Boeing reportedly seeking control of Embraer, with defense safeguards

The U.S. plane maker is arguing that it can operate defense businesses without compromising military plans. The Brazilian government, which originally objected to the deal, is now suggesting it has some flexibility on the control issue.

Boeing is seeking control of Embraer of Brazil while offering the Brazilian government safeguards concerning the company’s defense unit, people familiar with the matter said.

The U.S. plane maker is arguing that deals it has made in Australia and the U.K. show that it can operate defense businesses without compromising military plans, said the people, who asked not to be named because the talks are private. Brazil, which signaled opposition to an acquisition last month, is now suggesting it has some flexibility on the control issue, the people said.

Representatives from both companies and Brazil’s government are exploring defense protections that would still give Boeing full access to Embraer’s product lineup. Boeing is also pledging to retain the Embraer brand while enlisting the Brazilian company’s engineers on programs such as the potential development of a jetliner known as the “new midmarket airplane,” said the people.

The government has no problem selling the Brazilian state’s stake in Embraer but is unwilling to give up its “golden share,” said a presidential aide who is familiar with the talks. The golden share gives the government veto power over a change in control at Embraer as well as major strategic decisions about the company’s defense operations.

Embraer’s American depositary receipts climbed 4.1 percent Wednesday, giving the company a market value of $4.9 billion.

BNDESpar, the Brazilian state development bank’s investment arm, is among Embraer’s largest shareholders, with a 5.4 percent stake, according to the company’s website.

Other investors include state-controlled banks Banco do Brasil and Caixa Economica Federal, according to data compiled by Bloomberg.

Boeing and Embraer are pushing for an agreement with the Brazilian government soon since there’s a risk that political opposition would mount before the South American country’s presidential election later this year, the people said.

Boeing also wants to get Embraer engineers started as soon as possible on the project to develop the new aircraft.

A deal would give Boeing an aircraft offering in the 100-seat category to counter a new threat from Airbus, which agreed in…

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