Leeham News and Analysis
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Leeham News and Analysis
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Supply chain problems weigh on Embraer deliveries
By Leeham News Team
Nov 8, 2024, © Leeham News: Embraer has revised down its expected commercial aircraft deliveries for 2024 to between 70 and 73 aircraft, from 72 and 80, amid what CEO Francisco Gomes Neto called continued “obstacles” in the global supply chain.
In its 3Q24 results released on Friday, the Brazilian plane-maker reported revenues totaling $1.692 billion in the period, up 32% yoy.
Both the Executive Aviation and Defense & Security divisions performed particularly strongly, with 3Q24 revenues of $561.5 million and $219.6 million respectively, with each achieving a 65% yoy growth.
On the commercial side, 3Q24 revenues totaled $473.3 million, 11% higher yoy, though gross margin decreased from 6.5% to 4.3% yoy because of supply chain delays, and the product and customer mix. Supply and Services unit revenues were $425.5 million, 16% higher yoy.
Embraer said its revenue guidance for the year remained unchanged at between $6-6.4 billion, with the adjusted EBIT margin between 9-10% (up from 6.5% and 7.5%).
Speaking to investors to mark the release of the Q324 results, Gomes Neto said “supply chain problems” and “ongoing obstacles” had impacted deliveries on the commercial aircraft side of the business.
Supply chain challenges
Gomes Neto said that while “we have seen improvements in the supply chain”, there were problems with specific groups of components, notably engines and structural parts, and that the E2 family was particularly affected. He added that the “aggressive growth of OEMs” was “pressurising the supply chain.”
“We are not getting the engines on time to be able to finalise the assembly of our aircraft,” the CEO said. “The outlook is improving from last year to this year. We expect it to continue to improve. We recognise that we are increasing demand for engines and it is putting more pressure on suppliers.”
He said Embraer was addressing this by “reinforcing” its supply chain organisation, using digital tools, including artificial intelligence, and by placing more of its employees closer to its critical suppliers to ensure supply chain blockages were addressed quickly.
“We delivered another solid quarter for our shareholders despite all the challenges we continue to face with our supply chain,” Gomes Neto added. “We are optimistic about year-end results and are very confident about our future.”
Embraer’s adjusted EBIT in 3Q24 reached $297.5 million (with a 17.6% margin). This includes $150 million from the Boeing arbitration agreement.
Commenting on the impact of the U.S. presidential election result on future business prospects for Embraer, Gomes Neto said: “At this point in time we don’t see any big risk or big impact. Every aircraft we sell, we are helping the US economy.”
Deliveries
The performance of Embraer’s commercial and executive units. Credit: Embraer.
Embraer delivered 59 jets in 3Q24, including 41 executive jets (22 light and 19 medium), 16 commercial jets and 2 multi-mission C-390 Millennium in Defense & Security.
This was 26% up versus the 47 aircraft delivered quarter over quarter, and 37% higher versus the 43 aircraft delivered year over year.
The commercial side was boosted by a firm order from Virgin Australia Group for eight E190-E2 aircraft, to be used for its regional and charter business, Virgin Australia Regional Airlines (VARA). The E190-E2 will be used to replace its Fokker 100 fleet.
Embraer’s Defense & Security and Services & Support divisions performed well. Credit: Embraer.
Pressed on the difficulties faced in the commercial unit, Gomes Neto said the industry was cyclical with different sides of the business having “good…and not so good” periods over time. The commercial unit is also supporting a strong services division, he added, with around 40% of services contracts linked to the commercial side.
The defense division saw notable orders from the Dutch Ministry of Defense for nine C-390 Millennium; a joint purchase, in cooperation with Austria, with five aircraft for the Royal Netherlands Air Force and four aircraft for the Austrian Air Force.
Order backlog at nine-year high
The Executive Aviation unit had its best third quarter and best first nine months in terms of revenues and deliveries ever registered, with gross margin improving from 21.8% to 23.4% yoy and the adjusted EBIT margin rising from 10.7% to 16.3% during the period.
The firm order backlog now stands at $22.7 billion, which Embraer said was a nine-year high – more than 25% higher yoy and almost 10% higher qoq.
Defense & Security delivered an increase of $1.5 billion, while Executive and Commercial Aviation recorded decreases of $184 million and $168 million, respectively. That said, Gomes Neto noted that Embraer was “sold out until 2026.”
Commenting on the EVE program, Neto said he expected the first flight to take place in 2025, with certification to follow with the US and Brazilian regulators in 2027.
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