Brazil's Administrative Council For Economic Defense Approves The Embraer-Boeing Partnership And Confirms The Transaction Presents No Competitive Issues

On January 27, 2020, the Administrative Council for Economic Defense ("CADE"), an administrative entity of the Federal Government of Brazil's Ministry of Justice and Public Safety, issued its positive recommendation regarding the partnership agreement between two major players of the global aviation sector, Embraer S.A. ("Embraer") and The Boeing Company ("Boeing"), CADE concluded that Embraer and Boeing do not compete in the same markets and that this partnership therefore presents no competitive issues.

Embraer and Boeing negotiated a partnership agreement covering two areas of Embraer's business operations (the "Agreement"): commercial aviation operations, which include the commercialization of regional transport aircrafts and larger commercial aircrafts (the "Commercial Operation") and military aviation operations specific to the KC-390 aircraft (the "Defense Operation").1 The Agreement provides for a new company in which Boeing will acquire 80 per cent of the share capital of Embraer's Commercial Operation and for the creation of a joint venture (EB Defense, LLC) for the Defense Operation, of which 51 per cent will be owned by Embraer and 49 per cent by Boeing.2

The Agreement was subject to approval by the CADE due to the value of the Commercial Operation and Military Operation, which exceeds the thresholds set out by Brazilian federal legislation.3 Through its analysis, CADE sought to prevent acts of economic concentration involving the elimination of competition in a substantial share of the market at issue or the creation and/or strengthening of a dominant position in said market.4 CADE may authorize acts of economic concentration where the following positive effects are observed and are of benefit to consumers: an increase in productivity or competitiveness, an improvement in the quality of goods or services or an improvement in the efficiency and technological or economic development of the market at issue.5

In its analysis, CADE thus investigated the markets likely to be affected by the Commercial Operation, i.e. the segment comprising regional and commercial aircrafts with a seat capacity ranging from 100 to 200, and correlated market segments (regional and commercial aircraft parts, components and maintenance services),and the markets likely to be affected by the Military Operation, i.e., the military transport aircraft segment and correlated market segments (military aircraft parts, components, maintenance services and...