As Embraer’s deliveries of business jets totaled 52 units by September, plane maker is under pressure on the fourth quarter to meet this year’s target of 100 units
11/30/2022
Those interested in buying a new Embraer business jet currently face a waiting line of 2.5 years, as the Brazilian company’s production slots are fully booked by then. The arrival of parts is also delayed, a situation expected to normalize only in 2024.
The demand for business jets, especially the small ones, gained momentum with the Covid-19 pandemic and benefited the Brazilian company, which is the global leader in the segment. For 10 years now, Phenom 300 has been the world’s best-selling aircraft in its category. Still, bottlenecks in the supply chain have limited airplane production in general and required manufacturers to do a lot of tactical planning.
As Embraer’s deliveries of business jets totaled 52 units by September, the company is under pressure on the fourth quarter to meet this year’s target of 100 units.
The scenario is relatively similar in commercial aviation, a business that suffers in particular from a lack of engines. Embraer’s orders have not yet returned to the level seen before the pandemic. Embraer delivered 27 E175 and E195-E2 aircraft by September, less than half the target for the year.
“We have the challenge of delivering 60 aircraft in the commercial aviation business and 100 business jets. We are confident that we can reach the target, but we can miss one or another aircraft and still meet the revenue guidance,” said Antonio Carlos Garcia, Embraer’s chief financial and investor relations officer, on Tuesday.
The company foresees delivering between 60 and 70 commercial aircraft and 100 to 110 business jets this year and had already indicated that it is likely to reach the floor of these ranges.
In the world market for jets with up to 100 seats, the Brazilian plane maker has an 86% share and is likely to reach 95% in the future, because of the limited number of competitors in this segment. The United States is the main market, but Latin America has been developing as well, said Mr. Garcia.
“Who is buying? A lot of new people that buy smaller jets when they join the market,” he said. For the coming years, Embraer’s business aviation business is expected to sell 100 to 120 units a year.
In commercial aviation, the lack of pilots in the United States, the financial crisis faced by airlines, and the lack of engines have curbed sales in volume. In the global market of jets with 100 to 150 seats, the company estimates its market share at 30%. “Embraer will probably need at least two years to operate with higher volumes,” he said.
Embraer, the third-largest plane maker in the world, is on track to post net sales of $8 billion in 2026 if the average pace of revenue growth of 12% seen in recent years is maintained. The future contribution of Eve, the urban air mobility subsidiary, is not included in these projections.
In 2019, before the crisis triggered by the pandemic and the end of talks with Boeing involving the commercial aviation business, Embraer reported net sales of $5.4 billion. For this year, the company expects a range between $4.5 billion and $5 billion. However, due to hurdles in the supply chain, the company’s revenue is likely to be between $4.6 billion and $4.7 billion, said Mr. Garcia.
As for the consolidated operating results, Embraer projects this year an adjusted EBIT margin of 3.5% to 4.5% and an adjusted EBITDA margin of 8% to 9%. The actual results could be even better, according to the executive.
The bottom line is expected to be “slightly negative” in 2022, compared with the original projection of profit. Adjusted cash flow, which returned to positive territory in 2021 after two years of burning cash, could be “much better” than a positive $150 million if year-end deliveries come in on schedule. “The people didn’t stop to watch the Brazilian team’s World Cup game Monday because of the number of planes we have to deliver. The parts are arriving at very short notice to finish the aircraft,” he said.
*By Stella Fontes — São Paulo
Source: Valor International