Embraer's order backlog may have shrunk at a slower pace in the third quarter, boosting hopes the world's largest maker of regional jets will avoid a production cut next year.
This week, Brazil's Industry and Trade Ministry reported aircraft exports from July to September worth USD$1.1 billion, while Embraer announced new orders in its commercial and military units worth about USD$500 million in the same period.
Based on those numbers, Embraer's backlog - or the value of unfulfilled orders that is used as a gauge of future revenue - may have remained above USD$12 billion. The backlog, which is now at the lowest level since June 2006, slumped 12.2 percent to USD$12.9 billion in the second quarter from the prior quarter.
Many analysts believe Embraer ought to reduce production sooner rather than later, as the company struggles with weak demand for commercial planes and a potential build-up in unwanted inventory. Executives say they are not considering output cuts for next year.
UBS Securities analysts led by Darryl Genovesi wrote in a report on Tuesday that, even as his team forecasts a modest increase in production for the coming years and expects orders to keep coming in, "we see Embraer's regional jets' production rates as unsustainable."
Embraer has forecast one new commercial jet order for each delivery this year, but weak global demand for regional jets this year is pushing that target further from reach. Chief executive Frederico Curado acknowledged last week in Geneva that the sales goal was looking increasingly tough this year.
At the end of June, Embraer's backlog shrank to around two years' worth of revenue, compared with more than seven times annual revenue at industry giants such as Boeing.
Still, analysts such as BTG Pactual's Rodrigo Goes expect a wave of pent-up demand from US regional airlines to trigger more than 300 regional jet orders over the next three years, which could quickly replenish Embraer's withering backlog.
The company is expected to release data on third-quarter deliveries in the coming days.