Boeing in takeover talks with Brazil’s Embraer

Boeing is exploring a potential combination with Brazil’s Embraer, setting the stage for a blockbuster deal that would fuel the U.S. aerospace giant’s rivalry with Airbus in the highly competitive market for smaller jets.

The options include a joint venture that would enable the companies to cross-sell their complementary lineups of commercial jets and negotiate better deals with suppliers, said a person familiar with the matter. Such a partnership would stop short of a politically risky takeover by Boeing, said the person, who asked not to be named because the talks are private.

Boeing’s potential Embraer deal raises the prospect of a duopoly with Airbus that would extend into the market for smaller planes, where manufacturers in Canada, Russia, Japan and China are emerging as competitive threats. Airbus secured its role two months ago by agreeing to take control of Bombardier ’s C Series program — the target of a trade complaint by Boeing.

“That space is just not big enough, in my view, to support more than two OEMs,” said John Plueger, CEO of Air Lease Corp., referring to original equipment manufacturers.

The plane makers provided few details publicly beyond saying that the shape of the tie-up “remains under discussion,” and would require approval by the Brazilian government, regulators and Embraer shareholders.

An outright acquisition would be Boeing’s largest since it bought U.S. rival McDonnell Douglas Corp. in 1997, and would advance a consolidation wave sweeping through the aerospace sector.

Brazilian President Michel Temer said control of Embraer isn’t negotiable, adding that talks on the deal hadn’t officially been presented to him yet.

“All partnerships are welcome, what is not under consideration is transferring Embraer’s control to another company,” he said Friday in Brasilia. “That is exactly what the golden share is for, for the government to make that decision.”

For years, Boeing and Airbus have focused on more profitable jetliners and shifted away from planes with 100 seats or less, which have similar development costs while selling for commodity-like prices.