Boeing Is Said to Seek Embraer Control, With Defense Protections

(Bloomberg) -- Boeing Co. is seeking control of Embraer SA while offering the Brazilian government safeguards concerning the company’s defense unit, people familiar with the matter said.

The U.S. planemaker is arguing that deals it has made in Australia and the U.K. show that it can operate defense businesses without compromising military plans, said the people, who asked not to be named because the talks are private. Brazil, which signaled opposition to an acquisition last month, is now suggesting it has some flexibility on the control issue, the people said.

Representatives from both companies and Brazil’s government are exploring defense protections that would still give Boeing full access to Embraer’s product lineup. Boeing is also pledging to retain the Embraer brand while enlisting the Brazilian company’s engineers on programs such as the potential development of a jetliner known as the “new mid-market airplane,” said the people.

The government has no problem selling the Brazilian state’s stake in Embraer but is unwilling to give up its “golden share,” said a presidential aide who is familiar with the talks. The golden share gives the government veto power over a change in control at Embraer as well as major strategic decisions about the company’s defense operations.

Embraer’s American depositary receipts climbed 4.1 percent to $26.26 at 3:26 p.m. in New York, giving the company a market value of $4.9 billion. They advanced as much as 5.5 percent after the Bloomberg News report on the latest discussions. Boeing was little changed at $296.75.

Political Risk

BNDESpar, the Brazilian state development bank’s investment arm, is among Embraer’s largest shareholders, with a 5.4 percent stake, according to the company’s website. Other investors include state-controlled banks Banco do Brasil SA and Caixa Economica Federal SA, according to data compiled by Bloomberg.

Boeing and Embraer are pushing for an agreement with the Brazilian government soon since there’s a risk that political opposition would mount ahead of the South American country’s presidential election later this year, the people said. Boeing also wants to get Embraer engineers started as soon as possible on the project to develop the new aircraft.

A deal would give Boeing an aircraft offering in the 100-seat category to counter a new threat from Airbus SE, which agreed in October to take control of Bombardier Inc.’s C Series program. The Canadian jet, which competes with Embraer’s largest commercial planes, is the target of a U.S. trade complaint brought by Boeing.

Boeing and Embraer declined to comment. Brazil’s Defense Ministry didn’t immediately respond to a request for comment.

--With assistance from Simone Iglesias and Vinícius Andrade

To contact the reporters on this story: Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net, Samy Adghirni in Brasilia Newsroom at sadghirni@bloomberg.net, Richard Clough in New York at rclough9@bloomberg.net.

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Crayton Harrison at tharrison5@bloomberg.net, Tony Robinson

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