Daily Insight – 18 January 2019: Embraer Projects Modest Forecast for 2019

News:  Embraer has downgraded earlier forecasts for 2019, calling for fewer commercial aircraft and business jets to be delivered after 2018 performance fell short of targets.  Embraer  is providing revised guidance downward to 85-95 commercial jets and 90-110 business jets in 2019, which will be a year of transition as the Boeing merger moves forward.

Analysis: The key to success for Embraer will be its E190-E2 and E195-E2 models, which currently have a backlog of 151 firm orders.  While Embraer

is seeing an increased number of inquires, the question is whether it will be able to convert that interest into sales prior to the merger.  Bombardier had difficulty converting new orders prior to the Airbus takeover, but reported two major orders shortly thereafter.  Customers sometimes like to wait until after a pending transaction is complete, which could put additional pressure on Embraer’s sales team in 2019.  The business jet market is projected to be flat as recovery in the business jet market will continue be slow for the entire industry, with only modest overall growth from new models, including the Praetor 500 and Praetor 600 from Embraer.

Insight: Embraer is at a critical ramp-up stage for E2 production in 2019, moving from the 4 in operation today to delivering the first of 57 E195-E2 models scheduled for Azul.  It is difficult enough to ramp-up a new production line, not less do so when the organization is in transition.  But Embraer has introduced 15 new models in the last 15 years, and is well positioned for the future with a strong family of aircraft. The company should generate improved profitability once it moves past this “Year of Transition.”