After Blue Skies Brazilian Embraer Fears a Bumpy Flight in 2009

Embraer delivers aircraft to Azul The year of 2008 has been a good one for Embraer, the Brazilian aircraft manufacturer. Despite that however, the company sees 2009 with concern due to the international economic crisis.

The company's president, Frederico Fleury Curado, said during a luncheon with journalists, on December 18, that he is expecting strong recession in the company's main markets, i.e., the United States and Europe. "And the growth of emerging countries, high as it may be, will not suffice to suppress recession in developed ones," he stated.

In addition to the perspective of poor performance of the global economy, which should lead to a reduction in demand, Embraer is faced with the same problem as other productive sectors: lack of credit. Without financing, no one buys airplanes.

Embraer estimates that it should post revenues of around US$ 6.3 billion in 2009, a figure lower than the US$ 6.5 billion posted this year, despite the forecasted delivery of approximately 270 commercial aircraft, as against little over 200 units in 2008.

This is so because 110 jets scheduled to leave the factory next year will be of the Phenom model, smaller and cheaper than the ones sold up until now.

The executive believes that next year, its 40th anniversary year, the company is going to deliver previously ordered aircraft, more than sign new contracts. "It is going to be a challenging year, but we will stick to our principles," he asserted.

Curado also said that a good firm order backlog – the company currently has US$ 21 billion in backlog – is no guarantee of good performance in terms of revenues. This is so because even contracts that have already been signed may be canceled if the client is unable to obtain loans from banks. "A strong backlog may not be enough to ensure strong revenues," he said.

In the commercial aviation area, he says that there should be a reduction in deliveries in 2009, and an expansion in the executive area as deliveries begin for the Phenom and the Lineage 1000, a large-sized executive jet. "We are going to monitor things as we go along, we do not know how long this external situation is going to last," the executive declared.

He stated, however, that the company did not make any decision with regard to cuts, especially job cuts. "We have not made any decision, however, there is a concern that 2009 might be a difficult year, in which case we will be forced to react," he said.

Curado ensured, though, that the company's investment program is secured. "We are not going to compromise our future on the strength of short-term problems," he said. "Our priority is survival in the long run," he claimed.

The company itself is not going to grant financing to clients, for instance. According to the executive, the rule of thumb is always to keep the volume of cash above that of debt.

Performance in 2008, however, is cause for celebration. According to Curado, the sales volume was good during the first half and then decreased in the second. The company delivered more aircraft than forecasted, and signed US$ 7 billion worth of new contracts during the year.

He mentioned a few highlights, such as the sale of airplanes to Brazilian airlines Trip Linhas Aéreas and Azul, which recently had its Embraer 195 delivered.

Embraer used to be faced with the contradiction of being widely respected abroad, but not having any of its newer models operated by Brazilian companies. This problem has now ceased to exist.

Curado also mentioned the certification of the Phenom 100 and the Lineage 1000 by airspace authorities and the launch of new executive models Legacy 450 and Legacy 500.

The appreciation of the dollar against the Brazilian currency (the real) benefited the company as well, having contributed to increase its revenues in the domestic currency.

Anba

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