Brazil to maintain control over Embraer

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Brazilian President Michel Temer on Friday ruled out relinquishing government control over aircraft manufacturer Embraer but said partnership talks with Boeing were welcome. “We welcome an injection of foreign capital. What we are not considering is the question of transferring” control, Temer said in Brasilia. The government holds a so-called golden share in Embraer, the world’s third biggest airplane builder.

Embraer and the US aerospace giant announced Thursday that merger talks were underway, triggering an immediate sharp rise in the Brazilian company’s share price. A merger between the two companies would build on their existing alliance on the KC-39 military plane and would permit the much-bigger Boeing to fill a gap in its fleet with regional single-aisle planes.

Crucially, a transaction also would respond to an alliance between Boeing archival Airbus and Canada’s Bombardier to build smaller planes. However the political sensitivity over Embraer’s ownership and immediate opposition from the local trade union means that Boeing is more likely to seek something less than a full takeover, such as a joint venture.

Brazilian Defense Minister Raul Jungmann emphasized the strategic importance of the company, which builds both military and civilian planes. Embraer is also one of the chief sources of economic pride in a country just coming out of a severe recession and whose flagship oil company Petrobras has been badly damaged by graft scandals.

“Our position is positive about this and other commercial partnerships,” Jungmann said. However, with its “major defense component,” Embraer cannot be fully sold off. Canaccord Genuity, a US financial services firm, said in an analysis note that while Boeing is looking to defend itself against the Airbus-Bombardier tie-up, a deal with Embraer might not work out.

“We are not surprised the two companies have held talks, but we view an eventual agreement as unlikely, and we do not see the benefit for Boeing aside from as a defensive move,” the note said.

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