Embraer-Empresa Brasileira de Aeronautica Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

Key Takeaways

  • In Q1 2024, Embraer reported a 25% increase in revenues and a 67% jump in aircraft deliveries—its seasonally weakest quarter—driven by its production leveling initiatives.
  • The company’s backlog reached a seven-year high of $21.1 billion, with book-to-bill ratios above 1 in Commercial and 2:1 in Executive Aviation, supported by over 200 active sales campaigns and American Airlines’ order for 90 E175s (+43 options).
  • Executive Aviation posted its strongest Q1 in 80 years—jet deliveries rose 125% YoY—and Service & Support revenues grew 12% with double-digit profitability, making both divisions key profit drivers.
  • Embraer reduced its gross debt by $276 million in Q1 (totaling $754 million over the past year), bringing gross debt/EBITDA below 5x, and reiterated its 2024 operational and financial guidance.
  • In its eVTOL arm (EVE), Embraer has selected over 90% of component suppliers, completed an urban air traffic management trial and is on track for prototype assembly and certification—projected to consume $130–170 million in 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Embraer-Empresa Brasileira de Aeronautica Q1 2024
00:00 / 00:00

There are 16 speakers on the call.

Operator

Good morning, ladies and gentlemen, and thanks for standing by. This conference call will be conducted in English, but please let me say a short announcement for Portuguese speakers. My name is Guy Pajevat, and I'm the Head of Investor Relations for Embraer. I want to welcome you to our Q1 of 2024 earnings conference call. The numbers in this presentation contain non GAAP financial information to facilitate investors to reconcile EVE's financial information and GAAP standards to Embraer's IFRS.

Operator

We remind you that EVE's results will be discussed at our EVE's conference call today at 9:30 a. M. New York time. It is important to mention that all numbers are presented in the U. S.

Operator

Dollars as it is our functional currency. This conference call may include statements about future events based on Embraer's expectations and financial market trends. Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with the applicable rules, the Company assumes no obligation to publicly update any forward looking statements. For detailed financial information, the Company encourages reviewing publications filed by the Company with the Brazilian Comisao de Valores de Labiliarios or CVM.

Operator

At this time, all participants are in a listen only mode. We will give instructions later on for participation in the 2 Q and A sessions. As a reminder, this conference call is being recorded. Participants on today's conference call are Francisco Boniznetto, President and CEO of Embraer Antonio Carlos Garcia, Chief Financial Officer Luis Harrison, Corporate Communications Director and myself. This conference call will have 3 parts.

Operator

In the first part, top managers will present the company's Q1 results. In the second part, we'll host a Q and A session only for investors. And last but definitely not least, we will host a Q and A session only for the press. It is my pleasure to now turn the conference call to our President and CEO, Francisco Gomez. Please go ahead, Francisco.

Speaker 1

Good morning and good afternoon to all. Thank you and welcome to Embroer's Q1 2024 results conference call. Our commercial activity in 2024 continues to be strong in all business units as we see solid demand in the company's main markets. Historically, Q1 is seasonally our weakest quarter. However, in 2024, our revenues were up 25% compared to a year ago, and our deliveries increased 67%, helped by our production leveling initiatives.

Speaker 1

Speaking of production leveling, we expect further improvement as the year progresses and, more importantly, in 2025. These operational changes should help the company to increase efficiency, productivity and post better financial results next year years ahead. Our backlog reached 21,100,000,000 dollars which is the highest level over the past 7 years. In commercial aviation, American Airlines placed an order in March of 90 E175s with 43 additional purchasing rights. The Nios demonstrated the still strong potential of this aircraft model in the US market.

Speaker 1

Speaking of potential, we currently have concrete sales campaigns for more than 200 aircraft across the world for both our E1 and E2 jet families and also more concrete sales opportunities for our defense aircraft. We also kept the good momentum in Executive Aviation with strong sales across all our aircraft. We recorded the highest Q1 in terms of sales, deliveries and revenues for the division over the past 80 years. Sales and Support continued to be a pillar of profitability and one of our main growth drivers. Its revenues increased to 12% in Q1 'twenty four compared to a year ago.

Speaker 1

The strong financial results of the company allowed us to reduce our gross debt without Yves by additional 276,000,000 during the quarter, a total reduction of 754,000,000 over the past year. Consequently, our gross debt to EBITDA ratio is now below 5 turns. It is important to mention that when we consider all the risks and opportunities for the company, we feel comfortable in reiterating our 2024 operational and financial guidance. I will now present the operational results by business units in the next few slides. In commercial aviation, the backlog rose 2,300,000,000 dollars or plus 26 percent quarter over quarter.

Speaker 1

In Greece, dollars 11,100,000,000 with a book to bill ratio above 1 for the whole year. The American Airlines order reinforced capability of our E175 model and, more importantly, the partnership between both companies. Embraer, a leasing company as Zuora, delivered the 2nd E195 E2 to Royal Jordanian, the first E2 operator in the Middle East. As active aviation, the backlog registered a sequential increase of $300,000,000 and ended Q1 with $4,600,000,000 or plus 7% quarter over quarter and a strong 2:one book to bill for the quarter. We recorded our first set of firm orders from NetJets, whose deliveries will begin in 2025.

Speaker 1

In total, NetJets has purchase rights for 250 aircraft over the next 14 years. In defense and security, we hosted the 1st Embroer Defense Day in the US with the C29 Millennium and A29 Super Tucano. The event included a diverse guest list of government authorities, military officials, prospects and partners. In early 2024, Embraer and Mahindra signed an MOU who jointly pursued the sale of the C-three ninety millimeter to the Indian Air Force. The first Hungarian C-three ninety successfully completed its maiden flight.

Speaker 1

The aircraft continues to receive international recognition on the back of its remarkable operational performance and capabilities. We should note the division reported lower year over year revenues because of supply chain delays and business seasonality. In Service and Support, revenue grew 12% compared to the same period last year with solid double digit profitability. The business unit backlog maintained the historical RMB3.1 billion record reached in Q4 'twenty three with a 10% plus EBIT margin. Another important step for our services division was the induction of the 1st Pratt Whitney GTF1100 engine in Ogma, our MRO in Portugal.

Speaker 1

The ramp up should last 4 years, and we expect revenues to reach closer to RMB 500,000,000 in 2028. Last but not least, EV, our EV top business, is on track to achieve important milestones in 2024. We have already selected now more than 90% of its component suppliers, and we successfully concluded a urban air traffic management trial. The company is on track to accomplish the next development steps: 1st prototype assembly conclusion, initial tests, and the definition of in certification basis. We also began the definition of our EV toll factory configuration.

Speaker 1

All in, we estimate it should have a total cash consumption between $130,000,000 $170,000,000 in 2024. I will now hand it over to Antonio, our CFO, to give you further details about the financial results, and then I will be back with closing remarks.

Speaker 2

Thank you, Francisco. Good morning and good afternoon to everyone. I would like to highlight our operational performance in Q1 despite the historical seasonality. Total deliveries revenue margins were higher than the same period in 2023, and the company's cash consumption was better than a year ago. Our focus in Q1 was on business and financial efficiency.

Speaker 2

We want to lay down an important stepping stones to put us in a comfortable position to achieve our full year guidance, even with the ongoing supply chain constraints we continue to deal with. Let's now move to Slide 9 in the presentation. Delivers. Executive Aviation delivered 18 jets in Q1 for an increase of 125% versus a year ago and the highest Q1 level of the last 8 years. The LightJet segment was 83% higher year over year, with 11 FinnOs delivered, while the medium jets were more than tripled during the period with 7 Praetors delivered.

Speaker 2

Meanwhile, Commercial Aviation deliveries were flat at 7 aircraft in Q1 compared to the same quarter of 2023 with 4 E1s and 3 E2s aircraft. In defense, we should note there were no C-three zero nine deliveries in the Q1 of 'twenty four and 'twenty three. We continue to work steadfastly to accomplish our production plan and reach the milestones in our defense and security programs, which includes 4 C390,000,000 deliveries scheduled for the year. It is important to mention the company has developed and is currently implementing a production leveling plan to mitigate business seasonality. The plan should help the company to deliver less volatile financial results throughout the year in the near- to medium term future.

Speaker 2

Slide 10, please. The company has issued a strong total backlog of 21,100,000,000 at the end of Q1 for an increase of 30% quarter over quarter and the highest number recorded over the past 7 years. Looking forward, our current backlog is accretive to our financial projections. The backlog for commercial aviation reached more than 380 aircrafts in Q1, and it is valued at $11,100,000,000 or $2,300,000,000 higher than the last quarter. Meanwhile, Executive Aviation ended with a solid 4,600,000,000 backlog or 7% higher quarter over quarter, helped by the inclusion of the 1st Praetor 500 firm orders from NetJET.

Speaker 2

We should note NetJET has other 246 options not included in the current backlog. The backlog for service and support finished stable at €3,100,000,000 in Q1, while for defense and security, it decreased marginally by 4% quarter over quarter to RMB 2,400,000,000 Again, we showed there are 11 C300 and 90 aircrafts and 3 tender offers. 1, host contract haven't been signed yet. It does include it in your backlog. Moving on to revenues.

Speaker 2

Our top line reached almost 900,000,000 Q1 or 180,000,000 higher year over year for a 25% growth rate. If you look at the right charts, Service and Support represented around 41% revenue in Q1 followed by executive close to 27%, commercial ratio from our 22% and defense at around 9%. Next slide. We generated 40 $7,000,000 in adjusted EBITDA in Q1 with a 5.2% margin driven by higher aircrafts delivered compared to the same period of last year and better consolidated gross margin. Meanwhile, adjusted EBIT was €7,000,000 for an adjusted EBIT margin of 0.8%.

Speaker 2

Reported EBIT for the quarter was negative €4,000,000 for a negative 0.4% margin. Both figures were better than the Q1 'twenty three, supported by our volumes, better mix, especially in Executive and Service and Support. Looking at the right chart, we can see Executive Aviation and Service and Support generated positive EBIT during the quarter, while Commercial and Defense presented negative results because of limited volume supply chain delays and more aircrafts in the early stage of assembly. Slide 12, please. In Q1, if we exclude Eth, we had an adjusted free cash flow consumption of 346 or 53,000,000 barrels in Q1 'twenty three, driven by customer advanced payments.

Speaker 2

The key one cash consumption is basically due to the increase in inventories to support higher deliveries in the upcoming quarters. This cash should be reverted as more deliveries take place throughout the year. And we have earned our 2 20,000,000 or higher guidance for the cash generation in 2024. Moving to investment, and again, without these, 47,000,000 were allocated to research and development, 28,000,000 to CapEx and a net of 15,000,000 to the pool program in Q1 for a $90,000,000 total compared to $82,000,000 a year ago. We highlight our capital allocation continues to be focused on segments with higher returns, which projects such as expansion of our production capacity in Executive Aviation and Service and Support.

Speaker 2

Our adjusted net income was negative €13,000,000 for the quarter on a negative 1.4% adjusted margin. Historically, the 1st quarters of the year is the weakest because of the business seasonality. The positive reported net income is driven by the mark to market valuation of the EVO warrants around €30,000,000 Next slide. Going to our liability management plan. In Q1 'twenty four, we reduced our gross debt without EBITDA by $276,000,000 all in during the quarter and by a more sizable 750 $4,000,000 versus a year ago to a total of $2,600,000,000 In addition, our net debt declined by 384,000,000 year over year to a total of €1,000,000,000 in Q1 'twenty four.

Speaker 2

However, on a sequential basis, our net debt to EBITDA leverage ratio increased 0.4 tonnes to 1.8 times, as shown in the top right corner. This variance is explained by the seasonality of the business. Our almost €2,400,000,000 liquidity position allowed us to cover our debt obligation beyond the 2030 and leave us in a very comfortable position. With that, I conclude my presentation and hand it back to Francisco for his final remarks. Thank you very much.

Speaker 1

Thank you, Antonio. The Q1 'twenty four was another step in the right direction, supported by both external factors like some marginal improvements in our supply chain and internal ones, like our production leveling initiatives. Speaking of production leveling, we recently hosted a conference with our main suppliers to strengthen our partnership and operational plans for 'twenty four years ahead. We remain optimistic that supply chain disruption should continue to diminish and improve our ability to deliver more aircraft in the next few years. To finish, I would like to thank you all again for your interest and confidence in our company and a very special shoot out to our friends in Dallas.

Speaker 1

We are very grateful for their partnership and trust. We continue to focus on operational and business efficiency in 2024, having as foundation of our culture safety first and quality always. Let's now move to the Q and A session of the call.

Speaker 3

We will now start the question and answer session. The first part of the Q and A session will be exclusively for Equity Research Analysts and Investors. The second part of the Q and A will be only for the press. We highlight again this conference call is being conducted in English with simultaneous translation to Portuguese. Please let me say a short announcement for Portuguese speakers.

Speaker 3

We ask participants interested in asking questions to press star 9 press star 6 on the phone or make sure your microphone is on and start your question. We will also answer questions sent via the platform chat. If you need assistance, please use the Q and A button on the platform. The first question comes from Kai Fawn Rumohr with TD Cowen. Please go ahead.

Speaker 2

Hello, Kai?

Speaker 4

Hi, good morning. It's Gabriel Hezenji from Itau, actually. So one question from our side here. You have just comment regarding the supply chain issues in the defense business, and they are expecting these issues to improve along the year. But I was just wondering whether the supply issues that impacted the defense business, the specific components that impacted your performance in the division have some overlap with the commercial division as well.

Speaker 4

So if you could provide a little bit more detail on that, it would be great. Thank you.

Speaker 1

Gabriel. Francisco speaking here. Yes, I mean, as I said, we see improvements in the supply chain from we saw from 2022 to 2023, from 2023 to 2024, but still with challenges in specific components that some are emitting our production in the year and also because of the delays. They are delivering the parts but not on time to help us with the production. And then we have to make adjustments in our production schedule.

Speaker 1

It affects our productivity and in some case, putting risk deliveries as well. But we made our plan for this year based on the plans that we discussed a lot with the suppliers. So again, we are confident that new delivery the aircraft we announced in the guidance in this year. It's very for all about the aircraft.

Speaker 2

And Francisco, just to compete, Gabriel, for the defense especially, there is, I would say, not an overlap in regards to the specific parts for the C30090. There are different parts or in some cases suppliers. And we just have, I would say, a concentration in Q1 with less receiving parts for defense and also the mix of contracts will cause less revenue and impact our margins, especially in Q1, but there is nothing that concern us for this fiscal

Speaker 4

year. That's perfect. Thank you.

Speaker 3

Thank you. The next question comes from Myles Walton with Wolfe. Please go ahead.

Speaker 5

Thanks. Good morning. Francisco, could you elaborate a little bit on the sales campaigns for the 200 aircraft you mentioned, both E-1s and E-2s? And I guess a couple of questions, if you could give us some color on. One is the geographic dispersion of those campaigns.

Speaker 5

And the other is, in the case of the E-2s, are these customers, looking to fulfill capacity needs that aren't being satisfied by Boeing and Airbus? Do you see that sort of opening emerging? Or are these more expansion of customers that you would have otherwise anticipated even if going in the Airbus had capacity? Thanks.

Speaker 1

Thanks, Myles, for the questions. We have campaigns in all the regions. To be clear with you. I mean, all the regions, South America, North America, Europe, and Asia Pacific, with good opportunities. I can't disclose your details of ongoing campaigns.

Speaker 1

But as I said, it's more than 200 potential sales. And, yes, this is a combination of different factors. I mean, the E2, as we have said, it's a perfect solution to complement the operations of bigger narrow bias. So we see now today is the first flight of our customer, SCUT, in Singapore that they are going to use the E tools to open new routes and to increase the frequency of flights. And we see that in many different regions as well.

Speaker 1

So again, we are very it's not easy, but we are very optimistic with potential sales of E2s in 2024. What else, I mean, Miles, you asked him, please? Will you repeat?

Speaker 5

Francesco, just more, are you seeing these campaigns build demand because of the lack of supply offered by Boeing and Airbus? Or is that not a major factor in how these campaigns are playing out?

Speaker 1

Okay. Again, as I said, it's a combination of factors. And for sure, I mean, the fact that we we have, I mean, production slots available already from 2026 onwards. This can help the airlines to add capacity sooner to their fleets.

Speaker 5

Yeah, that's where I was going. It's surprising you still have that availability given the absence of supply

Speaker 2

of

Speaker 1

in the first half of this year. So we should be close, but it's not in our hands. It's a decision of the tribunal in New York, but we expect this to end no later than the mid of this year.

Speaker 5

Perfect. Thanks again.

Speaker 1

You're welcome.

Speaker 3

Thank you. The next question comes from Cai von Rumohr with TD Cowen. Please go ahead. Kai, your microphone seems to be on mute. If you could please unmute on your hand.

Speaker 3

The next question comes from Ron Epstein with Bank of America. Please go ahead.

Speaker 6

Hey, good morning, everyone. A couple of quick questions. Can you talk a little bit more just about supply chain in general and where you are seeing constraints still both on commercial and in defense.

Speaker 1

Well, Rom, as we said before, we see, I mean, improvements in leverage in our supply chain, But we're still with some challenges in the with the specific products in terms of volume and also on time delivery. We have a lot of suppliers improving, but still suppliers with difficult to deliver the parts we need on time. And this, again, this brings to us more difficult in our production. As you know, we are working this production leveling initiative that we want to better distribute the production and deliveries throughout the year. So we still have difficulties in 2024.

Speaker 1

And we expect but again, in line with our plans to deliver the guidance. And we expect even more improvements in 2025 in years ahead from our supply chain for both sides, commercial and defense.

Speaker 6

Got it. Got it. And then maybe one more follow on if I can. Just can you guys speak broadly to how you're thinking about product development and new products?

Speaker 1

Sure. Well, I mean, we fully understand all the excitement caused by recent media speculations. I mean, it highlights the level, the high level of market confidence in our company because of the achievements driven by engineering excellence, our enterprise efficiency and our customer centric philosophy. And we are of course, we are always looking at future options in our business. But however, as I said before, we have we are now in our harvest season.

Speaker 1

So we are focusing on selling and on delivering the current, the existing portfolio of products that is very modern and competitive. So we don't have concrete pens to develop or launch a narrow body or other aircraft in the next few years.

Speaker 6

Great. Perfect. Thank you so much.

Speaker 1

You are very welcome, Ron.

Speaker 3

Thank you. The next question comes from Victor Mizusaki with Bradesco BBI. Please go ahead.

Speaker 7

Hi. I have two questions here. The first one, apparently, some guys from Mahindra were visiting Embraer in Brazil. So I don't know if you can give us some update on the negotiations. And second, when we take a look on the press release, there's a comment about provisions for bad debt in service and support.

Speaker 7

So maybe you can comment a little bit if it's a kind of a specific situation or there's something more to come in the second quarter. Thank you.

Speaker 1

All right. Victor, I'll start with the question 1, and then Antonio will help us with the question 2. Yes, we didn't have a very exciting visit last week to our facilities in Brazil of the Mahindra CEO and 3 other members of this team where we had opportunity to better know each other and talk about the next steps on this TMT process in India to sell from 40 to up to 80 CT9s to the India Air Force. So we believe we have a good partnership with them. And we'll do our best to convince the customer that our products is the best one for the India Air Force.

Speaker 1

Antonio, you can help us with the second.

Speaker 2

Yeah. Good morning, Victor. So very simple here, we just build up 3,000,000 dollars in Q1 for the bad debt provision. It's just Q1 was a little a bit higher concentration overdue payments and it's not the one specific customer, it's a bunch of customer, we just applied the accounting methodology. I do not see it's being a trend for the future, but probably half of it is going to be revert next quarter already, Victor.

Speaker 2

Not the concern is right now.

Speaker 7

Thank you.

Speaker 8

Thank you.

Speaker 3

The next question comes from Marcelo Motta with JPMorgan. Please go ahead.

Speaker 9

Hi, everyone. Thanks for getting the question. It's regarding the defense. I mean, do you guys have any updates regarding the conversion of the orders from Netherland, Austria, Czech Republic. I mean, you guys also mentioned on the deliveries and backlog report from the Q1 that there are ongoing orders from EMEA, Asia Pacific that are not incorporated to backlog yet.

Speaker 9

Could you please give us more color on maybe the size, potential size of these orders and or maybe expectations for defense backlog for the coming quarters or year end? Thank you very much.

Speaker 1

Marcelo, thanks for the question. Yes, we will have high expectations to sign important contracts in defense during this year. There was a you know already that we have been selected in the past 2 years. We expect to sign it during this year. And then part of that, we are working in the in other new campaigns either for the A29, the super Tucano and the C29.

Speaker 1

We also expect 2024 to be a good year in terms of sales, not only in commercial, but in defense as well. And taking the opportunity in the as activity we keep a very good momentum in sales as well. So again, this year, we are very optimistic in terms of sales in all of our business.

Speaker 9

Perfect. Thank you very much.

Speaker 3

The next question comes from Stephen Trent. Please go ahead. Mr. Trent, your microphone seems to be muted.

Speaker 10

Hello. I'm sorry. Can you hear me?

Speaker 1

Yes. Yes, we can, Steve.

Speaker 10

Good morning, everybody. I'm sorry about that. And thank you for taking my question. I also had a sort of a follow-up on the defense side. I know that Brazil's Air Force and Sweden have a solid relationship with the Gripen Fighter and other cooperation.

Speaker 10

And I was wondering if you might just give us some high level color about how Embraer might be working with Gripen and what opportunities you could see from the new technology? Thank you.

Speaker 1

Well, thank you, Stephen, for the questions. Well, we do have a partnership with Saab Saab to help them to sell Gripen, not only in Brazil but outside Brazil. And then they do help us to sell the C29. So we have been working together. And, mixed reading is one of our potential markets that we have been working on.

Speaker 1

So but we don't have any other information than that. In regard to sales of Ripping, this is spelled that you asked Saab directly.

Speaker 10

Great. Appreciate that. And just a quick follow-up. Any high level color how you guys are feeling about your supply of engineers in terms of hiring and retaining those people? Thank you.

Speaker 1

Thank you, again, Stephen. Again, we have been working very hard on those topics that is, you know, the regulatory tension is one of the main focus of employer not all engineering but in the entire company. And again, we have a lot of new programs for engineers to work on in the future. We have improved our communication process. We have done a lot of things to help us to retain our talents within the company.

Speaker 1

I don't know, Andreza, our VP HR, would like to add some more information on that because we have been personally involved in this topic.

Speaker 11

Hello, everybody. Good morning. Thanks, Francisco. So as you said, we're working very hard on that. We have a lot of initiatives, especially internally by means of culture, the future of work, things that make our engineers and not only engineer, our employees, consider to keep an employer.

Speaker 11

And we also have been granted as a great place to work, and this also helps to retain our employees. Thanks for the question, Steve.

Speaker 10

Thank you.

Speaker 3

Thank you. The next question comes from Lucas Barbosa with Santander. Please go ahead.

Speaker 12

Good morning, Francisco, Antonio Guillais. Thanks for taking my questions and congratulations for the results. So my question is looking a little bit longer term at the Commercial Aviation division. Embraer has deliveries to be done with better pricing conditions in the future, a higher mix of E1s given the AA or American Airlines order and a cost structure that is leaner than in the several past years. So my question is, with all of those positive drivers, where can commercial aviation margins stabilize at in the future?

Speaker 12

Thank you very much.

Speaker 13

Good morning, and thanks for the question. This is Guy Pava. So look, the points you mentioned are all correct. We don't provide official guidance for individual divisions of the company. But if you look in the past, Commercial Aviation was able to sustain margins in the double digit territory in the mid teens.

Speaker 13

Also, that is far away from where we are now, but we feel confident that in the next few years, we should see margins continue to improve towards that direction.

Speaker 12

Super clear. Thank you very much, and have a great day.

Speaker 2

Thank you.

Speaker 3

The next question comes from Christine Liwag with Morgan Stanley. Please go ahead. Ms. Liwag, your microphone seems to be on mute.

Speaker 14

Hello, can you hear me? Yes.

Speaker 2

Yes, sir.

Speaker 14

Hey. Hey. Good morning, Francisco, Antonio, and Guy. Sorry about that. Maybe, Francisco, in competitive dynamics, Airbus continues to lose money on the a 220, and, you know, they are aspirationally breakeven at 160 per year.

Speaker 14

But they're continuing to see pressure from labor costs in Canada and as well as their supply chain. Can you talk about what this means for the pricing environment for the E2? And how has the pricing environment for the E2 changed over the past few years since COVID? Are you seeing any improvement?

Speaker 1

Well, Cristini, thanks for the question. Good question, by the way. Well, when we have a free competition in the market, the result is pressure on the price, which benefit the customs. Right? In case of Embraer, I mean, even with this tough competition, we have been profitable in our commercial aviation.

Speaker 1

In the past year, the past years, the past 2 years, we've been profitable, the commercial aviation without services. And we don't sell our aircraft below costs. So what we have done, we have tried to offer competitive prices to our customers to show the value of our products that we our product, we believe that we do have the most efficient aircraft in that category. And we continue to work on reducing our internal costs with Kaizen programs, with cost reduction initiatives, where we manage engineers in the organization. So again, we have prepared ourselves for this competition, but without selling products below our costs.

Speaker 1

So again, we expect again this year to be profitable in commercial aviation without service. If we had service, we even improve the profit of our commercial business.

Speaker 14

Thanks, Francisco. And if I could, tag another one, I mean, following up on Myles' question. There is a shortage of aircraft globally, and Boeing continues to struggle with production, and Airbus can't meet all the demand out there either. Now the E2 is a very attractive aircraft. I actually flew it recently from Paris to Zurich.

Speaker 14

I mean, what prevents customers from committing to more firm orders? I mean, that said, right, you are sold out through the end of 2026. But, you know, what's preventing them for committing for the slots in 27 beyond?

Speaker 1

Another good question. Cristina, I think there was a wave of customers wave of customers buying bigger aircraft. But now, I mean, I think we see more and more opportunities for this, we call a small narrow body. I mean, how we, too, can fly up to 6 hours. And it's very efficient, very quiet.

Speaker 1

And it's perfect for if airline wants to offer a higher frequency of flights to the passengers, also to explore routes until the demand is big enough to fuel a big narrow I think Day 2 is a perfect solution. And we see more and more customers now. I mean, we see the interest growing more and more in that segment of, small and everybody that will for sure benefit our E2s.

Speaker 14

Great. Thank you for the color.

Speaker 1

Thanks, Kristine.

Speaker 3

Thank you very much. The next question comes from Noah Poponak with Goldman Sachs. Please go ahead.

Speaker 8

What unit growth are you planning for based on demand backlog, how full the skyline is in the medium term in commercial?

Speaker 1

Could you please repeat the questions? I have difficult I'm having difficulties to understand here.

Speaker 8

Yes. Can you hear me okay?

Speaker 1

Yes. Yes.

Speaker 8

Yeah. I'm wondering, from the starting point of 2024, given you have to to set the system, the production system in motion pretty far in advance, and production deliveries are still pretty far below pre pandemic in commercial. I'm wondering how you're triangulating all of the inputs you have to decide where you should take production over the next 2 or 3 years in commercial.

Speaker 1

Okay. Now I got your question. Thank you. Well, this year we are planning in commercial aviation deliveries between 7280 aircrafts. And we, as I said before, we are working in a lot of sales campaigns for the future.

Speaker 1

Next year, we expect to grow the production of commercial jets, which should be very close back to the 3 digits production, I mean, in the commercial jets. And we expect to keep that level of production with small growth in the years ahead. So again, we believe that next year, the 'twenty five, 'twenty six, we'll be back to the production levels, pre pandemic levels, which will bring our commercial aviation to an even better profitability performance. So again, we are very optimistic with the production growth and deliveries of commercialization as well.

Speaker 8

Okay, great. Appreciate that detail. And then at Executive, obviously, the deliveries are up a lot year over year in the quarter. Obviously, it's off a low base. But have you had resolution of supply chain issues in executives such that the year can be more level loaded as you go through the year?

Speaker 8

Or is there an implication that there's upside to the full year range?

Speaker 1

No, we had some, some difficulties last year. I the external with suppliers, but internal as well because we were ramping up a lot the production. But no, since then, we have approved a lot of investments in our plants to increase production capacity either in Brazil and in the U. S. So with that, we expect we are planning our growth this year and even more important growth in 2025 years ahead because of this, investments we are implementing this year to help us to increase production from 2025 onwards in these active jets.

Speaker 8

Okay, great. All right. Thanks very much.

Speaker 1

You're welcome.

Speaker 3

Thank you all very much. This concludes the question and answer session for Equity Research Analysts and Investors. Now we will start the Q and A section dedicated to the press. First we will answer questions in English and then we will answer questions in Portuguese. We will also answer questions sent via the platform chat.

Speaker 3

Please let me say a short announcement for Portuguese speakers. We ask participants interested in asking questions to press the raise a hand button on the platform. When your name is announced, please make sure your microphone is on and start your question. If you need assistance, please use the Q and A button on the platform. Our first question is from the chat is from Richard Schuman, a freelance aviation reporter.

Speaker 3

Hello, Francisco. Obviously, you were very happy with the large order from American for 990 E175s. But how do you rate the chances of Embraer to win E2 orders from U. S. Customers?

Speaker 3

They seem to favor larger aircraft.

Speaker 1

Thanks for the questions. Yes, we are extremely happy with the order of American Airlines in the last March. That was a very important order for us that shows that our E175 still have many opportunities, especially in the U. S. Market.

Speaker 1

The E2s, more recently, we have seen the E2s flying over U. S. With the Porter Airlines. Porter is flying to New York, to Florida, to California with the E2s. And we yes, we are in conversation with potential customers in the U.

Speaker 1

S. I mean, showing the how good the aircraft is and how the aircraft can help them to fill the gap between the regional jets and the big narrow bodies. So again, we see opportunities, not only the U. S, but in many other regions in the world for the E tools.

Speaker 3

Thank you. The next question comes from the chat from Richard Sherman, the same questioner. Do you have updates on the initial agreement with Richard Sherman Lanzhou for the conversion of E-1 jets in China as announced at the Paris Air Show?

Speaker 1

No. We don't have any update to share with you about that program at this

Speaker 10

point of time.

Speaker 3

Thank you. The next question comes from Gabriel Araujo. Please go ahead.

Speaker 15

Hey, Francisco and Barion. Good morning. I was wondering if you could update us on the sales campaigns in Asia. We know India has a big market, China as well. Embraer has been trying to tap into the Chinese market for commercial airplanes, how the campaigns in Asia are developing, especially now that you are flying the V2 in Singapore now?

Speaker 1

Well, Gabriel, thanks for the question. Yes, Asia is a region we see a big potential for D2s. Last February, we inaugurated a full flight the first full flight simulator of E2S in the region in Singapore. And this will help us to pursue more opportunities, say opportunities in the region. And we are working sales campaigns in many different countries.

Speaker 1

Now we have already more than 300 aircraft flying over the region, I mean in China, in Japan, in Australia. And we are working all those countries to introduce the E2s as well. So good opportunities for us in Asia Pacific indeed for the E2s.

Speaker 3

Thank you. The next question comes from Juliana Rocha, a reporter from RED and it comes also from the platform chat. Can you give details on the arbitration proceeding with Boeing? When do you expect it to be over?

Speaker 1

Well, I mean, this process is not under our control, But it is the process in the final phase. And we expect a decision still within this first half of twenty twenty four.

Speaker 3

Thank you very much. This concludes the question and answer session in English for the press. This Q and A section is now being conducted in Portuguese. To switch to English, please press the interpretation button on the platform and then select English.

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