A possible partnership between U.S. aerospace major Boeing and Brazilian planemaker Embraer could be in the offing, according to both companies.
The “potential combination” mentioned by the companies includes the possibility of a joint venture type deal that would technically circumvent a takeover bid that might see political hurdles, said a source on condition of anonymity.
Two months ago, European aircraft maker Airbus made a deal with Bombardier to take control of its CSeries division.
The Boeing-Embraer deal could now create a duopoly in the market, with both companies extending their reach into the competitive but lucrative small jet segment.
There are several reasons why an acquisition may not be on the cards.
For one, Brazil owns a “golden share” in Embraer that allows it to veto potential acquisitions. According to a local newspaper, Brazilian President Michel Temer has already indicated to defense officials that he will not allow control over Embraer to change hands.
Second, Boeing has seen its stock rise in the last year because of its ability to give back to shareholders in the form of dividends and share buybacks. An acquisition is the last thing investors would want at this time, considering that this would be the largest acquisition since the McDonnell Douglas Corp. back in 1997, which cost more than $13 billion.
That leaves a JV as the most viable option at this point, and one that Boeing will most certainly leverage against its European rival.
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