Embraer Books Net Loss On AMR Bankruptcy

March 20, 2012

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Brazil's Embraer, the world's third-largest aircraft maker, booked a net loss in the fourth quarter due to a provision for the bankruptcy of American Airlines, wiping out steady revenue growth from an improved mix of deliveries.

Embraer posted a net loss of USD$91.8 million in the quarter, compared with a profit of USD$122.7 million a year earlier, the company said in a securities filing.

The aircraft maker set aside a provision of USD$360.7 million due to the Chapter 11 bankruptcy of key client American Airlines, which is renegotiating the leases on its fleet of Embraer regional jets.

More deliveries of big-ticket commercial jets and rising revenue from the defence unit helped the company lift net revenue 3 percent from a year earlier to USD$2.025 billion.

The improved mix of deliveries and productivity gains on the assembly line helped Embraer lift the quarter's gross margin to 22.5 percent, up 5.7 percentage points from a year earlier.

However, the American Airlines provision weighed on operating results, dragging Embraer's earnings before interest, taxes, depreciation and amortisation 70 percent lower to USD$59.2 million.


AMR, the bankrupt parent of American Airlines, operates a fleet of 216 of Embraer's ERJ 145 regional jets through subsidiary American Eagle. Embraer said the provision announced on Tuesday resulted from its own liabilities stemming from "fleet adjustments" in the bankruptcy process.

"Actual payments and cash disbursements for these obligations are expected to occur over... the course of the coming years," the company said in a statement.

Embraer booked a provision of about USD$103 million last year related to the warranty protection it provided to bankrupt US airline Mesa Air.

The company said that after studying the AMR bankruptcy's effects on the secondary market for Embraer planes, it decided to expand total provisions in the fourth quarter to cover any additional liabilities related to the Mesa jets, which will be resold in coming months.