Boeing flags controlling interest in Embraer commercial jet unit

First it was Airbus and Canada's Bombardier, now it’s Boeing and Brazil’s Embraer. Boeing and Embraer Wednesday announced a not unexpected deal to establish a strategic partnership that “positions both companies to accelerate growth in global aerospace markets’. Assuming they get the necessary approvals, they expect the marriage to be consummated by the end of 2019. The agreement is not binding but it proposes the formation of a joint venture in the commercial aircraft and services business of Embraer that would strategically align with Boeing's operations. Boeing will hold a controlling 80 percent ownership stake in the joint venture and Embraer will own the remaining 20 percent stake. The transaction values 100 percent of Embraer's commercial aircraft operations at $US4.75 billion and contemplates a value of $US3.8 billion for Boeing's 80 percent ownership stake in the joint venture. Boeing expects the partnership to boost its earnings per share from  2020 and generate estimated annual pre-tax cost synergies of approximately $US150 million by the third year. "By forging this strategic partnership, we will be ideally positioned to generate significant value for both companies' customers, employees and shareholders – and for Brazil and the United States," said Boeing chief executive  Dennis Muilenburg. "This important partnership clearly aligns with Boeing's long-term strategy of investing in organic growth and returning value to shareholders, complemented by strategic arrangements that enhance and accelerate our growth plans.’’ Embraer chief executive officer Cesar de Souza e Silva added: "The agreement with Boeing will create the most important strategic partnership in the aerospace industry, strengthening both companies' leadership in the global market. "The business combination with Boeing is expected to create a virtuous cycle for the Brazilian aerospace industry, increasing its sales potential, production, creating jobs and income, investments and exports, and in doing so, adding more value to customers, shareholders and employees." The manufacturers said a finalized agreement would see the joint venture led by a Brazil-based management, including a president and chief executive. Boeing would have operational and management control of the new company, which would report directly to Muilenburg. The deal will allow Boeing to compete with Airbus-Bombardier in the lower end of the single-aisle market, pitting Embraer’s E2 aircraft against Bombardier’s C Series. READ:  Embraer E190-E2 certified by Brazil, Europe and the US. The companies said they also plan to create another joint venture to promote and develop new markets and applications for defense products and services, especially the KC-390 multi-mission aircraft. They expect to finalize the financial and operational details of the strategic partnership in the coming months. It will then be subject to shareholder and regulatory approvals, including approval from the Government of Brazil. The manufacturers said the transaction would have no impact on either company’s financial guidance for 2018 or Boeing’s plans to return free cash flow to shareholders.