BRASILIA: Boeing Co is working to overcome the Brazilian military’s objections to its proposed tie-up with Embraer SA with alternatives that would preserve the government’s strategic veto rights and ensure safeguards for its defence programmes, four people familiar with the matter said.
The US planemaker was forced back to the drawing board after Brazilian officials balked last week at the idea of turning Embraer into a subsidiary such as those that Boeing operates in Australia and Britain, according to the sources, who requested anonymity to discuss the negotiations freely.
“Boeing came to buy Embraer, not for a partnership or a joint venture that we are open to, but to take control of the company. This was rejected,” said one of the sources, a government official. “It is up to Boeing to come back with a new proposal.”
Boeing’s proposed tie-up with Embraer, the world’s third largest planemaker, would give it a leading share of the 70- to 130-seat market and create stiffer competition for the CSeries programme designed by Canada’s Bombardier Inc and run by European rival Airbus SE since last year.
Since the news broke last month that it was in talks with Boeing, Embraer’s shares are up 22 per cent in New York, where 51 per cent of its stock is listed, bringing its market capitalisation to $4.6 billion.
Boeing’s proposal would value the company at $5 billion to $6 billion, a person familiar with the negotiations said. New York-listed shares in Embraer, which were down 1.6 per cent in afternoon trading, erased losses after the Reuters report to gain as much as 0.5 per cent.
Boeing’s plan has snagged on concerns in Brasilia that Washington would get final say over Brazilian defence programmes and use of technology developed in the country, including satellite and air-traffic control systems. The Brazilian government holds a ‘golden share’ in Embraer giving it veto power over strategic decisions involving military programmes and any change in its controlling interest.
Boeing would be willing to preserve the government’s golden share in Embraer, the people familiar with the matter said, but that may not be enough to win support. Embraer and Boeing declined to comment on the matter.
Representatives for the Defense Ministry, which is coordinating talks with the government, did not immediately reply to requests for comment.
Officials at the Finance Ministry and development bank BNDES, which owns 5 per cent of the planemaker, have been supportive of the deal, but military officials are far more sceptical, according to the sources. The BNDES declined comment and the ministry did not respond to a request for comment.
“The Air Force is the main source of resistance,” said an aide to President Michel Temer. “The military oppose any split up of Embraer.” The aide said Jungmann has not yet made a recommendation on the Boeing deal to the president. — Reuters
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