The proposed partnership between Boeing and Embraer has become a subject of the hotly contested Brazilian presidential race—and the outcome of the election could have a significant impact on the aerospace companies’ plans.
The deal would see Boeing purchase 80 percent of Embraer, taking over its commercial jet unit while leaving its defense and executive jet business untouched. Embraer was created by the Brazilian government but was privatized in 1994. The government holds a special stock that grants it veto power over major business decisions.
Should the deal be completed, the government would lose its veto power over Embraer’s lucrative commercial jet arm, while retaining that power only in its defense and executive jet lines.
Analysts and government advocates have raised concerns about the profitability of those operations in the absence of the commercial jets division, which has been the company’s main income generator. Critics have also voiced concerns about sovereignty and the protection of Brazil’s aerospace industry.
Brazil’s labor prosecutors—a special group that investigates potential labor law violations—filed an injunction to require that the merger preserve all local jobs at the company. Neither Boeing nor Embraer would guarantee those jobs would be saved. Embraer had 16,000 employees in Brazil as of the end of 2016.
That injunction was thrown out by a judge in August. In response, the left-wing Workers Party filed a lawsuit against the government and Embraer, seeking an injunction to freeze talks between the two aircraft manufacturers.
The political rhetoric is even more heated than the legal proceedings. Workers’ Party Congressman Carlos Zarattini calls the deal a “crime against the homeland” and has speculated that the deal was a ploy by Boeing and the U.S. government to sneak off with the technology and skills of a rising competitor.
The Workers’ Party isn’t alone in voicing concerns. Ciro Gomes, candidate for center-left Democratic Labor Party, said he would undo the deal. And the speaker of Brazil’s lower house of Congress, Rodrigo Maia—a one-time presidential candidate for the market-friendly Democratic Party—insisted that Congress be consulted on the buyout.
The presidential elections will take place in October. The Workers’ Party is ahead in the polls despite the fact that its candidate, former President Luiz Inacio Lula da Silva, is in prison for corruption. While he is unlikely to be allowed to run, his anticipated replacement, vice-presidential candidate Fernando Haddad, also concerns investors.
Should Brazil’s often-volatile political process result in a less business-friendly and protectionist administration, it could pose serious problems for Boeing and Embraer. In fact, it could have repercussions across the entire global aerospace sector: Boeing and Embraer joined forces partly in response to the Airbus-Bombardier deal earlier this year.
Read more about the Boeing-Embraer partnership at Boeing Vs. Airbus: Boeing Buys Controlling Stake in Brazilian Aircraft Manufacturer.