Embraer and Brazil’s government plan to challenge a Brazilian court order that prevents the company and Boeing from finalizing their proposed commercial-aircraft joint venture (JV) before the country’s new administration is in power.
The Dec. 6 order, issued by the 24th Federal Civil Court of São Paulo, prohibits the deal’s terms from being finalized, but negotiations between the two sides can continue. Government approval is required for the proposed JV to close, and Brazil’s leadership is transitioning to president-elect Jair Bolsonaro on Jan. 1, 2019.
Bolsonaro, the Social Liberal Party candidate who defeated Workers Party challenger and former São Paulo mayor Fernando Haddad in an Oct. 28 runoff, has indicated he supports the proposed deal. Outgoing president Michel Temer planned to share details of the agreement with Bolsonaro’s team as part of the transition.
During the company’s third-quarter earnings call Oct. 30, Embraer executives said its proposed tie-up with Boeing would be reviewed by the new administration and expressed confidence in gaining approval. If the court injunction stands, the ruling effectively pushes the review into the new year. The current timeline sees the proposed JV closing in “2019, more likely the second half of 2019,” Embraer president and CEO Paulo Cesar de Souza e Silva said on the call.
In a Dec. 6 regulatory filing, Embraer called the court’s move “a provisional measure to suspend the effects of an eventual decision of the board of directors of Embraer approving the segregation and transfer of the commercial aviation business to the new company in the context of the joint venture between” the two companies. The court order does not impose “any kind of obstacles to the continuance of the negotiations between both companies,” the Brazilian company added.
Embraer said it will “take the applicable judicial measures to reverse such decision.”
Brazil’s government said Dec. 7 that it would appeal the court’s injunction, Reuters reported. The appeal will come via the country’s solicitor general.
In his decision, judge Victorio Giuizio Neto suggested that granting government approval during a leadership transition is unwise. He also questioned whether Boeing is giving up enough, and expressed concern over the lack of Brazilian government control if the deal goes through. The proposed JV sees Boeing take an 80% stake Embraer’s commercial operations, while Embraer will control the remaining 20%. Management of the new company will be based in Brazil and will be led by a president and CEO who will report to Boeing CEO Dennis Muilenburg…
