Airline expected to continue buying from Brazilian plane maker just like Gol continues seeking Boeing planes despite being in financial restructuring
08/30/2024
Azul’s financial restructuring is unlikely to affect Embraer’s sales, said Antonio Carlos Garcia, the plane maker’s chief financial officer. David Neeleman’s Azul is the only airline currently operating Embraer’s commercial models in Brazil but, according to Mr. Garcia, it continues to buy planes, and will keep doing so just as competitor Gol continues to seek Boeing planes despite its ongoing financial restructuring in the U.S.
At an event at B3 to mark Embraer’s 35 years of stock exchange listing, Mr. Garcia praised the company’s partnership with Azul. “They take planes from leasing companies. We already know that the lessors will continue to extend credit to Azul, just as they do for Gol. We have a lot of confidence in Azul’s business model. Things are more complicated for them, but we think they will pull through,” he said.
Regarding the aircraft manufacturer’s performance, CEO Francisco Gomes Neto stated that the next five years would be positive due to strong demand for its planes. “Our order book has surpassed $21 billion, which accounts for more than three years of production. And we have several sales campaigns underway,” he said.
The executive recalled that Embraer faced various challenges in recent years, including the pandemic and the failure of negotiations to create a joint venture in the commercial division with Boeing. “The year 2020 was difficult, with enormous losses. But one year later, at the end of 2021, the cash flow, which was negative by R$900 million, turned positive by R$300 million. The losses turned into profits,” he said.
Similarly, margins began to recover. Rodrigo Silva e Souza, vice president of marketing and market strategy for Embraer’s commercial aviation, highlighted that since last year, the company has had better margins on aircraft sales due to a change in discount policy.
“In new sales since last year, we have been working to increase profitability and capitalize on favorable market conditions. Therefore, I believe that in 2026 and 2027, we should significantly improve profitability,” he said during the event on Thursday (29).
According to the executive, the discount policy was designed considering various factors, including the pandemic, the end of the agreement with Boeing, and Airbus’s acquisition of Bombardier’s C-Series jet program (now A220).
“These factors made us have to be more aggressive to keep the company afloat during critical years. This has already changed due to strong market demand. We no longer need to be as aggressive as before. We have basically sold out the 2025 line and a good part of 2026,” he noted. According to Mr. Souza, Embraer expects to reach 2026 producing 100 commercial planes per year.
The government’s decision to release credit to airlines using the National Civil Aviation Fund (FNAC) as a guarantor, but without the obligation to use it to purchase Embraer aircraft, did not shake the Brazilian manufacturer.
“We do not rely on mandatory customer purchases. We do see that the Brazilian market—like others—needs more connectivity,” said Mr. Souza.
“If we take two of the largest regions, São Paulo and Rio, they represent 40% of the traffic. It is a concentrated market that needs to be decentralized and new routes developed,” he said. The use of smaller aircraft, such as Embraer’s commercial jets, would be central to this strategy.
CEO Francisco Gomes Neto praised the Brazilian government for the support it has offered the company. “The perspective they have is that in other countries where planes are produced, the percentage of national production flying is 40%. Here, it is only 12%. We have only one airline with Embraer jets,” he said.
*Por Cristian Favaro — São Paulo
Source: Valor International