Boeing in tie-up talks with Brazil's Embraer

By Brad Haynes and Anthony Boadle

SAO PAULO/BRASILIA (Reuters) - Planemakers Boeing Co and Embraer SA are discussing a "potential combination of their businesses," the companies said on Thursday, in a move that could consolidate a global passenger jet duopoly.

Embraer's shares soared around 30 percent in Sao Paulo on the joint statement released in Brazil, which did not give details of how a potential tie-up would be structured. Boeing shares were down 0.7 percent.

The news, first reported in the Wall Street Journal, comes just two months after Boeing rival Airbus SE agreed to buy a majority stake in Bombardier Inc's CSeries jetliner program, a direct rival of Embraer's biggest E-Jets.

 

Reuters reported then that the CSeries deal could push Boeing and Embraer closer together.

For decades, Canada's Bombardier and Embraer have faced off in the 70- to 100-seat regional jet segment below the radar of Airbus and Boeing's larger commercial jet line-ups, but the Airbus-Bombardier alliance may have tipped that delicate balance.

Any tie-up involving Embraer would require approval by the Brazilian government, which holds a 'golden share' in Embraer, a formerly state-run company fully privatised in 2006.

Asked about a potential takeover, a senior official in Brasilia said the government had not been involved in the reported talks.

Part of Brazilian President Michel Temer's market-friendly agenda has focused on privatising state utilities and reducing the government's role in national champions such as oil company Petroleo Brasileiro SA .

In September, Brazil's Finance Ministry asked an audit court to study how the government could exit the golden shares it holds in former state monopolies that have been partially or fully privatised in recent years.

A closer partnership between Boeing and Embraer has long been contemplated in private, according to industry sources.

The two already work on projects including runway safety and alternative jet fuels. Their partnership intensified in recent years to include Boeing's commitment to joint sales and support of Embraer's KC-390 military airlifter.

"Although Boeing would look like a good fit with Embraer's Regional Jet business, this is not the case for the company's Executive Jet and Defense divisions," said Rob Stallard, aerospace analyst at Vertical Research Partners in a note.

The WSJ reported that talks were on hold as the companies waited to see if Brazil's government would approve the deal.

Boeing is willing to take steps to protect Embraer's brand, management and jobs to help entice the government and is also willing to structure a deal to protect the government's interest in Embraer's defense business, the WSJ reported.

(Reporting by Brad Haynes in Brazil and Anthony Boadle in Brasilia; additional reporting by Arunima Banerjee and Tim Hepher; editing by Daniel Flynn and Nick Zieminski)