Embraer 1Q2016 results: Strong start to the year

By Bjorn Fehrm

3 May 2016, ©. Leeham Co: Embraer has made a good start to 2016. Group revenue for 1Q2016 was $1,309m compared to $1,056m 1Q2015, up 24% year on year. EBIT was $86m compared with $80m a year ago, giving a margin of 7.5%.

The major increase in revenue was for the Business jet side which delivered 23 aircraft compared to 11 1Q2015. Commercial aircraft increased with one aircraft to 21 deliveries.

Embraer’s commercial aircraft best seller, the E175 being delivered to United Express. Source: Embraer.

The commercial aircraft side sold 23 E175-E2 in the quarter giving a Book-to-Bill of 1.1. Sales for the Business Jets side was not publicized. Group order backlog was $21.9b compared to $20.4b for 1Q2015. The balance sheet is strong with $1,854m in cash and total debt of $2,389m.

The group’s only problem area is domestic state demand. Its KC-390 military transport program has stopped once for lack of Government payments and it risks being caught again in the problems of the Brazilian state economy.

Here the details of the financial results for the divisions and their aircraft programs.

Commercial Aircraft
Order intake for the quarter was at a decent level with 23 orders for the E175-E2, compared to 19 deliveries of the current E175 and two E195, giving a Book-To-Bill of 1.1. Revenue for the division was up 7% year-on-year at $771m.

The present backlog for the bestseller E175 is deep enough at 150 aircraft to sustain the bridging over to the E2 version with deliveries starting in 1H2020.  Sales of other models were weak; the E195 has a thin backlog of only 17 aircraft. Its E2 model will star deliveries in 1H2019. The E190 fares better with a backlog of 55 aircraft and first E2 delivery 1H2018.

The development of the E190-E2 runs to plan with roll-out in February 2016 and first flight planned for Q3 2016. Embraer has announced a delay in roll test of the aircraft due to late completion of the new Fly-By-Wire software. It remains to be seen if this affects the overall timing of the program.

For the largest E195-E2, Embraer will no longer use the same wing as the E190-E2 as originally planned. In order to optimize performance for the E195-E2, it will now have its own, wider wing. There is no delay announced for the entry into service for the E195-E2 due to the change.

The larger models in the E-Jet series will face stronger competition from Bombardier’s rejuvenated C Series. This will not affect the momentary sales leader E175 sized at around 75 seats. It is ideally positioned as its light enough to fit into the US regional market scope clauses. The E175-E2 model does not, but Embraer bets on a change to the clauses until 2020 when the new model is ready for service entry.

Business jet division
Embraer has in a short time gone from outsider to one of the major players in the Biz jet market. It’s the market-leader in the light jet segment and is becoming a player in the mid-size segment. The sales champion for light jets is the Phenom 300 with 70 aircraft delivered last year, leader in the market for the third consecutive year. The second model which sells well is the mid-sized Legacy 500, which managed 20 deliveries in its first year on the market.

Embraer is not strong in the segment for large Biz jets where Gulfstream and Bombardier rule. It delivered 12 Legacy 650 and three large Lineage 1000, Biz jet derivatives of the E145 and E190 respectively.

Revenue for the division was $402m, up a phenomenal 241% over the $167m of last Q1, but that was a weak quarter for the segment. A 1Q2015 result of $250m-$300m would have been normal. Still, $402m is a strong first quarter performance for Embraer Business jets.

Defence and Security division
This division is heavily dependent on an internal Brazilian market. With the Brazilian economy in crisis, it has a tough situation. Revenue for the segment was down 11% to $189m in 1Q2016. The segment has interesting developments with the KC390 now test flying again after a halt due to non-payments by the Brazilian state. The second prototype is now being readied for flight test. There is considerable international interest for the aircraft but this requires the Brazilian state to carry through and certify the aircraft before export deliveries can begin.

Embraer will also be the development and manufacturing partner for the  Brazilian SAAB Gripen fighter program, which started in 2015. Deliveries of 36 aircraft to the Brazilian Air Force are some years away, starting in 2019 with finish 2024. It remains to be seen if the Brazilian state can keep up with the demands of this ambitious program, so far it’s been saved from cuts.