Boeing and Embraer move closer to major commercial jet alliance

Aircraft makers Boeing (BA) and Embraer are close to entering into a strategic tie-up, creating synergies that would give them a significant competitive advantage over European rival Airbus. Taking forward the much-anticipated deal, the companies this week completed preparation of the contract, which is expected to be submitted to the Brazilian government soon for sanction.

The approval is crucial for the merger because important decisions pertaining to Embraer are still taken by the government, though it was privatized around 25 years ago.

The partnership assumes significance for the fact that it coincides with a similar deal elsewhere, in which Airbus officially took over the C Series commercial aircraft program of Canadian plane-maker Bombardier. The latest developments indicate the race for market supremacy between the world’s largest aircraft makers would escalate in the coming months. Interestingly, Boeing and C Series were entangled in a trade dispute a few months ago.

The companies are expected to submit a memorandum of understanding to the Brazilian government  for sanction

The partnerships have created a level playing field for Boeing and Airbus, for they will now be capable of taking on each other with a full range of commercial aircraft. The future will be determined by their ability to make the best of the respective collaborations.

On completion of the strategic deal with Embraer, Boeing will hold majority stake in the combined entity. Meanwhile, the Brazilian firm will continue to control its military arm and probably the division that builds business jets. The arrangement was made after the Brazilian government objected to an initial proposal, under which Boeing planned to acquire the whole of Embraer, as it did not want a foreign company to take control of the defense division.

It is learned that the deal got delayed due to the complex process involved in splitting Embraer’s three segments. The details of allotting the company’s workforce to the two divisions controlled by Boeing and the third one under Embraer are included in the memorandum of understanding to be submitted to the government. The negotiations between Boeing and Embraer, to forge a partnership for the production of commercial aircraft, began more than two months ago.

Boeing shares, which gained 13% since the beginning of the year, opened Tuesday’s trading slightly higher.