While the Brazilian population was distracted by the World Cup, another crime of homeland was being practiced in Brazil with the definitive denationalization of Embraer that will put in check the policy of productive and technological autonomy in the area of Defense of Brazil, will impair the Brazilian industry that will be affected by reduced domestic purchases of parts and components that will be made largely in the United States by Boeing and will lose control in the management of the company as a whole that will be assumed by Boeing.
Embraer incorporation by boeing is more a crime of homeland against brazil
1. 1
EMBRAER INCORPORATION BY BOEING IS MORE A CRIME OF
HOMELAND AGAINST BRAZIL
Fernando Alcoforado *
Boeing and Embraer announced on July 5 the agreement to unite their business, through
the creation of a new company in which the US company will hold 80% of the
commercial aircraft division of the Brazilian manufacturer that will have the remaining
20%. This is the second commercial agreement in the airline industry after Airbus
bought half of Bombardier's medium-range aircraft program.
Boeing and Embraer signed an agreement of intent to form a US$ 4.75 billion joint
venture in the area of commercial aviation. Boeing, the world's largest aircraft maker, is
expected to pay US$ 3.8 billion for 80 percent of the joint venture. It should be noted
that Joint Venture is a company created from the resources of two companies that unite
and share costs and divide their financial results (profits and losses). While Boeing is
the leading commercial aircraft manufacturer for long flights, Embraer leads the
regional jet market with aircraft equipped to fly smaller distances. The joint venture will
be led by a team of executives in Brazil, but Boeing will control the operations and
management of the business as a whole.
The transaction still depends on the endorsement of the shareholders - among which, in
the case of Embraer is the Brazilian government - and the regulatory bodies of the
Brazilian and American market. The transaction is expected to be closed by the end of
2019, between 12 and 18 months after the definitive agreements. Boeing and Embraer
team up to try to consolidate two strong operations in the same business, one for long-
distance aviation, another for regional displacements capable of facing a similar merger
between the major competitors, Airbus and Bombardier, who also joined.
Boeing and Embraer were already partners in several projects before announcing the
negotiation of a merger. The two companies have, for example, a joint research center
on biofuels for aviation in São José dos Campos since 2015. The federal government is
owns a golden share in Embraer, which guarantees veto power in strategic decisions of
the company, among them the transfer of share control of the company. Embraer was
privatized in 1994, at the end of the Itamar Franco government, for R$ 154.1 million
(values of the period), when the Brazilian government obtained the power to decide on
the company.
It should be noted that most of Embraer's shares are held by the US management
company Brandes Investments Partners, which exercises control over 14% of the
company's shares. Although with a restricted participation of 5.4% of the shares, the
federal government has the prerogative of the golden share that allows it control over
strategic decisions of the company and, potentially, the veto to any type of merger or
acquisition.
The golden share in the context of Embraer has greater strategic relevance due to its
importance for the country's defense industrial base, translated especially in the close
relationship with the Brazilian Air Force (FAB) projects. The only Brazilian company
to be included in the ranking of the 100 largest defense companies in the world, arms
sales of Embraer accounted for 15% of all business conducted by Embraer in 2016,
according to data organized and provided by the Stockholm International Peace
Research Institute (SI- PRI).
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Faced with such a discrepancy in capabilities and size, the uncertainties and concerns
surrounding a possible incorporation of Embraer by Boeing are even more acute when
considering the performance of the Defense and Security division of the Brazilian
company. The incorporation of Embraer by Boeing makes it impossible to promote
productive and technological autonomy in the Defense area of Brazil. The desired
independence from external suppliers in the military can be put in check with the
incorporation of Embraer by Boeing.
Under the FX-2 project, focused on the development and acquisition of new multi-
purpose fighters for FAB, Embraer is the national leader in the agreement with the
Swedish Saab for the Gripen project. In addition to being an important player in the
process of technology transfer, which, among other mechanisms, has been developed
through the Center for Projects and Development of Gripen. It should be noted that
Boeing, through the F-18 Super Hornet proposal, was defeated in the competition by the
contract to acquire new fighters for the FAB, which leads to questions about the
potential consequences of the negotiations between Boeing and Embraer on the
technologies obtained in the scope of the partnership with Saab, as well as on the future
of the Gripen program.
The incorporation of Embraer by Boeing may, in the limit, rather than to represent the
renunciation of the already weakened objective of technological autonomy in the
military industrial sector of Brazil, signify the definitive denationalization of a company
that was sold to the foreign capital in 1994. One cannot talk about a merger of a giant
company with a pygmy of the air sector but incorporation of a pygmy by a giant. Just
compare the sizes of Boeing with that of Embraer economically.
Boeing is the largest and most profitable aircraft manufacturer in the world. Boeing
earned US$ 93.3 billion in 2017. Every US$ 1 in sales, US$ 0.60 comes from
commercial aircraft sales. In 2017 alone, this area delivered 763 aircraft to airlines
around the world. The US company has an order book of about 5,800 commercial
aircraft, valued at US$ 421 billion. Among the major manufacturers, Boeing has the
largest share of its revenue from its division that manufactures aircraft for Defense,
Space and Security. Warships and cargo planes account for 22.5% of the company's
revenue.
It is important to note that Boeing has established itself as one of the largest defense
companies in the United States and the world. The high costs involved in the
development and production of new armaments, which are gradually more complex in
technological terms, and the difficulties in guaranteeing productive scale from the
domestic market, have boosted the internationalization of arms production. Boeing's
defense orders are valued at US$ 50 billion, of which 60 percent were made by the
United States Armed Forces. Boeing's dependence on the US government is one of the
problems of its business. Just under a third of the company's revenue is the result of
contracts with the United States public administration.
Embraer, which that was born from aircraft designs at the Aerospace Technical Center
(CTA) and the Aeronautical Technological Institute (ITA), only took off in 1969 after
receiving investment from military governments. State-owned company until 1994,
when it was privatized and denationalized, Embraer is the largest aircraft manufacturer
in Brazil and the main supplier of the Brazilian Air Force (FAB).
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In 2017, Embraer's commercial aviation area accounted for 57.6% of the company's net
revenue, with US$ 10.7 billion from a total of US$ 18.7 billion. The company does not
depend on revenue from its Brazilian military division, which accounted for R$ 3
billion, or 16.3% of revenue in 2017. The contracts arising from the company's military
origin were supplanted by the specialization in manufacturing small aircraft. Financial
data show this, since commercial aviation accounts for R$ 10.7 billion, 57.7% of
revenues, while the share of executive aviation, whose revenues are R$ 4.7 billion, is
25%.
While the Brazilian population was distracted by the World Cup, another crime of
homeland was being practiced in Brazil with the definitive denationalization of Embraer
that will put in check the policy of productive and technological autonomy in the area of
Defense of Brazil, will impair the Brazilian industry that will be affected by reduced
domestic purchases of parts and components that will be made largely in the United
States by Boeing and will lose control in the management of the company as a whole
that will be assumed by Boeing.
* Fernando Alcoforado, 78, member of the Bahia Academy of Education, engineer and doctor in
Territorial Planning and Regional Development by the University of Barcelona, university professor and
consultant in the areas of strategic planning, business planning, regional planning and planning of energy
systems, is the author of 13 books addressing issues such as Globalization and Development, Brazilian
Economy, Global Warming and Climate Change, The Factors that Condition Economic and Social
Development, Energy in the world and The Great Scientific, Economic, and Social Revolutions that
Changed the World.