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12th June 2018

Embraer SA jumped the most in two months as its proposed commercial-jet venture with Boeing Co. cleared a major hurdle.

Brazilian President Michel Temer has endorsed the partnership in principle, said a person familiar with the discussions, a crucial step since the Brazilian government has veto power over any Embraer tie-up. The talks will potentially conclude within weeks, said a second person, who asked not be named because the discussions are private.

Boeing and Embraer are getting closer to a pact that would forge the second global alliance between major airplane manufacturers. Airbus SE is set to take control on 1st July of Bombardier Inc.’s C Series single-aisle jetliner, a direct rival of Embraer’s next generation of planes. The twin deals are set to turn the market for a new generation of 100- to 150-seat planes into the next battleground in the broader struggle between Boeing and Airbus. Embraer’s American depositary receipts jumped 5.9 percent to US$26.37 at the close in New York, the most in two months. Boeing was little changed at US$370.62.

Temer gave his blessing after Brazil’s Air Force, defense minister and secretary of strategic affairs approved the deal, said the person familiar with the president’s deliberations. Negotiators for Boeing and Embraer have reached agreement on most issues and are now discussing some remaining details that amount to about 10 percent of the terms, the person said.

Commercial Planes

The planemakers have been crafting a commercial joint venture, to be controlled by Chicago-based Boeing, that would combine their marketing, manufacturing and engineering prowess. Embraer’s defense unit, considered one of Brazil’s industrial jewels, would remain a separate company.

Embraer would gain clout in tamping down supplier costs, and a global sales force to help its E-Jets compete with the Airbus team touting the C Series. Boeing would gain greater access to a lower-cost manufacturing center outside the U.S., along with seasoned engineers as it marshals resources for a new mid-range airliner.

Source: Bloomberg

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