Embraer 3Q2016 results: Stabilized situation

By Bjorn Fehrm

1 November  2016, ©. Leeham Co: Embraer reported slightly better than expected results for  3Q2016, with revenue up by 18% to $1,514m. Gross margin for the company is at a stable 19% (18% 3Q2015) and EBIT before one-off was $95m ($85m).

After one time charges, the result was a loss of $34m, attributable to a layoff program of $118m and additional charges in the Corruption affair the company has been involved in. The company reiterated its guidance for 2016, adjusted downwards in last quarters presentation.

The Commercial Aviation side delivered more aircraft than expected and Defense & Security increased revenue by 19%. The business jet side did not expand as planned.  Despite the certification of new models (Legacy 450), the delivery of new business jets is stuck at about 50% below what was expected, around 25 units per quarter instead of more than double that at the end of 2015.

embraer-175-plus-exterior

Embraer’s commercial aircraft best seller, the E175 being in Alaska livery. Source: Alaska Airlines.

While deliveries of commercial aircraft held up at 29 units, sales are not keeping pace with 17 aircraft sold in the quarter. Deliveries year-to-date are at 76 E-Jets while orders are at a low 51 for a book-to-bill of just 0.67.

Defense & Security stabilized with the KC-390 military transport program now progressing. The flight test program now has two aircraft.

Here the details of the financial results for the divisions and their aircraft programs:

Commercial Aircraft

Order intake for the quarter was at a low level, with 12 orders for the E190 and five orders for its E2 variant. Deliveries for the quarter were 24 aircraft of the current E175, four E190 and one E195. Revenue for the division was up 35% year-on-year at $927m compared to $688m for the third quarter 2015.

The present backlog for the bestselling E175 has gone down from 169 aircraft at the start of the year to 130 and there are more sales needed to bridge the gap to the E2 version, which start deliveries in 1Q2020.  Sales of other models are still weak; the E195 has a backlog of only 10 aircraft. Its E2 model will star deliveries in Q12019. The E190 fares better, with a backlog which increased by 13 aircraft to 68, with first E2 delivery 1Q2018.

The flight testing of the E190E2 in running better than plan, with 20% of the test program finished by the three test aircraft.

Business jet division

The business jet division was hit by the slump in world-wide business jet sales. Deliveries are now stuck at around 25 aircraft each quarter instead of growing as planned. The fourth quarter 2015 saw deliveries of 67 aircraft.  The plan was for the new mid-range Legacy 450 and 500 to increase the share of midsize jets, but this is now virtually flat at 12 aircraft compared to nine last year when the product line had one fewer model.

Revenue for the division was $367m, down 9% over the $402m of Q32015.

Defense and Security division

The division has stabilized revenue with the first 20 deliveries of its Super Tucano trainer to the US Air Force.  The KC-390 military transporter program is now back up to speed after a hiatus when the Brazilian state could not pay for the program as planned. Flight testing continues with the planned two aircraft. The SAAB Gripen fighter program is continuing as planned with 68 Embraer engineers now working on site at SAAB in Sweden on the development of the GRIPEN E version.

Revenue for the division was $216m, up 19% over the $182m of last Q3.

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