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Boeing & Embraer's Partnership Deal Put Off Till Early 2020

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Per major media sources, the completion of the ongoing joint venture (JV) between The Boeing Company (BA - Free Report) and Embraer S.A. (ERJ - Free Report) has been delayed to early 2020 from the earlier expected timing of 2019-end. This is due to the time required by the European Commission for an extensive investigation on antitrust grounds.

Notably, both companies signed the JV in July last year, per which Boeing was offered an 80% controlling stake worth $3.8 billion at Embraer’s commercial jet business.

Benefits of the Proposed Joint Venture

The commercial aviation JV represents the biggest realignment in the global aerospace market in decades, further strengthening Boeing’s commercial businesses against arch-rival Airbus and the emerging aerospace companies from China, Russia and Japan. The proposed partnership is expected to generate annual pre-tax cost synergies of approximately $150 million by the third year.

The strategic partnership is expected to be beneficial for both companies, bolstering their positions in the global commercial jet market. The venture aligns with Boeing's long-term strategy of investing in organic growth and returning value to shareholders, complemented by favorable strategic arrangements.

Further, the partnership is expected to improve Embraer’s cash position by approximately $1 billion, on deal closure, creating more investment opportunities in upcoming projects.

Another Prospective JV Lies Ahead

Boeing and Embraer are currently progressing toward inking another JV for developing new markets for the KC-390 multi-mission military aircraft, based on jointly-identified opportunities. Within this venture, Embraer will own a 51% stake and Boeing the remaining 49%. Additional investments in the global marketing of the KC-390 along with a series of agreements in various other fields will enhance both companies' footprint in the global military aircraft market.

Our View

Once the commercial aviation JV agreement closes, as expected in early 2020, both companies will benefit from a broader operational scale, additional resources and worldwide footprint that will enable them to win more contracts from varied airlines across the globe. This partnership is also expected to give Airbus, which recently bought a controlling stake in the Canadian jet maker, Bombardier’s C Series Aircraft unit, a tough competition.

Going ahead, the partnership is also likely to compete with General Dynamics Corp (GD - Free Report) and Textron Inc (TXT - Free Report) , which manufacture business jets.

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