Dec. 17 (UPI) -- Airplane makers Boeing and Embraer approved terms Monday that will see Boeing pay $4.2 billion for an 80 percent stake in a new combined commercial aircraft operation.
The Brazilian government has yet to authorize the transaction, but Brazilian President-elect Jair Bolsonaro, who will take office in January, has said he plans to authorize the merger. Embraer's board must also ratify it.
"The commercial aviation joint venture will be led by Brazil-based management, including a president and chief executive officer. Boeing will have operational and management control of the new company," a joint press release said.
"Embraer will retain consent rights for certain strategic decisions, such as transfer of operations from Brazil."
"This alliance will strengthen both companies in the global market and is aligned with our long-term sustainable growth strategy," said Embraer President Paulo Cesar de Souza e Silva.
The companies agreed for another joint venture to promote and develop "markets for the multi-mission medium airlift KC-390" with Embraer owning a 51 percent stake and Boeing the rest.
The Embraer Kc-390 has been described as a medium-size, twin-engine jet-powered military transport aircraft under development by Embraer. Embraer produces other military aircraft that are not part of the joint ventures.
An Oct. 2 report by Estadao de Sao Paulo said Bolsolnaro considered a merger with Boeing as necessary for Embraer's long-term survival. His position was completely opposed to that of Fernado Haddad, who lost the elections, and who wanted to prevent the merger. The Brazil government has a "golden share" in the airline that required its approval for the merger, Estadao reported.
Boeing is taking a company with net debt and negative cash flows. Embraer said last month it had negative free cash flow of $166.4 million in the third quarter of this year. It said it finished the quarter with total cash of $3.1 billion and total debt of $4 billion, yielding net debt of $881 million.
"The partnership is expected to be neutral to Boeing's earnings per share in 2020 and accretive thereafter. Estimated annual pre-tax cost synergies of approximately $150 million are anticipated by the third year of operations," the joint statement said.
Embraer was created in 1969 with the project of building the first Brazilian plane, named Bandeirante.