Boeing [BA] and Brazil’s Embraer [ERJ] have finalized agreements on joint ventures for the KC-390 multi-mission medium airlift aircraft and commercial aviation, with the deals expected to close by the end of 2019.
Embraer will have a controlling interest, 51 percent, in the joint venture for the KC-390 that will be focused on development, manufacture and sales for new markets and applications. A Boeing spokesman told Defense Daily the “economic terms” of the joint venture are still being worked out.
A release issued by Embraer said that under terms of the joint venture agreement, both companies will contribute cash and assets. The Brazilian government will continue to own special shares in the joint venture that will be headquartered in Brazil.
The KC-390 has already achieved initial operating capability with Brazil’s air force and is in testing toward final operational capability in the fourth quarter of 2019. The aircraft can be modified for cargo, transport, aerial refueling, search and rescue, and firefighting missions.
Boeing’s KC-46 aerial refueling tanker is in low rate production, but the Air Force hasn’t accepted deliveries of the aircraft until certain deficiencies are corrected. The KC-46 can carry a lot more fuel than the KC-390. Boeing also built the C-17 transport for the Air Force.
The tie-up for the KC-390 is exclusive to the aircraft and doesn’t include Embraer’s other defense systems and products, such as the A-29 Super Tucano light attack aircraft.
The KC-390 and commercial aviation joint ventures still require approvals by regulators, Brazil’s government, and Embraer’s directors and shareholders.
Boeing will acquire an 80 percent stake in the commercial venture, which is valued at nearly $5.3 billion overall. Boeing’s Brazil subsidiary will issue new shares and acquire existing shares directly from Embraer for a total cost of $4.2 billion.
When initial plans for the joint ventures were announced in July, Embraer’s commercial aircraft operations were valued at $4.8 billion.
“Boeing and Embraer know each other well through more than two decades of collaboration, and the respect we have for each other and the value we see in this partnership has only increased since we announced our joint efforts earlier this year,” Boeing Chairman, President and CEO Dennis Muilenburg said in a statement.
Boeing said the commercial joint venture will be neutral to its earnings per share in 2020 and accretive thereafter. The company expects annual pre-tax cost savings of about $150 million by the third year of operations.
For Boeing, the commercial tie up with Embraer gives it a product line for smaller, regional planes that typically carry fewer than 150 passengers. Boeing’s existing line up of passenger aircraft typically carries more than 150 people.
Management of the commercial venture will be based in Brazil and include a president and CEO. Boeing will control operations and management of the company, which will report to Muilenburg.
Embraer will retain rights for some strategic decision such as transfer of operations from Brazil.