Boeing and Embraer announced that they have signed a Memorandum of Understanding to establish a strategic partnership. The annoucement comes as Airbus puts the finishing touches to its absorption of the Bombardier CSeries into its product line.

The non-binding agreement proposes the formation of a joint venture comprising the commercial aircraft and services business of Embraer that would strategically align with Boeing's commercial development, production, marketing and lifecycle services operations. Under the terms of the agreement, Boeing will hold an 80% ownership stake in the joint venture and Embraer will own the remaining 20% stake.

The transaction values 100% of Embraer's commercial aircraft operations at $4.75bn, and contemplates a value of $3.8bn for Boeing's 80% ownership stake in the joint venture. The proposed partnership is expected to be accretive to Boeing's earnings per share beginning in 2020 and to generate estimated annual pre-tax cost synergies of approximately $150m by year three.

The commercial aviation joint venture will be led by Brazil-based management, including a President and Chief Executive Officer. Boeing will have operational and management control of the new company, which will report directly to Muilenburg.

The joint venture will become one of Boeing's centers of excellence for end-to-end design, manufacturing, and support of commercial passenger aircraft, and will be fully integrated into Boeing's broader production and supply chain.

The two companies will create another joint venture to promote and develop new markets and applications for defence products and services, especially the KC-390 multi-mission aircraft, based on jointly-identified opportunities.

Finalization of the financial and operational details of the strategic partnership and negotiation of definitive transaction agreements are expected to continue in the coming months. Upon execution of these agreements, the transaction would then be subject to shareholder and regulatory approvals, including approval from the Government of Brazil, as well as other customary closing conditions. Assuming the approvals are received in a timely manner, the transaction is expected to close by the end of 2019, 12-18 months after execution of the definitive agreements.