Boeing, Embraer confirm merger talks ongoing; deal not guaranteed

Brazil's Embraer is the world's third-largest commercial plane manufacturer after Boeing and Airbus. (AFP/ROSLAN RAHMAN)

The talks ignited shares of the Brazilian company, which makes commercial, military and executive jets, despite immediate signs of opposition to the transaction in Brazil.

Any deal would need to be approved by the Brazilian government.

A merger between the two companies would build on their existing alliance on the KC-39 military plane and would permit the much-bigger Boeing to fill a gap in its fleet with regional single-aisle planes.

A transaction also would rebut an alliance between Boeing archrival Airbus and Canada's Bombardier to build smaller planes.

The Wall Street Journal first reported the Boeing-Embraer talks earlier Thursday, citing unnamed sources.

The report said the parties discussed a deal that would see Boeing pay a "relatively large premium" for Embraer, but that talks are on hold as the two sides await word on the Brazilian government's view of the deal.

US-traded shares of Embraer shot up following the report, finishing at US$24.42, up 22.1 per cent. But Boeing fell 1.0 per cent to US$295.03.

However, the Folha de Sao Paulo newspaper reported that Brazil President Michael Temer already ruled out a takeover of the Embraer, one of Brazil's flagship companies.

"Embraer will never be sold under my government," he was quoted as saying at a meeting with the defense minister and head of the air force.

Brazilian officials were reported to have been taken by surprise by the Wall Street Journal story on the merger talks.

Embraer was formed by the Brazilian government in 1969 and privatised in 1994 in a process that granted the Brasilia "golden shares" with some veto rights.

The union at Embraer's Sao Jose dos Campos plant also immediately opposed the deal, saying it would risk the jobs of the 16,000 workers employed in Brazil.

"The possible purchase of Embraer by Boeing ... is rejected," the Steelworkers Trade Union of Sao Jose dos Campos and Region said in a statement.

"As a representative of the workers, the steelworkers' union reaffirms its position in favor of a veto over the sale of Embraer."

FILLING A GAP

Embraer in 2016 notched US$6.2 billion in revenues, while Boeing had US$94.6 billion.

The merger talks come two months after Airbus signed an agreement to take a majority stake in production of narrow-body planes made by Bombardier. Those planes are at the center of an ongoing US trade dispute with Canada sparked by a Boeing complaint against Bombardier.

The US Commerce Department on Wednesday confirmed nearly 300 per cent tariffs on Bombardier's C-series aircraft. The decision is subject to final approval by the US International Trade Commission, a quasi-judicial agency, which is due Feb 1, though it rarely differs from Commerce.

Boeing has argued that Bombardier's order to sell 75 new single-aisle CS 100 planes to Delta Air Lines violated trade laws because of billions of dollars in unfair subsidies provided by the Canadian government.

Bombardier argued that Boeing does not manufacture a direct competitor to the CS 100, and its robust order book of 737 planes proves it has not been adversely affected by unfair trade.

But a link with Embraer would give Boeing a portfolio of planes that could compete for some of the same business as Bombardier.

The Canadian company also noted that the planes for Delta would be built under the Airbus alliance in Mobile, Alabama, meaning they would not be imported.