Has Embraer turned the corner?

Embraer, in the last few years, has been hit by several events outside of its control, including the deal breakup with Boeing, the global pandemic, and continued pilot union intransigence regarding the scope clause, impacting the regional jet segment in its largest global market. The impacts of these actions sent revenues plummeting from $5.4 billion in 2019 to $3.7 billion in 2020, which recovered to $4.5 billion in 2022. The company is projecting revenues between $5.2 and $5.7 billion in 2023, which would be close to 2019 results before the multiple crises. Their CEO, Francisco Gomes Neto, has set a target of $8 billion in revenue in 2027, an ambitious growth plan. Has Embraer turned the corner since the Boeing breakup and global pandemic in 2020? We’ll examine that question market segment by market segment. Embraer has four major business segments, commercial aircraft, executive jets, military aircraft, and service and support. The company also holds the majority of equity in Eve, the leader in urban mobility that it spun off as an IPO to fund development. In this series of articles, we will examine each of the sectors and comment on the near and longer-term outlooks for each business unit. Executive jets Embraer participates in the small and mid-sized segments of the business aircraft market from its facilities in Melbourne, Florida in the US. The Phenom and Praetor families of aircraft are built in the US, which is the largest global market for business aircraft. Sales of business aircraft were not as negatively impacted by the global pandemic as were commercial aircraft, as demand for private flying grew rather than fell. The ability to travel privately, without interaction with crowds, was perceived as safer than airline travel during the pandemic. Embraer withstood the pandemic better than many in the industry, and maintained sales momentum during the economic downturn and supply chain disruption. The chart below shows Embraer's business aircraft sales over the last 5 years. The business aircraft industry is hoping that many of the new customers who were first-time business jet travelers during the pandemic remain as customers, and while traffic has slowed in early 2023, it appears that many of those first-time customers will remain. The question is how that will translate to aircraft demand, as many of the new customers were charter, card program, or fractional customers rather than purchasers of new aircraft. Nonetheless, a rising tide lifts all boats, and the outlook for business aviation is generally positive and upbeat. Embraer has a strong position in each of the two segments in which it competes. The Phenom 300 has been the best-selling aircraft in its segment for the past 11 years, with strong market leadership in its segment. The Praetor family, introduced in 2018, has enjoyed strong success in the mid-sized market where it is differentiated by longer range than many competing aircraft. Recently, Embraer received an order from NetJets for up to 300 aircraft, adding about $5 billion to a backlog already sold out through 2025. The NetJets order is significant in that it will add substantial exposure to Embraer and the aircraft, and likely result in a halo effect for individual aircraft buyers because of the endorsement by the largest fractional operator in the world. With Cessna winning the last mid-size order from NetJets, this is a significant competitive win for Embraer. The Bottom Line - Business Jets The business jet division at Embraer already had a substantial backlog prior to the NetJets selection, and now has a very substantial backlog that will guarantee the financial success for the Praetor program. Combined with the 11-year track record of sales leadership for the Phenom in its segment, the Business Jets segment is enjoying market success. Now the question turns to what could be next for Embraer in the business jet market. Could the company move upstream to compete with Gulfstream, Dassault, and Bombardier with a larger aircraft, or might the company create an entry-level aircraft to compete with Cirrus and have a growth pathway for customers into the Phenom and Praetor families? Stay tuned, as the market success in business jets has multiple potential growth opportunities. We are very bullish on the outlook for Embraer's business jet market, and expect the Phenom 300 to remain the market leader in light jets, and the Praetor family, on the back of the NetJets order, to become a mainstay of the mid-sized business aircraft market.

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