Boeing Deal for Embraer Halted by Brazilian Court

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If there’s one thing Boeing Co. (NYSE: BA) didn’t need Thursday it was more bad news. The stock has been pummeled on a report in The Wall Street Journal that the company omitted information on its automated flight-control system from its operations manual. The system is believed to be the cause of the Lion Air crash offshore of Indonesia in late October that killed all 189 people on board.

Meanwhile, in Brazil, Reuters reports that a federal court has granted an injunction requested by four Brazilian legislators associated with the country’s leftist Workers Party forbidding the board of directors of aircraft maker Embraer S.A. (NYSE: ERJ) from completing a deal to create a joint venture between Embraer’s commercial aircraft business and Boeing. Under the terms of the deal struck in July, Boeing will hold an 80% ownership stake in the joint venture and Embraer will own the remaining 20% stake. Boeing’s stake was valued in July at around $3.8 billion.

The kink in the deal comes from the Brazilian government, which owns a stake in the company and a much more important right to approve or reject any major deal involving Embraer, which also produces military aircraft for Brazil and foreign buyers. Boeing would have no stake in the military business.

The government’s approval has been delayed due to Brazil’s election and the outgoing president, Michel Temer, has said he would leave the decision to the new government that takes office on January 1. President-elect Jair Bolsonaro says he favors the deal with Boeing.

The tie-up between Embraer and Boeing came about as a response to Airbus’s takeover of the small single-aisle CSeries program from Canadian aircraft maker Bombardier. The newly named A220 is a regional jet that carries up to 100 passengers and competes for customers with Embraer’s E190 and E195 jets.

According to Reuters, the court’s decision can be appealed, although neither Boeing nor Embraer replied to requests for comment.