PARIS (Reuters) – Boeing Co (BA.N) is eyeing a broad partnership with Embraer (EMBR3.SA) reaching beyond commercial aircraft to defense and global services, but its shape hinges on talks with the Brazilian government.
The U.S. aerospace group has yet to make a formal offer and its final structure would be driven by talks that are expected to resume in coming weeks – but sources say the aim is to go well beyond traditional joint ventures or an equity infusion.
“A broader combination would be preferred but Boeing is sensitive to concerns the government may have about issues like defense. If those can be addressed … this deal can get done,” a person with direct knowledge of the discussions said.
Political obstacles to a deal have eased since a U.S. spying scandal helped derail a Boeing fighter sale to Brazil in 2013.
Brazilian President Michel Temer, who took office last year, has pushed a market-friendly agenda aimed at privatizing utilities and reducing the government’s role in state-run firms.
But Temer has been wrestling with single-digit poll ratings and officials have warned they would veto any full bid.
“The companies are now working through the regulatory issues with the government of Brazil. The defense portfolio would be handled in accordance with the government of Brazil and the golden share and discussions are ongoing,” the person said.
A tie-up would round out Boeing’s commercial portfolio at the lower end where sales have been slow, and echo a venture between Airbus and Canada’s Bombardier on the CSeries jet.
Analysts say Embraer would value access to the U.S. defense market while Boeing hopes to steady a defense portfolio weakened by slow fighter sales and the end of C-17 transport production, although there are many hurdles to full military co-operation.
“It gives Embraer access to Boeing’s balance sheet, greater access to U.S. defense and international markets and alignment of a global supply chain and services,” the person said.
“It’s a growth play that would result in more planes being built in Brazil due to more sales volume from a stronger combined portfolio and with broader benefits to the customer.”
Observers say the two managements are culturally close and broadly in step on issues like trade, where they are waging parallel battles against alleged Bombardier subsidies.
A tie-up is also not expected to strain Boeing financially.
But with pride at stake and Brazil still limping out of severe recession, any deal is expected to depend on cast-iron assurances over autonomy and jobs.
“It would not be Boeing plus Embraer with a small ‘e’. Embraer would keep its brand identity, management and jobs footprint,” the person said.
Boeing said on Friday it respected the need to safeguard the company’s defense and other state links.
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