Brazilian government joins Embraer in challenging court order against Boeing JV

On December 6, the 24th Federal Civil Court of São Paulo issued an order prohibiting the finalizing of any joint venture deal between Embraer and Boeing. However, the order does not prohibit both plane makers from continuing with plans for Boeing to take an 80% stake in Embraer’s commercial aircraft operations. In effect, the order is likely only to delay the creation of the joint venture until the new administration is in power under the leadership of president-elect Jair Bolsonaro.

Bolsonaro has already made it clear he is in favour of the tie up between the two companies, while Embraer has stressed that the deal is vital for the company’s survival. Government approval is required as a legacy of the period when Embraer was state owned, prior to its privatization in the 1990s. The current legal action was brought against Embraer by four congressmen who are with Brazil’s left-wing Workers Party. However, it is not uncommon for labor groups in Brazil to use court challenges where major business deals are concerned, and this injunction is likely to be overturned.

In his ruling on the current order, judge Victorio Giuizio Neto cast doubt that the proposed deal would be good for Embraer’s bottom line, stating in his decision that: “The reason is very simple, Boeing is not giving up anything” in this transaction. He added that the new company would threaten the rights of the Brazilian government because it would restrict its control over Embraer solely to the part of the company that will not be sold to Boeing.

The joint venture between Embraer and Boeing is seen as a logical move since the acquisition of 50.1% of Canada’s Bombardier C Series by Airbus, the C Series being the major competitor to Bombardier’s major share of the market for mid-size jets with a capacity of up to 150 passengers. The Bombardier-Airbus deal will see the French plane manufacturer take a full 100% stake in the C Series within five years.

“Update 12/10/2018 SAO PAULO: An appeals court in Brazil on Monday, December 10, overturned an order blocking a proposed US$4.75 billion tie-up between Boeing and the commercial jets arm of Brazilian plane manufacturer Embraer.”