Boeing and Embraer agree terms; Indigo agrees to invest in Wow Air

Embraer and Boeing have approved to the terms of a strategic partnership that defines the joint venture comprising the commercial aircraft and services operations of Embraer.

Under the terms of the proposed partnership, Boeing will acquire an 80% ownership stake in the joint venture for $4.2 billion. The partnership is expected to be neutral to Boeing's earnings per share in 2020 and accretive thereafter. Estimated annual pre-tax cost synergies of approximately $150 million are anticipated by the third year of operations.

The transaction remains subject to approval by the Government of Brazil, after which Embraer and Boeing intend to execute definitive transaction documents. The closing of the transaction will then be subject to shareholder and regulatory approvals and customary closing conditions.

Once the transaction has closed, 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 Dennis Muilenburg, Boeing chairman, president and chief executive officer. Embraer will retain consent rights for certain strategic decisions, such as transfer of operations from Brazil.

"Boeing and Embraer know each other well through more than two decades of collaboration, and the respect we have for each other and the value we see in this partnership has only increased since we announced our joint efforts earlier this year," said Dennis Muilenburg, Boeing chairman, president and chief executive officer.

"We are confident that this partnership will deliver great value to Brazil and the Brazilian aerospace industry as a whole. This alliance will strengthen both companies in the global market and is aligned with our long-term sustainable growth strategy," said Paulo Cesar de Souza e Silva, Embraer president and chief executive officer.

The companies have also agreed to the terms of another joint venture to promote and develop new markets for the multi-mission medium airlift KC-390. Under the terms of this proposed partnership, Embraer will own a 51% stake in the joint venture, with Boeing owning the remaining 49%.

Assuming the approvals are received in a timely manner, the transaction is intended to close by the end of 2019.

Meanwhile, last week, Wow Air and Indigo Partners agreed in principle for Indigo to invest in Wow after the signing of a term sheet on December 14. The term sheet contains certain conditions for the completion of the transaction, which include amendments for Wow Air’s €100 million senior secured floating rate bonds 2018/2021.

Following successful completion of due diligence, the parties will work to close the investment as soon as practicable whereby Indigo Partners will acquire some of the shares in Wow pursuant to a Share Purchase Agreement to be entered into between an SPV formed and controlled by Indigo and other shareholders of Wow.

Indigo also contemplates issuing a new super senior convertible loan to Wow to fund the recovery of its business. In the aggregate, Indigo’s investment, assuming successful diligence, structuring and documentation would be for an amount up to $75 million.

Wow is being is advised in this transaction by Plane View Partners.

During the negotiations, a team from Indigo Partners spent the two days with Wow management to review the business and opportunities of the airline going forward.

“These have been two very good days with detailed discussions around WOW current business and how we would envision it going forward. WOW air has a dedicated team and a strong brand that has significant potential,” said Bill Franke, Managing Partner of Indigo Partners.

“We are very pleased with the visit from Indigo Partners and it´s clear that we can learn a lot from Bill Franke and his team on how to build a successful low cost airline. I don’t think we can find a better and more experienced partner to bring WOW air to the next level” said Skuli Mogensen, CEO and founder of WOW air.

One day before the deal was formalised, Wow Air released its restructuring plans that would simplify its operations, including reducing its fleet from twenty to eleven Airbus aircraft. Wow also confirmed that it is in negotiations with its lessors to return some of its aircraft including all A330s. Four Airbus A321s are being sold in a transaction that Wow states will boost its liquidity by more than $10 million.

There will no changes in the schedule in December and early January. In January 2019, Wow will implement a new flight schedule.

With the reduction in operations also comes a reduction in headcount. The airline has already laid off 111 permanent employees across the airline, with no renewals for contractors and short term staff.

“This is the most difficult day in the history of WOW air,” said Mogensen on December 13, 2018. “We have dedicated people who have worked hard to make WOW air a reality and it breaks my heart to downsize the company. However, in order to ensure our future and preserve WOW air in the long run, we unfortunately must take these drastic measures.”

After this restructuring, about one thousand employees will remain with Wow air.