Boeing and Embraer Sign MOU to Form JV

Boeing and Embraer have signed a Memorandum of Understanding to establish a strategic partnership.

The non-binding agreement proposes the formation of a joint venture comprising the commercial aircraft and services business of Embraer that would strategically align with Boeing's commercial development, production, marketing and lifecycle services operations.

Under the terms of the agreement, Boeing will hold an 80 percent ownership stake in the joint venture and Embraer will own the remaining 20 percent stake.

"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 Dennis Muilenburg, Boeing's Chairman, President and Chief Executive Officer. "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."

The transaction values 100 percent of Embraer's commercial aircraft operations at $4.75 billion, and contemplates a value of $3.8 billion for Boeing's 80 percent ownership stake in the joint venture.

The proposed partnership is expected to be accretive to Boeing's earnings per share beginning in 2020 and to generate estimated annual pre-tax cost synergies of approximately $150 million by year three.

On finalization, the commercial aviation joint venture will be led by Brazil-based management, including a President and Chief Executive Officer. Boeing will have operational and management control of the new company, which will report directly to Muilenburg.

The joint venture will become one of Boeing's centers of excellence for end-to-end design, manufacturing, and support of commercial passenger aircraft, and will be fully integrated into Boeing's broader production and supply chain.

"The agreement with Boeing will create the most important strategic partnership in the aerospace industry, strengthening both companies' leadership in the global market," said Paulo Cesar de Souza e Silva, Embraer Chief Executive Officer and President. "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."

In addition, both companies will create another joint venture to promote and develop new markets and applications for defense products and services, especially the KC-390 multi-mission aircraft, based on jointly-identified opportunities.

"Joint investments in the global marketing of the KC-390, as well as a series of specific agreements in the fields of engineering, research and development and the supply chain, will enhance mutual benefits and further enhance the competitiveness of Boeing and Embraer," said Nelson Salgado, Embraer's Executive Vice President, Financial and Investor Relations.

Finalization of the financial and operational details of the strategic partnership and negotiation of definitive transaction agreements are expected to continue in the coming months. Upon execution of these agreements, the transaction would then be subject to shareholder and regulatory approvals, including approval from the Government of Brazil, as well as other customary closing conditions. Assuming the approvals are received in a timely manner, the transaction is expected to close by the end of 2019, 12-18 months after execution of the definitive agreements.

"This strategic partnership is a natural evolution of the long-standing history of collaboration between Boeing and Embraer on a range of aerospace initiatives over almost three decades," said Greg Smith, Boeing Chief Financial Officer and Executive Vice President of Enterprise Strategy & Performance. "It is aligned with Boeing's enterprise strategy of pursuing strategic investment opportunities where they demonstrate real value and accelerate our organic growth plans. This partnership will strengthen the vertical capabilities of Boeing and enhance value for our customers through the full lifecycle of industry-leading products and services."

The transaction is not expected to have an impact on Boeing and Embraer financial guidance for 2018 or Boeing's cash deployment strategy and commitment to returning approximately 100 percent of free cash flow to shareholders.

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