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21 Dec 17. Here’s how a Boeing takeover of Embraer could play out. Boeing is engaged in talks with Embraer over acquiring the Brazilian aerospace firm, the companies confirmed Thursday.
If allowed to proceed, Boeing would gain several new military aircraft, including Embraer’s Super Tucano turboprop and its KC-390 transport aircraft. Analysts were hesitant to say there would be any real benefit for Boeing’s defense business, but it would widen the U.S. aerospace giant’s portfolio in some unexpected ways.
The companies are allegedly discussing a deal that would put a premium on Embraer’s $3.7bn market value, according to the Wall Street Journal, which broke the news Thursday. Citing sources familiar with the talks, WSJ said the matter had been put on hold as the companies await approval from the Brazilian government.
Boeing and Embraer have confirmed the two companies “are engaged in discussions regarding a potential combination, the basis of which remains under discussion,” according to a statement made to reporters after the WSJ story broke.
“Any transaction would be subject to the approval of the Brazilian government and regulators, the two companies’ boards and Embraer’s shareholders,” the companies said.
It appears such approval may be hard won, if it comes at all. After being informed of the potential acquisition, Brazilian President Michel Temer said he would only be open to a deal that does not give Boeing full control of Embraer, according to the Brazilian newspaper Fohla de Sao Paolo.
A deal could benefit Embraer more than Boeing, as it would allow the Brazilian firm to harness the marketing power and global reach of the world’s largest aerospace company, said Byron Callan, a defense analyst at Capital Alpha Partners. But it could have significant advantages for Boeing as well.
“It would be a credible product line extension,” he said. “You’re not talking about big numbers from a financial standpoint, but from a strategic standpoint … it would certainly represent a product line extension that no one else would have right now.”
Even if Temer changes his mind, Boeing may decide to walk away from the deal due to the reportedly high premium being put on Embraer’s value, said Richard Aboulafia, an aerospace analyst at the Teal Group.
“From the defense side, the most interesting aspect would be Boeing selling the KC-390 military transport aircraft both to the U.S. and abroad. That would be significant,” Aboulafia said.
Embraer has cemented Brazil as a launch customer for the KC-390 — a multirole twin-engine plane designed for missions such as aerial refueling, transporting troops and fire support — but the company has struggled to find a follow-on buyer. Boeing and Embraer reached an agreement in 2016 to jointly market the aircraft internationally, but the U.S. aerospace company has so far taken a backseat role.
“Does Boeing take that airplane and maybe market more aggressively in the United States?” Callan wondered. “If you think about the global reach of Boeing and what it might be able to do with that airplane, it could give more competition in the C-130J in the global market.”
Getting Big Army or Air Force to sign onto a KC-390 contract would be a long shot, given the service’s longstanding procurement of Lockheed Martin’s C-130 Hercules, but it could break into the U.S. market through Special Operations Command, Aboulafia said.
“That would be a very nice endorsement,” he said.
The acquisition would also allow KC-390 customers to tap into Boeing’s global sustainment enterprise, which could also be a selling point, he added.
However, Aboulafia and Callan were at odds on whether other Embraer military aircraft would prove equally promising.