Embraer Battles Through E2 Transition.jpg Embraer

Embraer Battles Through E2 Transition

Brazilian aircraft maker acknowledged transition's "negative impacts on short-term results."

Brazilian aircraft manufacturer Embraer expects to deliver 85-95 commercial aircraft in 2018 as it transitions from its current regional aircraft line to the upgraded E2 variants.

This is expected to be less than the current year. In the first nine months of 2017 Embraer delivered 78 commercial aircraft, mostly E175 models, and the outlook for 2018 means another difficult year for the manufacturer.

Fitch Ratings recently noted that Embraer’s “transition to these new generation aircraft has resulted in lower demand and deliveries of the existing product, working-capital buildup, and lower margins”.

Acknowledging the transition’s “negative impacts on short-term results”, Embraer predicts that it will take at least three years for the company to return to “meaningful” gains to profitability and cash generation.

This will happen, it says, once the ramp-up in production of the E2 is complete and the associated investment in the program is reduced.

The first E2, a 114-seat E190-E2, should be delivered to launch customer Widerøe of Norway in April 2018.

The manufacturer also notes that aftermarket opportunities for the new jets should contribute to profitability. “Services and support of new products continue to gain relevance,” it states.

Embraer delivers maintenance, modification, materials and other services under its ’FleetSmart’ support program.

In the near term, however, Embraer expects free cash flow of negative $150 million in 2018.

During the first nine months of 2017 Embraer registered a net cash outflow of roughly $700 million.

In the 12 months from 30 September 2016, meanwhile, the company’s backlog fell from $21.4 billion to $18.8 billion. In the commercial segment the current backlog is comprised of 152 current-generation and 285 E2-family aircraft.

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