BRASILIA (Reuters) - Brazilian President Michel Temer is weighing whether to support a proposal for a joint commercial aviation company between Boeing Co (BA.N) and Brazilian aircraft maker Embraer (EMBR3.SA), a presidential spokesman said on Tuesday.
Because Brazil’s government has opposed an outright takeover of Embraer, which the government regards as a strategic company, the proposal involves creating a third corporation. The new corporation would include the passenger plane unit of Embraer, the world’s top maker of regional jets, while excluding Embraer’s defense operations.
The Brazilian government, which holds a “golden share” in Embraer that gives it veto power over strategic decisions, must ultimately approve any deal.
“Nothing has been decided on the partnership between the two companies,” Temer’s top spokesman, Marcio de Freitas, told Reuters.
“The Defense Ministry received the proposal and sent it to the president, but it still has to be studied and there are still some doubts about the matter,” he added, without providing further details.
An industry source familiar with the talks said progress was being made by Boeing and Embraer.
“They are getting very close,” the source said, but noted that the two sides had seemed close to a deal before, only to see their progress blocked.
Boeing Chief Executive Dennis Muilenburg said this month the company has been working on a deal for years, but added it was not essential.
A Boeing spokesman reaffirmed that stance in an email on Tuesday, calling a combination with Embraer “a win-win for all.”
Embraer, the world’s third-largest planemaker, said in a securities filing that no details of the talks have been set in stone. That was echoed by Temer’s office.
Questions remain about the size of each company’s stake.
Brazilian business newspaper Valor, citing sources close to Temer, reported Embraer would take a 49 percent of the new company.
But people familiar with the negotiations told Reuters Boeing was unlikely to agree to a joint venture in which it held less than 80-90 percent to have full operational control.
The potential deal has snagged on concerns in Brasilia that Washington would get final say over Brazilian defense programs and use of technology developed in the country, including satellite and air-traffic control systems.
The Brazilian government’s golden share in Embraer gives it veto power over strategic decisions involving military programs and any change in controlling interest.
Boeing has worked to overcome the Brazilian military’s objections with alternatives that would preserve the government’s strategic veto rights and ensure safeguards for its defense programs, sources have told Reuters.
The partnership would give Boeing a leading share of the 70- to 130-seat market and create stiffer competition for the CSeries program designed by Canada’s Bombardier Inc (BBDb.TO) and run by European rival Airbus SE (AIR.PA) since last year.
Reporting by Anthony Boadle in Brasilia; Additional reporting by Gram Slattery and Brad Brooks in Sao Paulo, and Tim Hepher in Paris; Editing by Daniel Flynn and Leslie Adler