Embraer 2Q2018 results: KC-390 problem turns quarter red.

By Bjorn Fehrm

July 31, 2018, ©. Leeham News: Embraer presented its 2Q2018 results today. The company posted a loss as the KC-390 program was reset financially after a prototype was damaged in ground testing during the quarter.

The Military division’s KC-390 problem came on top of forecasted weaker 2018 deliveries in both the Commercial and Business jet divisions. A $110m company profit was turned into a $17.7m loss for the quarter by a $127m KC-390 program charge.

Commercial aircraft

The Commercial Aircraft division delivered 42 E-Jets during for first half of 2018 compared with 53 for 1H2018, Figure 1. The aircraft paying the bills is the E175, the leading Scope Clause Compliant regional aircraft for the US market. For 1H2018 31 of 42 delivered aircraft was E175.

Figure 1. Commercial jet deliveries. Source: Embraer.

The slump in deliveries comes as the E190 and E195 series crosses over to the E2 variants. Three E190-E2 have been delivered to the launch operator, Norwegian Widerøe. Embraer says these operated 300 flight hours since late April with 100% schedule reliability.

Segment revenue was down 34% 1H2018 versus 1H2017 ($1,137m vs. $1,725m). Part of the loss is the carve out of Services revenue to a newly created Services division.

Business Aircraft

While Commercial Aircraft is in a generation shift, the low deliveries for the business jet line is more troubling, Figure 2.

Figure 2. Business jet deliveries. Source: Embraer.

The ratio of margin richer large jets is down 5% from 31% 1H2017 (12 of 39) to 26% (8 of 31) for 1H2018. Segment revenue was down 41% 1H2018 versus 1H2017 ($335m vs. $566m). Part of the revenue loss is the carve out of Services revenue to the newly created Services division.

Embraer still expects to ship the guided 105 to 125 business jets (70-80 light jets and 35-45 large jets) for 2018. This means large jets have a large catch up to do in a back-loaded year, the guided mix has 35% large jets.

Defense & Security

Embraer expects to certify the base KC-390 aircraft for the Brazilian market this year. Operations of the KC-390 with the Brazilian Air Force will be delayed until 2019 as the first series aircraft will be retained to replace prototype no 1, which was badly damaged in an off-runway excursion during ground testing.

Segment revenue was down 43% 1H2018 versus 1H2017 ($277m vs. $490m), where part of the downfall is the showing of segment services in the new Services division. A charge of $127m was taken in 2Q2018 as the completion level of the KC-390 program was revised because of the testing accident.

Services and Support

Services from the aircraft divisions are now shown in the new Services division. Total revenue for 1H2018 was $495m. 

Group results

With all segment being down on revenue compared with 2Q2017, also after compensation for the carve out of Service & Support, the group results were modest. Revenue 1H2018 fell with 20% versus 1H2017 ($2249 vs. $2,796m). A modest 2Q2018 profit of $110m was turned into a loss of $17m by the resetting of the KC-390 program. Profit for 1H2018 was $9m.

The group reiterated its 2018 guidance, ex. the KC-390 reset, of 85-95 E-Jet deliveries and 105-125 business jets. Revenues are guided as between $5.4bn to $5.9bn and profit $270m to $355m.

27 Comments on “Embraer 2Q2018 results: KC-390 problem turns quarter red.

  1. Bjorn:

    I have seen data and comments that the E2 190 is not scope compliant.

    Whats the truth?

    • TW: E190 is not scope compliant, generally. E190s at US Airways/American were allowed.

      • It’s my understanding that the scope clause doesn’t come into play with AA’s E190’s, as they have at all times been operated as mainline aircraft with mainline crew. They were not and are not flown by contracted regional carriers on behalf of AA.

    • E190-E2 would never be scope compliant as its much larger than the scope compliant E175.
      The scope requirments vary slightly for each airline but a feature of the E175 is 76 seats @ 2 class while E190-E2 you are looking at 96 seats ( jetblue uses 100 seats in its existing E190s)
      the E175-E2 is 80 seats

      • Just read in a recent survey that the market forecast for turboprops to 2037 is ~3000 units. Will EMB/BA get involved or leave the market to BBD and ATR?

        Also, what is the future of the ERJ-family with BA “taking-over” EMB?

        On the KC-390, could we see an CFM engine on the wing sometime in future?

      • I am not very familiar with the US scope clauses, aware of the seat limitations. Also read about the weight limitation, but is it OEW or MTOW and what is that weight?


        • And, can you put in fewer seats and get it into Scope despite the weight or is there a formula you can do it but not unlimited.

          Say a E-190 that you seat only 76 in? (somewhat extreme with 20 seat loss)

          And that in turn makes all but one of the Embraer product in the same boat as the MJ.

          Or to flip it, Go really big (C series) or stay small.

        • The most common Scope Clause has two important limits, 76 seats max. and a max. MTOW of 86,000lb. If you want any range you need a right-sized aircraft, like an E175. An E190 doesn’t fit, to large and too heavy.

          • Thanks Bjorn, see 175E2 MTOW ~98,800lb. That’s a mighty lot of weight to trim taking into consideration range is only ~2100NM.

            The MRJ70 at 88,600lb with 69 pax closer to “spec”.

          • Where does the extra weight for the 175-E2 come from ?
            I understand that both E2 models, the 175 and 195 have different wings so its not carrying extra weight there?

            “The LR version the original E175 tipped the scales at 85,520 lbs MTOW. The STD range version came in at 82,700 lbs. ” ( plus AR versions with some reinforcement) . STD range was supposed to be 1750nm while AR is 2220nm.
            So presumably the new 175-E2 version being talked about is the ‘LR’ model . The new engines are a jump in weight as they are scaled down versions for the larger Cseries and A320.
            The interior cabin has been redesigned for the 175 to allow and extra row at max capacity of 88 – not required for Scope , and the fuselage is some 2 ft 3 in longer

            All in all the all new MRJ70 seems to have the upper hand as its weight could be below scope depending on range. Yet its cabin width is the same, fuselage length 3 ft longer and engines the same.

          • Thanks to all in helping unravel the weird rules regarding the scope clause.

          • 10,000 lbs extra for 2 new engines and an extra fuselage frame?. The PW1100G series engine is 452kg heavier than the V2500 series it replaced on the A320, which is say 1000lbs per engine. Those are for the 81in fan not the 56in fan for the PW1700g series on the E175-E2
            A new/modified wing design would be expected to be lighter along with the increased digital flight controls. Maybe thats where Boeings expertise is needed fast, after all even if they miscalculated on scope being changed, who wants all that extra weight for 4 extra seats on an 80 plus seater. You wouldnt tolerate that on a 150 seater.

          • More wing, more range and maybe net heavier

  2. Damaged the vehicle in both flight (last year) and ground testing? I hope that is because they are pushing it rather than it failing.

  3. A question for Bjorn. When I did a private pilots license, many years ago, there was an official short landing and the hold her nose up, keep the revs on and use the prop wash, min approach speed minus 5 kts approach. There is a difference between acceptable and unacceptable in civilian and military ops. Do Herc operators ever use the unofficial approach, even if just to get better stall margins? How tolerant is the KC-390 of abuse?

    • Hi Martin. In military operations, you go to the limits to gain performance. I don’t know the specifics for the Hercules and its short landings. Re the KC-390, the stall incident with a hard landing was due to a piece of the test equipment breaking loose and changing the CG, so was not an aircraft problem.

      Re the runway excursion, it was huge, over 100m beyond the end of the runway. Embraer has not given the reason. One can suspect stuck throttles or brake failure. It was too large an excursion for pilot error IMO.

    • So a score of 6.6 vs 7.0 and 7.2 on a 0-10 scale ? The Summer silly season has arrived early.
      Its the sort of things with obscure detail that competitors supply journalists who then reach for the email on a slow news week

      • There is more than one data set in there.

        The -24% approval rating stands out like a Nuclear Bomb going off on Bakini atoll.

        The 6.6 is also lowest though numerically it looks small.

        However, the scale realty is more 6.5 to 7.5 and in that its not good.

    • I twas indeed good new to all survibing.

      I would say its more a testimony to the nature of the crash.

      Note the pilot and co pilot at the pointy end did not die either?

      A long shredding crash with the aircraft trading structure for speed reduction and not running into anything head on.

      Energy is dissipated as engines and gear tear off and as long as the fuselage stays relatively level (777 crash at SFO) they stay intact (more honer to the regulation on structure strength?)

      Once things are torn off then energy (inertia) continues to be reduced by the drag on the fuselage and wings.

      The DC-10 crash into Sioux City Iowa much the same with far less controlled and high number of survivors.

  4. Adn on RR this one takes a bit of untaling, I think there is some double speak contained.


    Note is says that the IPC issue was not diagnosed per cause until 2018 though it seems they knew about the cracks. RR does not say they have corrected the root cause or the blade fixes corrects that despite not knowing the root.

    This one also has an interesting twist in that they don’t say if RR decreased the clearance in a PIP or why new engines exhibited this severe behavior when “old” engine do not.

    Seems to have a lot in common with GE and ultra freezing conditions though where the issues manifested itself was totally different.

  5. For 2018 we have 3 Huge Aviation Stories (so far and it seems that will be the top three)

    C Series to Airbus

    Embraer r and Boeing tie up (maybe the same story)

    RR and its issues.

    All have their own significance and maybe a two or three way tie.

    • “More than 40 unfinished 737 jets are stacked around Boeing’s Renton final assembly plant and along the edges of the Renton Municipal Airport, many missing their engines and others awaiting installation of a variety of parts.’
      ‘Since early in the year, LEAP-1B engines for the new 737 MAX model made by CFM International have been arriving weeks late. Likewise, 737 fuselages supplied by Spirit AeroSystems of Wichita. Kan., have been arriving late in Renton.’

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