Embraer and Boeing have approved to the terms of a strategic partnership that would position both companies to accelerate growth in global aerospace markets.
The approved terms define the joint venture comprising the commercial aircraft and services operations of Embraer, in which Boeing will hold an 80 percent ownership stake and Embraer will hold the remaining 20 percent. The transaction remains subject to approval by the Government of Brazil, after which Embraer and Boeing intend to execute definitive transaction documents. The closing of the transaction will then be subject to shareholder and regulatory approvals and customary closing conditions.
Under the terms of the proposed partnership, Boeing will acquire an 80 percent ownership stake in the joint venture for $4.2 billion. The partnership is expected to be neutral to Boeing's earnings per share in 2020 and accretive thereafter. Estimated annual pre-tax cost synergies of approximately $150 million are anticipated by the third year of operations.
Once the transaction has closed, the commercial aviation joint venture will be led by Brazil-based management, including a president and chief executive officer. Boeing will have operational and management control of the new company, which will report directly to Dennis Muilenburg, Boeing chairman, president and chief executive officer. Embraer will retain consent rights for certain strategic decisions, such as transfer of operations from Brazil.
"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," said Dennis Muilenburg, Boeing chairman, president and chief executive officer. According to a regulatory filing, Boeing entered into a $2.61 billion, 364-day revolving credit agreement (the “364-Day Credit Agreement”) with Citigroup, N.A. (“Citibank”) and JPMorgan Chase Bank, N.A. as joint lead arrangers and joint book managers, JPMorgan Chase Bank, N.A. as syndication agent and Citibank as administrative agent, and a syndicate of lenders as defined in the 364-Day Credit Agreement. This facility replaces Boeing’s previous 364-day credit agreement, which was scheduled to terminate on October 31, 2018.
The 364-Day Credit Agreement is scheduled to terminate on October 30, 2019, subject to Boeing’s right to extend the term for an additional 364 days or, following payment of additional fees, convert outstanding borrowings into term loans with a maturity date that is the one-year anniversary of the termination date.
"We are confident that this partnership will deliver great value to Brazil and the Brazilian aerospace industry as a whole. This alliance will strengthen both companies in the global market and is aligned with our long-term sustainable growth strategy," said Paulo Cesar de Souza e Silva, Embraer president and chief executive officer.
The companies have also agreed to the terms of another joint venture to promote and develop new markets for the multi-mission medium airlift KC-390. Under the terms of this proposed partnership, Embraer will own a 51 percent stake in the joint venture, with Boeing owning the remaining 49 percent.
The transaction is subject to approval by the Government of Brazil, ratification by the Embraer Board of Directors and its further authorization to execute the definitive transaction documents. Once the parties have executed the definitive transaction agreements, the strategic partnership will then be subject to shareholder and regulatory approvals, as well as other customary closing conditions. Assuming the approvals are received in a timely manner, the transaction is intended to close by the end of 2019.