Leeham News and Analysis
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Leeham News and Analysis
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Embraer’s 2Q2020: Revenues more than halved, causing increasing losses
By Bjorn Fehrm
August 5, 2020, ©. Leeham News: Embraer presented its 2Q2020 results today. The revenue virtually halved for 1H2020 to $1.17bn (2.2bn 1H2019) and shrank 61% for the second quarter to $537m ($1,379m 2Q2019), after delivering only four E-Jets during the quarter (26).
Total losses were -$342m ($27m), whereof -$202 was non-operational charges. The COVID crisis hits commercial aircraft deliveries, but Embraer had no cancellation of E-Jet orders in the quarter.
The Executive jet segment is holding up comparatively well, as is Defense and Security.
Embraer in total
The Embraer results for the second quarter were charged with $101m which was delayed amortization and depreciation which wasn’t performed for the carved out Commercial Aircraft operation during the Boeing Joint-Venture sales process.
A further $101m was on-time charges for expected losses due to COVID-19 and a change in the value of Embraer’s shares in Republic Airways.
The Company has $2,0bn of cash exiting 1H2020 with another $0.7bn coming end of 3Q2020.
To conserve cash, all company expenses are minimized, including investments in facilities (CAPEX) and Research and Development (R&D), Figure 1.
Figure 1. Embraer investments for 2019 and 2020. Source: Embraer.
Debt is maturing the first time in 2022. Given the present crisis, no guidance is given for 2020.
Commercial aircraft
The Commercial Aircraft division delivered four E-Jets during 2Q2020, of which two of the lastest E2 standard. This compares with 26 for 1Q2019, Figure 2.
Figure 2. Commercial jet deliveries. Source: Embraer.
Segment revenue of $109m shall be compared with $631m from the second quarter of last year.
Embraer is now slowing down the development of its E175-E2, with EIS planned for 2023 instead of 2022, as the US Scope clauses still render the aircraft to heavy for the US market. The present E175 (-E1) is now the only aircraft in production for the US segment.
Embraer points out that regional jets lead the recovery, with 90% of its US E-Jet fleet back in service during 2Q2020 versus 61% for the larger single-aisle segment.
Business Aircraft
The Executive jets are affected by COVID-19 but the margin richer larger jets are holding up better than the light jets, Figure 2.
Figure 2. Business jet deliveries. Source: Embraer.
Segment revenue was $150m for 2Q2020 with $280m for 1H2020 ($414m 1H2019). The Business jet market is important for Embraer as the traffic is picking up faster than for commercial aviation. It’s back to 80% of the 2019 traffic from May 2020.
Defense & Security
Defense and Security delivered the third KC-390 airlifter to the Brazilian Air Force with a further one to be delivered later in the year.
Services and Support
Services revenue for 2Q2020 declined to $192m vs. $309m 2Q2019. The decline is due to COVID-19, causing the worldwide Embraer fleet to fly less and to customers deferring any services that are non-essential.
With the decimation of active duty pilots does anyone at LNA speculate that legacy carriers/ALPA might relax or eliminate scope clauses?
What would be in it for the mainline pilots? It seems if the recovery will be slow and routes will be thin for a while then mainline pilots will fight to ensure any expansion of the regional fleet.
I wonder if any carrier will take some portion of there exiting regional fleet into the mainline operation creating a unified fleet. They could offer to train their mainline pilots on say the EJets letting them have more flight hours during the recover. In return they could ask for operational flexibility.
Duke had referenced an excellent article on scope clause awhile back. It presented the scope clause issue as a negotiation where both sides have something to gain.
It also showed that at present, there is not much to be gained by either side in an alteration. So until that changes, and a perceived advantage becomes apparent, it will likely remain as it is.
It may not seem logical from a market efficiency standpoint, but I think this is a realistic interpretation of how the issue is viewed by both sides.
The legacy carriers cannot change scope without union concurrence (I think bankruptcy allows them to do so)
That said, scope is supposedly about jobs for the Union. What logic leads to lots of pilots out of work looking for those jobs lend itself to removing scope?
Unions want less competition for jobs not more.
Nothing stops a Union pilot from flying for low wages in a regional (some union clauses disallow it but they alwyas allow exemptions when the Union has not jobs like now)
“Unions want less competition for jobs not more.”
Seems to be a completely different behavior from what it is expected from a Union. But Unions never follow a logical path.
They are like doctors. can’t keep prices up if you have too many people that can do the job.
I am for and have been in Unions, but the form they have taken become self serving.
They become closed and benefit the hierarchy. The goal is to get a Union Position so you don’t have to work.
Then they become corrupt as the book while aphoristically are open are not.
Wage scales are flat and do not reflect skills, just a so called minimum and that on the good old boy minimum scale. I saw a lot of apprentices that were vastly more qualified than the old union hands.
They would be happy to have a million high paid members, but they don’t have a million high quality people. And it ignores that you are not an expert after 3 years as much (if you work at it) at 5 and 10 years.
What I saw was they has 10% who knew what they were doing but 70% were considered full fledged journeymen.
Raise a question and you would get hammered down. I actually sat in a meeting that they were going to let people vote on a contract who were not up on their dues. Oh, we don’t have to pay attention to the details here.
In that case they could not stop me, you can’t vote and you can’t be here unless your dues are paid up like mine are. Pretty funny if it was not so sad and corrupt. The Union management had a goal and they would violate any standard to get it.