Embraer sees price pressure on E-Jets as sales lag target


Brazilian plane maker Embraer is facing rising pressure to lower the price of its regional E-Jets to land new orders, its chief executive said as a weaker global economy and stiffer competition drag on sales.

“Pricing pressure is a growing concern, especially if we have to stimulate demand a little bit,” CEO Frederico Curado told analysts on a conference call to discuss earnings. “But so far we haven’t done anything outside our classic behavior, being very conservative in the quality of the deals we have signed.”

A weaker global economy, new direct competitors and aggressive sales campaigns by Boeing (BA.N) and Airbus EADS.PA in the neighboring narrow-body segment have made it harder to meet targets for commercial jets this year, Curado said.

But the world’s largest maker of regional jets is still aiming to book a new order for every E-Jet it delivers this year, after its order backlog plunged to a six-year low in June, Reuters reports.
“We do have some challenges in the short-term as far as sales. We are still targeting a one-to-one book-to-bill ratio,” Curado said. “Of course, it is more challenging than it was three months ago, but it is still possible.”

Embraer (EMBR3.SA) shares slipped 1.2 percent to 12.94 reais in afternoon trading, erasing a 5 percent jump in opening trade after the company raised its profitability forecast for 2012.

The company said in its second-quarter earnings release late on Monday that a more favorable exchange rate and solid operating performance in the first half of 2012 led it to raise the outlook for profit margins this year.

Embraer now expects earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, to equal between 12.5 percent and 13.5 percent of revenue in 2012. The company previously forecast a so-called EBITDA margin between 11.5 and 12.5 percent this year.

Brazil’s currency, the real, lost 10 percent against the U.S. dollar in the second quarter, which analysts expect to boost Embraer’s long-term profitability, as about one-third of its costs and only a tenth of sales are denominated in reais.


Still, analysts have warned that Embraer will burn through its order pipeline quickly if it does not land new orders or slow down its assembly line.

The company booked about one new regional jet order for every three it delivered in the first six months of 2012, reducing its backlog to the lowest level since 2006, worth around two years of revenue.

A fragile global economy and Europe’s debt crisis have depressed new demand for E-Jets, which are facing stiffer competition from Canada’s Bombardier Inc (BBDb.TO) and newer Japanese rival Mitsubishi Aircraft Corp, a unit of Mitsubishi Heavy Industries Ltd (7011.T).

Looking ahead to next year’s production schedule, Curado said he anticipated a slight increase in business jet production and continued growth from the defense unit.

If Embraer can fill its order book for steady E-Jet output next year, he said, overall business should be stable or expand slightly next year.

Embraer clinched a much-needed regional jet order from Venezuela on Tuesday, when Venezuela’s Conviasa Airlines agreed to buy six E-190 jets during a visit to Brasilia by Venezuelan President Hugo Chavez.

The order, which was agreed in principle in December, is worth $272 million at list prices and could grow to $904 million if the airline exercises options for an additional 14 planes, according to a statement released by Embraer. The first deliveries are planned to start by the end of 2012.