Embraer reveals lower commercial aviation profitability in 2Q19
Despite slumping income from its commercial aviation segment, Embraer reports $26.6 million profit in the second quarter of 2019 and reiterates its hopes to finish the year reaching an “approximately break even”.
Driven by better performance in executive jets and defence and security divisions, Embraer’s revenues reached $1,378 billion in the 2Q19, representing a year-over-year increase of 10.0% compared to 2Q18.
Embraer has reported earnings before interest and taxes (EBIT) of $26.6 million for the three months ending on June 30, 2019. For comparison, the manufacturer suffered $20.3 million loss (EBIT) in 2Q18.
However, a runway excursion of the KC-390 military transport aircraft prototype 001 back in May 2018, resulted in $127.2 million impact on operating results. Embraer listed it as a special item in 2Q18. Taken it aside, 2Q18 adjusted EBIT was $106.9 million, meaning that this year’s result can be seen as a relative decline.
The company states that this is due to “lower profitability in the Commercial Aviation segment on slightly lower deliveries and less favorable mix, in addition to separation costs recognized in 2Q19 related to the strategic partnership between Embraer and Boeing”. Including the separation costs, Embraer still reiterates its guidance for 2019 EBIT margin of approximately break even.
Embraer is selling an 80% stake in commercial aviation activities to Boeing. The deal, which includes aftermarket support services, is valued at $4.2 billion. After the takeover, the commercial division will be renamed Boeing Brasil – Commercial. The transaction is expected to be approved by competition authorities by the end of 2019.
In the second quarter, Embraer’s backlog grew by $9 million and ended 2Q19 at $16.9 billion. At the end of 1Q19 it stood at $16.0 billion. The result includes all deliveries and firm orders obtained during the period. The highest sales activity was registered in the executive jet segment, as the company states the demand improved for its recently launched Praetor jets and Phenom family of jets.
The commercial aviation section revenues declined by 16.7% on a year-over-year basis. In 2Q19 they constituted 45.7% of consolidated revenues, while in 2Q18 ‒ 60.3%. The company has delivered 26 commercial jets during the period, the vast majority of which (22 in total) were Embraer 175s. During the first three months of the year (1Q19), the company delivered only 11 commercial jets, also almost exclusively of E175 model (in total 10 E175s and one E190-E2).
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