January 2, 2018 / 11:13 AM / a year ago

Boeing-Embraer talks have not settled question of control: sources

SAO PAULO (Reuters) - Tie-up talks between Boeing Co (BA.N) and Embraer SA (EMBR3.SA) have not settled key questions such as control of the Brazilian planemaker or the possibility of a more narrow joint venture, two people familiar with the negotiations told Reuters, pushing back against a newspaper report on Tuesday.

FILE PHOTO: A Boeing 737 MAX and an Embraer E190-E2 are seen on the static display, before the opening of the 52nd Paris Air Show at Le Bourget airport near Paris, France, June 16, 2017. REUTERS/Pascal Rossignol/File Photo

Brazilian newspaper Valor Economico had reported that the talks have focused on joint ventures and joint business agreements to share costs and revenue or develop new products without changing control of Embraer.

Such an arrangement could ease approval from the Brazilian government, which holds a ‘golden share’ giving it veto rights over strategic decisions at Embraer and has expressed reservations about a foreign company taking control.

However, a joint venture may not be an effective way to combine engineering resources, explore new business opportunities and satisfy Boeing’s interest in Embraer’s portfolio of regional passenger jets, defense programs and business aircraft, said one of the sources, who requested anonymity due to the sensitivity of talks.

Boeing has worked around concerns in foreign markets before, structuring defense subsidiaries in Australia and Britain to satisfy sovereignty demands, and those cases may serve as a reference in Brazil, the sources said.

Neither Boeing nor Embraer responded to requests for comment.

On Dec. 21, the two planemakers said they were discussing a “potential combination,” in a move that could consolidate a global passenger jet duopoly.

The talks are widely seen as a way for Boeing to strengthen its position in the regional jetliner market, in which Embraer is strong, thanks largely to its 70- to 130-seat E-Jets.

Less than three months ago, Boeing’s European arch-rival Airbus SE (AIR.PA) agreed to buy a majority stake in Bombardier Inc’s (BBDb.TO) 100- to 130-seat CSeries jet, putting pressure on the U.S. planemaker to seek a similar partnership.

The Boeing-Embraer talks involve Embraer’s defense business, as well as its passenger business, sources have said.

In the Tuesday report, Valor said Boeing was confident it could convince Brazil’s government that it could safely operate in Brazil’s defense sector, partially by pointing to defense deals the U.S. planemaker has made in countries such as Australia.

Reporting by Gram Slattery; Additional reporting by Brad Haynes; Editing by Mark Potter and Nick Zieminski

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