UPDATE – Embraer has produced its first profitable quarter again in Q2 since the first quarter in 2018. Thanks to higher commercial and business aircraft deliveries, the Brazilian airframer reported a Q2 profit of $43.6 million on August 13. On the back of better than expected results, it is optimistic for the full year. Embraer returns to profitability again.
The Q2 profit compares to a $198.8 million loss for the same period last year. The first quarter still showed a $95.9 million loss, as reported earlier. Adjusted EBIT was $104.7 million compared to $-140.5 million in Q2 last year. Revenues were $1.130 billion, double that of $537.2 million in 2020.
The quarter was cash-flow positive again at $45.2 million, a huge improvement from last year’s $-472.2 million.
The negative results in the first quarter still pushed Embraer into an HY1 loss of $52.3 million. Adjusted EBIT was $75.1 million, with revenues at $1.937 billion versus $1.171 billion last year. Cash flow was still negative at $181.4 million.
Embraer benefitted from higher aircraft deliveries in the second quarter when fourteen E-jets and twenty Executive Jets left the factory, or 34 in total. This compares to nine and thirteen respectively in Q1 or 22 in total. By comparison: in Q2 2020, the low point during the Covid crisis, only four commercial deliveries, and thirteen executive jets were delivered. Over the January-June period, 234 commercial and 33 executive jets were delivered, of which 22 were Phenoms (including the 600th Phenom 300), and eleven Praetors.
Commercial revenues tripled
Commercial Aviation revenues more than triples to S388.5 million in Q2 from $108.6 million in the same quarter last year, or to $660.7 million in HY1. The quarterly results include the latest order from Canada’s Porter Airlines for thirty E195-E2s with fifty purchase rights, plus the eighteen orders from Alaska Airlines for E175s for Horizon Air and SkyWest Airlines. As a result, total orders grew quarter-over-quarter from 1.904 to 1.952 aircraft. The backlog is now 306 versus 272 and includes 134 E195-E2s, 130 E175s, five E190-E2s, and three E190s.
Embraer delivered 33 executive jets in HY1, including 22 Phenoms. (Embraer)
Q2 revenues at Executive Aviation also improved to $266.2 million from $149.9 million, or $418.3 million for HY1. Better contract advancements and lower costs improved results at Defense and Security, where Q2 revenues were up to $174.9 million from $85.8 million, or $303.4 million in HY1. Services and Support saw increased activities in commercial, business, and defense activities that improved Q2 revenues to $298 million ($191.9 million last year), or $548.6 million in HY1. Embraer signed inventory planning or maintenance support contracts with Azul, Republic Airlines, and CommutAir, plus a long-term pool contract with Breeze.
Embraer’s total backlog was $15.9 billion, higher than the $15.4 billion in Q2 2020.
Research spending back to pre-pandemic level
Despite cost reductions, administrative and selling expenses were higher in Q2 and HY1. Research expenses went up from $12.2 to $17.7 million as they returned to ‘normalized spending levels’ following the Covid cost containment efforts in 2020. Reintegration costs of Commercial Aviation were reduced to $5.3 million as most work has been completed following the termination of the joint venture with Boeing in April 2020. Embraer ended the June quarter with $2.5 billion in cash and $1.840 billion in net debt, down from $1.902 billion in Q1 thanks to the positive free cash flow but $40 million higher than in Q2 last year. Total net debt increased to $4.431 billion.
As Embraer returns to profitability again and results were better than anticipated, the Brazilians are optimistic that it will continue its upward trend. It didn’t provide guidance at the end of Q1 but says now that it expects to deliver 45-50 commercial aircraft and 90-95 executive aircraft. This compares to 44 E-jets and 86 business jets in 2020. In 2022, Chief Financial Officer Antonio Carlos Garcia expects commercial deliveries to go up to 65-70 aircraft as the airline industry exits the pandemic.
Consolidated revenues should be around $4.0-4.5 billion, with an Adjusted EBIT margin of three to four percent. Free cash flow should be around $180 million in HY2 or between $-150 million and break-even for the full year without mergers and acquisitions or divestitures.
Embraer intends to double in size
CEO Francisco Gomes Neto ended the webcast saying that Embraer expects to improve results further thanks to better efficiency and leaner concept. It plans to double the company in size, supported by new programs and partnerships that offer growth opportunities. Gomes Neto says Commercial can grow as it doubles its deliveries to around 100 aircraft, while Executive could go to 120 deliveries. There are also significant opportunities for Services and Support as the worldwide fleet grows.
Gomes Neto made no reference to growth options from the new turboprop that is expected to be launched in 2022 for entry into service around 2027 (more details in a separate story). He added that talks on partnerships are progressing well and that there has been good interest from US airlines for the turboprop. Embraer also has an aggressive strategy for its Urban Air Mobility subsidiary EVE, which should also contribute to its growth.