefits that Boeing could take”, they wrote.

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