Yesterday afternoon, The Wall Street Journal published an article stating that “Boeing is in takeover talks with Brazilian aircraft manufacturer Embraer.” The news blindsided the Brazilian government, which owns a stake in Embraer and has the power to veto such a deal. President Michel Temer is open to an agreement, as long as it doesn’t involve handing control over the company to the Americans. Temer has said that “as long as [he is] President, Embraer won’t be sold.”
Originally a state-owned company created in 1969, the Brazilian manufacturer was privatized in 1994. Since then, the Brazilian owns little more than 5 percent of the company’s stake. Still, it holds a so-called “golden share” – which gives the government a say on any strategic decisions (and, more importantly, the power to veto).
The talks between both companies began after Canada’s Bombardier and France’s Airbus announced a partnership, back in October.
The government’s military advisors had noticed an “unusual movement in Brasília of executives and lobbyists” connected to the American company over the past few months. Nevertheless, the government didn’t know anything about these talks. Boeing is reportedly seeking an association deal, foreseeing that the Brazilian government would not be inclined to accept a takeover. The Brazilian Air Force called Embraer a “strategic and pivotal company for [Brazil’s] national sovereignty.”
This piece of news made Embraer shares take off. At one point during the day, the spike was 40 percent, but it closed the day at 22.5 percent. According to aviation expert André Castellini, from Brain & Company, the most probable deal between Boeing and Embraer would be a partnership specifically designed for regional aviation.
Embraer and the Brazilian government
Twenty-five years ago, the company was close to bankruptcy. Now, its biggest shareholder is U.S. investment fund Brandes; 64 percent of shares are diluted among thousands of individuals and companies. Since being privatized, the company rose to being the third-largest plane manufacturer in the world – and leader of the regional aviation segment.
Last year, Embraer agreed to pay $205 million in fines to U.S. and Brazilian authorities to settle a bribery investigation involving plane sales in Saudi Arabia, India, and the Dominican Republic. The company admitted to paying kickbacks to numerous officials and falsifying its records regarding the sales of 16 planes.