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Leeham News and Analysis
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Embraer delays KC-390 one year in 2Q2015 earnings announcement
July 30, 2015: Embraer reset entry into service for its KC-390 tanker/transport will be in 2018 vs 2017 when it reported its 2Q2015 earnings today.
The press release is here.
The KC-390 is Embraer’s largest aircraft, with a fuselage the size of a Boeing 767 width and the length of a Boeing 737. The airplane is being developed with government backing, intended to serve the remote regions of Brazil. Embraer also plans to market the airplane for export. Government funding has been squeezed with Brazil’s latest economic decline. Embraer has $390m in accounts receivable from the government.
The financial numbers were somewhat mixed, with a decline in revenue forecast for its defense unit, lower EBIT margins but solid commercial aircraft backlogs.
Embraer’s revised guidance is here. EMB’s 2Q2015 earnings presentation is here: EMBRAER_2Q15_Results
Goldman Sachs has this initial reaction:
Embraer (Neutral; $32 12-month price target) reported 2Q15 EBIT 30.6% below our estimate and 26.9% below consensus, with revenue 3.0% below our estimates and 6.0% below consensus. Embraer lowered its revenue outlook for Defense & Security from FX, but was able to reiterate its EBIT and EBITDA guidance for the year.
Total revenue in the quarter of $1.51bn is below consensus of $1.61bn and our estimate of $1.56bn. All segments except Commercial Aviation are below our estimates. Commercial Aviation revenue is $883mn, down 9.2% yoy and 2.0% above our estimate. Defense & Security revenue is $216mn, down 39.4% yoy and 13.4% below our estimate. Executive Aviation revenue is $404mn, down 4.0% yoy and 6.7% below our estimate.
Total EBIT margin of 6.8% is 260 bp below our 9.4% estimate and down 380 bp yoy, with a weak gross margin, worse overhead absorption and impairment expense on used aircraft. 2Q EBIT of $102.2mn is below consensus of $139.9mn and our estimate of $147.3mn. Gross profit is 18.6% below our estimate, with a gross margin of 18.9% 370 bp below our estimate due to a combination of lower revenues negatively affecting fixed cost dilution, and a cost base revision for certain contracts in the Defense & Security segment. Other expense is $(0.07) worse than we expected driven by impairment expenses on the portfolio of used aircraft in 2Q15, though this is more than offset by $0.16 upside from lower SG&A and R&D costs.
Free cash flow is $165mn (1.28X FCF/NI) compared to a use of $(23)mn in 2Q14 and a use of $(581)mn last quarter.
Total backlog increased to $22.9bn, up 12% sequentially from 1Q15. The change in backlog implies $4.0bn in new orders, generating a book-to-bill in the quarter of 2.65X (1.95X on a TTM basis). The backlog was previously reported in the company’s orders and deliveries report.
Embraer reiterated its guidance for 2015 EBIT of $490mn-$560mn and EBITDA of $730mn-$850mn, but reduced revenue guidance to $5.8bn-$6.3bn from $6.1bn-$6.6bn (all in Defense & Security) to reflect the Brazilian Real devaluation. EBIT margin guidance was revised to 8.5%-9.0% from 8.0%-8.5%, and EBITDA margin to 12.6%-13.6% from 12.0%-13.0%.
Our 12-month $32 price target is derived from target CY16E P/E of 12.8X. Key risks include (1) regional jet demand, (2) business jet demand, (3) new program development risk, (4) FX.
The KC-390 might be for Embraer what the C Series is for Bombardier: Chewing a bigger piece than they can swallow.
FG says two years but dates the same.
These are never easy projects let alone first time.
Happy Lockheed
Boeing is doing the sales, serving and training for North American and European users..
That would be Lockheeds biggest worry, and a nearly 2 year overall delay in deliveries means possible buyers will hold back from signing up.
Yet to commit is Sweden who are partnering with Embraer on the Gripen NG which Brazil has ordered.
Lockheed’s main competitor, Boeing, has signed on to take care of sales, servicing and training for potential North American and European users, which brings incredible clout to Embraer’s largest aircraft project to date.
I can only assume that a substantially modernized Hercules can still be sold at a cheaper price than the KC-390; which will probably have a much stiffer price tag despite the fact that Embraer’s manufacturing costs are lower due to their cheap labour.
Certainly Lockheeds price for a new C130J would be the one you would want to be ‘just above’.
Trouble is the C130J is the bottom end of the USAF transport mix and doesnt do any long haul route flying.
For some countries that is a major part of the mission with only a small requirement for rough short airfields.
the KC390 with a 13t load will fly 2800nm while a Herc with similar payload is 1600nm and much lower cruise speed.
The respective range for the C-130 and KC-390 are as follow:
C-130E = 2050 nmi
C-130J = 2835 nmi
KC-390 = 2600 nmi (1400 nmi with full payload)
You need payload-range charts Normand for it to make any sense.
Quoted ranges mean less than nothing without payload information.
@ Brendan
I have the maximum payload for the KC-390 but not for the C-130 unfortunately. Perhaps you can supply those charts?
The problem is hidden here:
http://www.af.mil/AboutUs/FactSheets/Display/tabid/224/Article/104517/c-130-hercules.aspx
http://www.gdls.com/index.php/products/stryker-family/stryker-combat-vehicles
Maximum normal payload for a C-130H or C-130J-30 is about 16.5 t. That is about the basic weight of a Stryker.
The next problem is the difference between Stryker’s “shipping size” and “combat size”.
Shipping height is about 106 inch
Shipping width is about 113 inch
The C-130’s cargo compartment height is 108 in (2.74 m) and width is 119 in (3.12 m). Another problem is how will the cargo specialist check the cargo attachments during flight (US Air Force requirement)?
Combat size for all Stryker model does not fit inside C-130 cargo compartment. No Stryker can drive combat ready down the ramp.
The Bradley IFV with a weight of 27 t is not C-130 compatible at all.
C-130 ranges with 35,000 lb payload:
C-130H: 1,250 nm
C-130J: 1,600 nm
C-130J-30: 2,100 nm
Conclusion
Neither the Stryker nor the Bradley fits combat ready inside any C-130.
big piece indeed. such projects are more of a burden than a blessing. If I think of how much Airbus receives for the 400M and still Enders saying he would not do it again, I guess E’s plate will be full for the next 15 years, meaning
– no turboprop
– no 320 737 size aircraft (in the meantime a Chinese manufacturer might become nr 3)
– vulnerability in the E 170 – 195 sector
– no E 145 follow up
What do you mean by vulnerability in the E170/195 sector?
i just mean, E can t react for 15 years, just like Bomb has no capacity to improve the Q vis a vis the improving ATR or the CRJ vs its new competitors.
Should the Su Superjet or Mitsubishi regional get rid of its teething problems soon and present a good product, then the E2 might get obsolete or at least not cash generating earlier then anybody expects.
You could have said that for the original E170/195 but they came up with the E2 package which offers new wings along with new engines. And Bombardier has the same thing in mind for the CRJ: a single CFRP wing (à la C Series) for the three variants, along with new engines. But for the Q400 it is a bit more complicated and I don’t see a way out at the moment.
“In fact, full fly-by-wire constitutes one of the program’s most conspicuous advances over the current generation of E-Jets, which uses traditional controls for its ailerons. As a result, engineers could reduce the sizes of the family’s empennages, helping to cut drag. “You can operate with a center of gravity that is further back, so you need to produce less force from the empennage, which again allows you to have less drag on the airplane,” explained Affonso. – AIN
I imagine full fly by wire would lead to even more aerodynamic advantages for KC390 over C130J, which help explain range advantage despite smaller wing span and wing area ( for fuel)
I guess quads are out of the 15-20t tactical segment. The C130 hung in there for 60 years but also its cargo bay has become too small, too low mainly for the required armoured vehicles.
I think its a tight fit and stuff has to come off but I believe the Stryker fits in a Herc.
And if you are going to deploy armor you have to have fuel, ammo and parts there first.
I always found it a laugh the German govt drive on he A400 was the to carry the Puma despite not wanting to get involved in anything.
It takes 4 A400s to carry 3 Puma (too big for the C390 at 31 tons) as the4 armor comes off.
And a Stryker weight 18 tons so too big for the 390
So what kind of armor can the C390 carry? Not much. Not effective.
And the countries that use simply operate close to home.
Nice plane, but if you want a world wide presence we are talking C17s, C5s and Hercs (through in a few A400s if we can get any allies to go along)
As I mentioned it already above a Stryker fits inside a C-130 but not combat ready. Just think about putting the 105 mm gun on top of the Stryker MGS.
The German PUMA IFV is better protected than the Bradley without the additional armor. The front armor withstands shaped charge projectiles and the side armor 14.5 mm rounds. Therefor the PUMA can drive out a the rear of an A400M right into the battle. With the additional armor the protection level is raised to front armor level all around the vehicle.
The A400M has the same number of tires as the C-17. C-17 empty weight is about the maximum landing weight of A400M. That says a lot about rough field capabilities.
The USAF has no tactical aircraft to deploy combat ready IFV. The C-130 is to small and the C-17 could do it once or twice.
“And a Stryker weight 18 tons so too big for the 390
So what kind of armor can the C390 carry? Not much. Not effective.”
The KC-390 is a little higher, wider and can carry a few tonnes more than a C130J. E.g. a little more complete Stryker. A little faster and further.
The requirements are outgrowing the good old C130. The C-390 might be the perfect replace ment. The A400M seems overkill for most C130 operators/ missions.
https://leehamnews.com/2014/10/13/embraers-big-bet-on-its-largest-airplane-yet/
keesje, are you suggesting that the KC390 has more range than the C130J? I suppose that is what you meant when you wrote “A little faster and further.” I have 2835 nmi for the C130J (unspecified payload) and 2600 nmi for the KC-390 (1400 nmi with full payload). Perhaps someone could supply a chart for each type with the respective range for a corresponding payload so that we can compare apples with apples.
Looking at Embraers own website we get the following ( can draw a payload range chart from this ?)
Ferry range 3350nm. More usual is 13.0t for 2780nm. Max payload is 23.0t and 1380nm.
For the Hercules , all models af.mil website gives the following
Normal payload is 34000lb or 15.4t ( 16.3t for C130-j-30) max range at this payload is 1800nm (1700nm for -30)
Max payload is 19t and 20t respectively, no range given
It seems the Kc-390 has greater range ( and faster to boot, but burns more fuel of course) and greater payload
We can INFER that the KC390 would have GREATER range at the normal payload than for Herc. As the range at 13t is about 1000nm greater than Herc with 15.4t (1800nm)
http://www.af.mil/AboutUs/FactSheets/Display/tabid/224/Article/104517/c-130-hercules.aspx
Dont know where you got your figures , but best choice is official ones. Works for me everytime
C-130J-30 range with 35,000 lb payload is 2,100 nm.
C-130J-30 range with 36,000 lb payload is 1,700 nm.
http://www.af.mil/AboutUs/FactSheets/Display/tabid/224/Article/104517/c-130-hercules.aspx
I think the 2835nmi might be the max range without load, ferry range.
http://image.slidesharecdn.com/c-130weightlimits-apr2002-130106230402-phpapp02/95/c130-weight-limits-april-2002-2-638.jpg?cb=1357513549
A KC-390 would be able to do 2000NM with an 18t payload (slide 2).
http://www.embraerdefensesystems.com/english/content/download/pdf/Spec_KC390_junho_10_EN.pdf
It is very likely that Embraer wanted to offer a range similar to the aircraft it aims at replacing. But this is more difficult to achieve with a jet engine than a turboprop; and it could vary with the flight profile.
According to USAF figures the HERC is well behind Embraers numbers. I think there has been only one or two test flights so they may vary. It would be very bad PR if they changed much.
The main advantage is the higher altitude flight of the KC390 and maybe better streamlining.
Interesting the A400 is a tubo prop.
Something to be said for short field performance.
And while the C130 in origination is 60 years old, the J is many generational improvements.
I think the C390 is a nice enough bird, but I think its mind of an odd slot and the C130 will live on.