Embraer sees sales rebound on U.S. orders, new aircraft

SAO PAULO Thu Dec 13, 2012 1:13am IST


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SAO PAULO (Reuters) - Brazilian jet maker Embraer SA (EMBR3.SA) aims to rebuild its depleted order backlog next year with two major new offerings -- a military cargo plane and a re-engined family of regional jets -- executives said on Wednesday.

With approval from its board of directors and a new engine supplier selected "within the next few months," Embraer plans to overhaul its E-Jet lineup, Paulo Cesar de Souza e Silva, head of Embraer's commercial aviation unit, told reporters.

The existing E-Jet family has made Embraer the world's largest regional jet maker, but Canada's Bombardier (BBDb.TO) won a major order from Delta Air Lines (DAL.N) last week, helping to steal the 2012 sales lead and reignite an historic rivalry.

Embraer hopes to regain the advantage with its next generation of E-Jets, offering as much as a 15 percent boost in fuel efficiency. It is also betting on its defense unit to offset volatile cycles in the airline industry.

The company's KC-390 military tanker and cargo jet should have a price set next year, allowing clients to book firm orders, said Luiz Carlos Aguiar, head of the defense unit, which has grown faster than expected this year.

The defense division's outperformance has helped to offset canceled commercial and private jet orders this year, and Chief Executive Frederico Curado said Embraer is close to meeting its 2012 revenue and profit margin targets.

"We hope to grow again in 2013, even if it isn't major growth," Curado said at a year-end event held by the company.

Shares of Embraer fell 1.3 percent in Sao Paulo trading to 13.47 reais, while the benchmark Bovespa stock index .BVSP edged up 0.1 percent.

A lack of major regional jet orders drained Embraer's backlog, a pipeline of future revenue, to a six-year low in September, leading several analysts to suggest the company may have to cut back production next year.

Embraer has stuck with an outlook for stable regional jet output in 2013 if it can book new orders early in the year. Curado said the company expects to keep its payroll stable in 2013, after rising wages drove up production costs in recent years.


The most likely candidate for a major order in coming months is American Airlines, Silva said, after its parent AMR Corp (AAMRQ.PK) negotiated a new labor deal allowing larger planes in its regional fleet.

Embraer is in preliminary talks with American Eagle, which can now fly more than 200 jets with up to 76 seats, Silva said, adding that the airline was likely to request formal bids from aircraft makers in coming weeks. Sales campaigns with US Airways LCC.N and United Continental (UAL.N) also promise big orders, he said.

Silva said 2013 "is looking to be a better year from a sales perspective, as the big U.S. airlines close deals to renew their fleets over the next 18 months."

The re-engined E-Jets could also boost sales in the second half, along with the new KC-390, although delivery of the new aircraft will have to wait until 2018 and 2015, respectively.

After Embraer revamps its E-Jet family, Silva said he could see the company developing a new aircraft with up to 150 seats entering service after 2025. He said such a development would depend on whether industry giants Boeing (BA.N) and Airbus opt to develop larger versions of their narrow-body airliners.

The Brazilian Air Force's investment in developing the KC-390 has already boosted Embraer's top line, helping the defense unit generate about $1 billion in revenue this year, above forecasts for $900 million to $950 million.

In February, Embraer forecast net revenue of $5.8 billion to $6.2 billion this year. The company updated its profitability outlook in July to reflect expectations that earnings before interest, taxes, depreciation and amortization, or EBITDA, would equal between 12.5 percent and 13.5 percent of revenue.

(Additional reporting by Guillermo Parra-Bernal; editing by John Wallace)

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