Embraer Sees E-Jet Sales Recovering

April 28, 2012

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Brazilian aircraft maker Embraer expects regional jet sales to gain steam after a weak first quarter, helping the company rebuild its order backlog from its lowest since 2006, chief executive Frederico Curado said on Friday.

"Our outlook for the year is to at least keep the backlog stable," Curado said. "Typically, first-quarter sales activity is a little slower... We're absolutely not concerned about reaching our targets for the year."

Embraer booked new orders for commercial planes at about half the rate it delivered them in the first quarter, drawing down its backlog below USD$15 billion for the first time in over five years.


Embraer, the world's third-largest maker of commercial aircraft, expects demand for its regional E-jets to remain stable or even grow from last year, when new orders slightly exceeded total deliveries, Curado said.

The company has dominated recent orders for regional jets seating 70 to 120 passengers, especially in fast-growing Asian markets, leading many analysts to expect Embraer will benefit the most from a gathering recovery in the segment.

Still, Curado warned that production from new rivals and lower leasing rates could eventually bring down pricing in the market for regional jets.

"In the immediate term, there's no impact yet. But in the long term I think the whole industry may see a negative impact," he said.

To stay ahead of competition from upstart Russian and Japanese competition, as well as chief regional jet rival Bombardier, Embraer is studying possibilities for a new, more efficient engine for its E-jet lineup.

But a final decision on the format and specifications of a re-engined jet, which Embraer had originally slated for the end of this year, will likely fall in 2013, Curado said.

The development of a re-engined jet, which Embraer has said could require investments in the range of USD$2 billion, will likely be funded with cash, debt and financing through suppliers, executives said, rather than with a capital increase.


As for the private jet market, where Embraer has said it does not expect a rebound until next year, Curado said there are "promising signs" but the segment continues weighing on results.

Executive aviation fell to just 13 percent of total revenue in the first quarter, down from 30 percent a year earlier.

Curado said cancelled private jet orders, including from a client that went out of business, dealt the biggest blow to Embraer's order backlog, which slipped to USD$14.7 billion in March from USD$15.4 billion in December.

Embraer shares have gained about 40 percent this year as the economic outlook in its export markets improved, investors regained appetite for emerging market stocks and the Brazilian government cut payroll taxes to bolster local industry.

The lag in implementing the lower payroll tax rate will limit its potential impact on financial results this year, Curado told analysts.

Management also said it expected to name a new chief financial officer "within weeks," after former CFO Paulo Penido Marques resigned this month, forcing the company to fill that post for the second time in a year.