Embraer Delays Cargo Jet As Profit Drops

July 30, 2015

Embraer said it will delay development of a military cargo jet as it reported a quarterly net profit of USD$129 million.

Embraer now plans to deliver its first KC-390 cargo aircraft to the Brazilian Air Force in the first half of 2018 rather than the end of 2016, the company said in its quarterly earnings report. The plane is the biggest Embraer has made.

Second-quarter profit at USD$129 million is down 10 percent from a year earlier due in part to its flagging military unit, whose contracts have been cut back and stretched out due to a government austerity push aimed at shoring up Brazil's investment-grade rating.

Brazilian military contracts are also contributing less revenue in US dollars due to a 20 percent drop in the real this year. Embraer is listed in New York and Sao Paulo and reports earnings in US dollars.

Chief executive Frederico Curado said he did not expect military revenues to rebound next year, but that there should be no "new surprises" from the government forcing Embraer to scale back contracts again this year or next.

Embraer has invested heavily in a diversified military unit, winning contracts to develop the KC-390 cargo plane, refurbish old fighter jets, launch a Brazilian satellite and set up a border monitoring system in the Amazon rainforest.

Following a first flight in February, the KC-390 test campaign is now scheduled to start in the third quarter and last 18-24 months, with certification in the second half of 2017.

The government still owes about USD$370 million in accounts receivable that Embraer is working to collect, Curado said.

Embraer lowered its 2015 revenue outlook by USD$300 million to between USD$5.8 billion and USD$6.3 billion.

Embraer kept its targets for operating profit as a stronger dollar should boost export margins.

(Reuters)