Brazil’s Embraer places bets on the market for small aircraft and executive aircraft

Seeking to make noise again after the pandemic riots, Brazilian aerospace and defense group Embraer envisions a non-elusive future for flying taxis and electric planes.
But as it seeks to double revenue over five years, the world’s third-largest commercial aircraft maker has pinned its hopes on a more realistic forecast: an air travel recovery will involve greater use of small passenger aircraft, which are his specialty.
After two years of turmoil in the global airline industry, Embraer will return to profitability and solvency in 2022, according to its chief executive, Francisco Gomez Neto.
In an interview at the company ‘s headquarters in São José dos Campos, Gomez Neto told the Financial Times, “We expect to make a net profit at the end of the year. This is an important step. Our plan is to achieve significant growth. ..) and as a direct result means that This is the resumption of domestic flights, which is the right place for our aircraft. “
A 45 percent increase in the company’s shares made it the top performer in the domestic Bovespa index in 2021. After cutting 2,500 jobs during the pandemic, the need for efficiency and debt reduction helped return the positive cash flow to lira. As its production increased, the group finally announced a thousand new vacancies.
But to convince investors to do so, Embraer, especially after its shares fell this year, must overcome doubts about its ability to expand further into the Boeing and Airbus-dominated civil aircraft sector.
Doubts about the future form and direction of a venture considered the crown jewel of Brazilian industry multiplied, due to the collapse of a planned deal with Boeing. Shortly after the airports closed at the start of the pandemic, the U.S. giant concluded a joint venture deal that would give it an 80 percent stake in Embraer’s commercial aircraft operations for $ 4.2 billion.
Gomez Neto has ruled out any major asset sales or splits, saying: “We are open to partnerships other than partnerships that would break up or sell part of the company.” Aiming to double by 2026 last year revenue that shrank to $ 4.2 billion, Neto added that their biggest potential is to increase sales in the commercial aviation division.
Embraer is the leading manufacturer of aircraft that typically have up to 120 seats, fly short distances and are the most popular in North America.
Gomez Neto said the company expects to deliver between 60 and 70 civilian aircraft in 2022, compared to 48 it produced last year and could produce about 100 aircraft a year by the end of the five-year period. In comparison, Airbus expects to deliver 720 aircraft.
Over the past quarter century, airlines have turned to large aircraft in an effort to increase fuel efficiency and reduce production costs.
A strategic pillar of the Embraer is its mid-range E2 aircraft, the second generation of the E-Jet family and larger than its main regional models. This model has between 80 and 146 passengers and the company claims to emit less noise and carbon dioxide emissions for the seats.
Embraer executives believe there will be changes in flight patterns after the end of the COVID-19 pandemic. As the growth of air travel declines, fewer business trips take place and more people migrate to live in smaller cities, smaller company models are increasingly favored. .
Rodrigo Silva e Souza, Vice President of Commercial Aviation Marketing at Embraer, predicted that “airlines are looking for aircraft that fit this level of demand,” while Stephen Trent, an analyst at Citi, said the Brazilian manufacturer was still out of the country. required. category.Largest of air carriers.
He added, “Where are they now in terms of global commercial aviation? The prospects for them are certainly better than they have been in the last two years, but in the long run I remain concerned because there are not many high-paying airlines “Attention to this class of aircraft.”
In the decade by 2031, 13,000 aircraft of the segment over 150 passengers are expected to be delivered, according to data from Sirium, a consultancy. As for the regional aircraft with 85 to 150 seats, where Embraer’s strength lies, the production forecasts are only 3500 aircraft.
Embraer will be wary of playing into the fate of its historic rival in the regional aircraft industry, the Bombardier. The former Canadian industry champion was on the verge of bankruptcy after facing Airbus and Boeing in the production of flagship aircraft with C-Series aircraft, which have a narrow line. But the two main rivals weakened Bombardier, leading him to abandon the main aircraft program in 2017 and leaving the commercial airline industry entirely to focus on private jet production.
“We continue to expect the largest Airbus and Boeing aircraft to dominate the ladder by one row,” said Rob Morris, global head of Ascend by Cerium, Cirium’s advisory arm.
Despite the overlap between the E195-E2 series and the C model, which has been renamed the A220, Embraer does not compete directly with Boeing or Airbus in most business sectors, say the Brazilian company executives. However, the smaller of the three-model E2 family faces a hurdle due to U.S. navigation agreements limiting the weight and capacity of aircraft deployed by regional airline subsidiaries.
Outside the commercial aviation segment, which accounts for about a third of the group’s revenue, Embraer is leading a global boom in executive aircraft. It expects to sell up to 110 aircraft in 2022, compared to 93 aircraft in 2021.
Gomez Neto said the pace could slow in the coming years, but that it would be a “soft drop” as growth continued, “We sold almost all of the 2023 aircraft and now sell them for the second half of 2024.” .
He added that geopolitical tensions arising from the war in Ukraine had also spurred interest in two Embraer military aircraft, the A-29 Super Tucano fighter jet and the C-390 Millennium transport aircraft – although the Brazilian Air Force recently reduced its order for a second . plane from 28 to 22..
Another bet for the future is the vertical electric take-off and landing aircraft, or EVTOL. Other areas of focus include a range of low-carbon aircraft in development and next-generation turboprop for regional airlines.
However, investors will want to see further improvements in finance in the short term. Embraer’s net loss narrowed to $ 44.7 million last year from a deficit of $ 732 million in 2020. But production closures due to the eventual reintegration of the commercial aviation unit helped reduce the deficit to $ 31.7 million in the first quarter. .
The company’s stock has lost about half of its value so far this year, making its market capitalization nearly $ 1.8 billion. The president attributed this to several reasons – including investor frustration with the company’s instructions, supply chain issues and the wider impact of the Ukraine conflict on shares – Boeing’s value fell by about 37 per cent and Airbus by more than 5 per cent. hundred.

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