MOODYS.COM 18 JULY 2016 NEWS & ANALYSIS Corporates 2 » Boeing and Embraer’s KC-390 Partnership Bolsters Sales Prospects for Both Companies » AMC Entertainment’s Planned Acquisition of Odeon Is Credit Negative » UK Review of Acadia’s Priory Acquisition Is Credit Negative » LATAM to Get Credit-Positive Equity Increase in Deal with Qatar Airways Infrastructure 6 » Southern Company Further Diversifies into Natural Gas with Credit-Positive Pipeline Acquisition » US Airports Will Benefit from Federal Aviation Administration Reauthorization Bill » Brazil’s Compensation to Eletrobras Subsidiary Chesf Is Credit Positive » China Merchants Holdings International’s Profit Warning Is Credit Negative Banks 10 » Brazil Allows Worker’s Fund to Guarantee Payroll Loans to Private-Sector Employees, a Credit Positive for Banks » Costa Rican Banks’ Loan Delinquencies Will Likely Rise with Local Currency Depreciation » EU Court Advocate General’s Statement on Mortgage Interest Rate Floors Is Credit Positive for Spanish Banks » Bank of Ireland’s Capital Position Erodes as Brexit Effects Drive Up Pension Deficits » Kazakhstan Unexpectedly Cuts Its Base Rate, a Credit Positive for Banks Sovereigns 17 » Ireland’s Economy and Public Finances Outperform Expectations, a Credit Positive Sub-sovereigns 19 » Japan’s Regional and Local Governments’ Tax Revenue Hits Eight-Year High, a Credit Positive RECENTLY IN CREDIT OUTLOOK » Articles in Last Thursday’s Credit Outlook 21 » Go to Last Thursday’s Credit Outlook Click here for Weekly Market Outlook, our sister publication containing Moody’s Analytics’ review of market activity, financial predictions, and the dates of upcoming economic releases. NEWS & ANALYSIS Credit implications of current events 2 MOODY’S CREDIT OUTLOOK 18 JULY 2016 Corporates Boeing and Embraer’s KC-390 Partnership Bolsters Sales Prospects for Both Companies Last Monday, Embraer S.A. (Ba1 negative) and The Boeing Company (A2 stable) announced that they had signed an agreement to jointly market and support the KC-390, the multi-mission mobility and aerial refueling aircraft developed by Embraer. Building on prior-year ventures between the two companies, including the KC-390 and biofuel programs, the agreement is credit positive for both companies because it will enhance the prospect of incremental sales for the budding program. The two companies will jointly pursue new business opportunities for the sale of KC-390 aircraft, a competing model of the longstanding C-130, which Lockheed Martin Corporation (Baa1 stable) builds. After ending its own seven-decade production run of the larger C-17 transport aircraft last year, the agreement gives Boeing responsibility to support KC-390 clients with aftermarket services and support, an important initiative for the Chicago, Illinois-based airframer. The in-service support will help increase KC-390 awareness among potential new clients. Embraer will gain access to a broader client network given that Boeing is one of the biggest producers of aircraft in the world. And, as a leading global defense contractor, Boeing will also enhance Embraer’s prospects of improved penetration in what remain rather difficult defense markets around the globe. The two companies agreed to work on a best-efforts basis to obtain new deals for the KC-390. Embraer will provide an undisclosed success fee for each new deal closed with the help of Boeing. Embraer is also giving up some future revenue related to after-market services that Boeing will handle. Nevertheless, we expect additional sales volumes to more than compensate for revenue losses or marketing fees. In 2009, the Brazilian Air Force (FAB) hired Embraer to develop the KC-390. The Brazilian government already has placed a firm order for 28 aircraft. Development of the aircraft depended on budget availability and was delayed from its original schedule because of fiscal constraints. Two prototypes are being tested and more than 90% of the development program has already been completed. Embraer expects to receive international certification during the second half of 2017 and deliver the first aircraft to FAB in the first half of 2018. Embraer has another five letters of intent with other public clients comprising 32 aircraft in Argentina, Chile, Colombia, Czech Republic and Portugal. Pending completion of requisite certifications, first deliveries in the upcoming years, in conjunction with commercial enhancement efforts from Boeing, should support a higher likelihood of converting these letters of intent into firm orders. Russell Solomon Senior Vice President +1.212.553.4301 russell.solomon@moodys.com Cristiane Spercel Vice President - Senior Analyst +55.11.3043.7333 cristiane.spercel@moodys.com This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action info