February 7, 2018 / 3:22 PM / in 8 months

AIRSHOW-Boeing says key issues remain in Embraer tie-up talks

(Adds details of proposed partnership, competitive context)

By Tim Hepher and Brad Haynes

SINGAPORE/SAO PAULO, Feb 7 (Reuters) - Boeing said on Wednesday there are still issues to address before a partnership can be agreed with Brazil’s Embraer SA, stressing the price must make sense as outlines emerged of a deal that may give the U.S. planemaker control of the Brazilian E-Jet program.

“Our talks continue to advance in a productive manner but there are key issues that remain,” Phil Musser, Boeing’s senior vice president of communications, told Reuters.

“As noted on our earnings call this is a winning combination, but it is not a ‘must do’ for Boeing. The final terms — and price — need to provide the best value for our respective customers, investors and countries, to provide an optimal platform for success,” he said at the Singapore Airshow.

Reuters reported on Friday that Boeing was now seeking approval in Brasilia for a plan to create a new joint company encompassing Embraer’s executive jet and commercial jet operations, including the 70- to 130-seat E-Jets.

Two people familiar with the discussions said the two sides were moving towards a structure granting Boeing operational control and a 90 percent stake in the new entity, which would exclude Embraer’s defence operations but include business jets.

But work still needs to be done on valuation and the way in which costs, for example, would be allocated when Embraer hives off its civil aviation business, one of the people said.

Speaking separately in Singapore, Embraer’s top commercial aviation executive said no formal proposal had yet been made.

“The only reason for that is the parties continue to work on identifying structures that might work,” he said.

Boeing’s proposed tie-up with Embraer, the world’s third-largest planemaker, would create stiffer competition for the CSeries program designed by Canada’s Bombardier Inc and backed by European rival Airbus SE last year.

Boeing and Embraer have denied any link between their discussions and October’s decision by Airbus to buy Bombardier’s struggling CSeries, although several sources say it sharpened the focus of the talks.

Talks over a wider combination that would have included Embraer’s defence operations snagged on the Brazilian government’s reluctance to allow foreign control of military programs, according to people close to the talks.

Brazil’s government has openly pushed for a partnership between the two companies focused more narrowly on commercial aviation, rather than an outright acquisition, due to concerns about the independence of Brazilian defence programs.

The government, which holds about 10 percent of Embraer shares through public-sector funds, still has veto power over its military programs and any takeover attempts due to a golden share in the former state enterprise. (Reporting by Tim Hepher in Singapore and Brad Haynes in Sao Paulo; Editing by Muralikumar Anantharaman and Catherine Evans)

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