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.
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.
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.
While Commercial Aircraft is in a generation shift, the low deliveries for the business jet line is more troubling, Figure 2.
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.
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 from the aircraft divisions are now shown in the new Services division. Total revenue for 1H2018 was $495m.
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.