January 21, 2013 / 1:00 PM / 5 years ago

UPDATE 2-Embraer, Finmeccanica unit discuss making helicopters in Brazil

* Italy’s AgustaWestland and Brazilian planemaker propose JV

* Eyeing demand in military, executive, offshore transport

By Brad Haynes and Danilo Masoni

SAO PAULO/MILAN, Jan 21 (Reuters) - Brazilian planemaker Embraer SA and a unit of Italy’s Finmeccanica SpA said on Monday they plan to form a joint venture within months to produce helicopters in Brazil for military and commercial use in Latin America.

Preliminary studies by AgustaWestland and Embraer show a promising market for midsize twin engine helicopters to service a growing number of remote oil rigs off the Brazilian coast. Brazil’s growing defense budget and private demand in traffic-choked cities also present opportunities, they said in a filing.

The scope of the partnership is still being defined, but the proposal is to customize and produce AgustaWestland helicopters and some of their components in Brazil for sale throughout the region, according to company press offices. Talks have left open the possibility of eventually developing new helicopters.

Shares of Embraer rose 0.3 percent in Sao Paulo trading, while the benchmark Bovespa stock index lost 0.2 percent. Finmeccanica shares fell 0.9 percent, paring earlier losses after ratings agency Standard & Poor’s cut its debt rating to junk on Friday.

AgustaWestland already has joint ventures in Russia, India and China and the new deal, part of a long-standing strategy of expansion into emerging markets, would complete its presence in the so-called BRIC bloc, a spokesperson said.

For Embraer the announcement marks another departure from its traditional business of regional and executive jets, where demand has stagnated in recent years. Its fast-growing defense division could make up a quarter of total revenue by 2020, up from less than 5 percent in 2006.

Last year, Embraer secured a border monitoring contract with Brazil’s armed forces and executives said they were looking into building navy patrol ships.

More specifics of the partnership with Finmeccanica’s AgustaWestland unit were not disclosed. The companies said they hoped to establish the new venture “in a few months” after ironing out details and getting necessary approvals.

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