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Embraer-Boeing agreement lays out terms of proposed joint venture

The planned joint venture between Boeing and Embraer would give the US manufacturer complete control over all aspects of Embraer's commercial aircraft unit, according to a recently-released document.

The document, a memorandum of understanding between Boeing and Embraer, also specifies that the deal would see Embraer's entire commercial unit transfer into a new, "fully-integrated subsidiary" of Boeing.

Embraer publicly released the document after it was reportedly leaked by one of Embraer's unions.

The nine-page agreement describes the corporate structure of Embraer's planned joint business with Boeing, including provisions intended to protect the value of Embraer's minority share.

It is dated 5 July – the day news broke that Boeing intends to acquire 80% of Embraer's commercial aircraft division, leaving the Brazilian manufacturer with 20%.

At the time, Boeing valued Embraer's commercial unit at $4.75 billion.

Executives have described the plan as an evolution of longstanding collaboration between the companies. Boeing's heft will help increase sales of Embraer's products and create new jobs, they had said.

The memorandum sets 5 December as the day by which much of the merger work will be complete, including Boeing's due diligence, finalisation of transaction documents, approval by company boards and filing of anti-trust immunity documents.

Embraer still expects the final deal will close by the end of 2019, it says.

The agreement specifies that, once closed, "all aspects" of Embraer's commercial aircraft division will transfer into a new company. Embraer's commercial business includes all commercial aircraft design, manufacturing, certification and sales, and Embraer's three commercial aircraft lines: ERJs, E-Jets and E-Jets E2, the document notes.

The new company will remain in Brazil, but Boeing will possess "full strategic and operational control and management", the agreement says.

Embraer's "financial interests and stability… would receive protection by ensuring the ability to obtain cash flow", the document says.

Embraer would receive unspecified cash payments for five years, after which the newly formed company would distribute to shareholders 50% of its profits.

Embraer and Boeing also intend to sign a "lock-up agreement", which would prohibit either company from selling their shares in the new company to an unaffiliated third party for 10 years.

The deal would also include a "put option" to ensure "the value of Embraer's equity stake in [the new company] would be protected", the document says.

That option would enable Embraer to sell any of its shares at the same per-share price paid by Boeing, plus an inflation adjustment,

The memorandum of understanding specifies that Embraer will retain its executive jet business and its defence business. However, it also notes that Boeing and Embraer will separately "explore the establishment" of a joint venture related to Embraer's KC-390 heavy lifter.

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