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December 16, 2018

Brazil court suspends Boeing-Embraer tie-up

Brazil court suspends Boeing-Embraer tie-up
'Boeing and Embraer announced a deal in July handing the US aerospace giant an 80 percent stake in the Brazilian company's commercial business' - By: AFP/File ERIC PIERMONT

A Brazilian federal court on Thursday suspended a proposed $4.75 billion tie-up between US aerospace giant Boeing and the civilian business of Brazilian plane-maker Embraer pending the government of president-elect Jair Bolsonaro taking office.

The Sao Paulo court said it was it was taking action to avoid "possible concrete acts" being taken on the aviation deal before the new administration comes in under Bolsonaro, who takes over on January 1.

The court added it was suspending "any concrete effect" of the Embraer board's decision over transferring commercial operations to Boeing.

Boeing and Embraer announced the deal in July. Under the terms, Boeing was to hold an 80 percent stake in the Brazilian company's commercial business, thus allowing Boeing to offer planes with capacity of up to 150 seats -- a market in which it currently does not operate.

Embraer's military aircraft business was excluded to overcome Brazilian government opposition to giving up a national champion to a foreign entity.

The agreement was seen as a response to a similar strategic partnership announced in October 2017 between Boeing's European arch-rival Airbus and Canada's Bombardier.

The American firm will have operational and management control over the new venture, which will be led by a Brazil-based chief who will report to Boeing chief executive Dennis Muilenburg, the companies said in July.

The companies are creating another joint venture to promote their defense products and services, especially Embraer's KC 390, a military transport aircraft vehicle.

Embraer, the third-largest aircraft manufacturer in the world, was founded as a state group in 1969 before being privatized in 1994, although the Brazilian government retains the right to make strategic decisions for the company.

The deal, which Embraer had said it expected to be finalized by the end of 2019, was struck under Brazil's outgoing President Michel Temer.

Thursday's ruling effectively prevents Temer's government from seeing through the Boeing-Embraer deal in its final days before Bolsonaro's team takes over.

Bolsonaro, a far-right politician, had a long record as a nationalist and protectionist when it came to Brazil's economy.

But he changed tack to win over voters and investors in the run-up to his November election by advocating privatizations.

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