Empresa Brasileira de Aeronautica S.A. – Embraer (ERJ) recently announced its aircraft deliveries for the second quarter of fiscal 2010. Embraer delivered a total of 69 aircraft, including 29 commercial jets, and 40 executive jets, representing an increase from 41 deliveries in the previous quarter and 54 deliveries in the second quarter of 2009.
Embraer also recorded a decrease in the firm order backlog, from $16.0 billion in the previous quarter to $15.2 billion in the current quarter. Also in the first quarter of 2010, Embraer’s firm order backlog slipped to $16.0 billion from $16.6 billion in the fourth quarter of 2009.
Embraer’s product portfolio supports stronger customer orders and deliveries. The company’s firm order backlog is consecutively declining while its jet deliveries are continuously increasing.
Specifically, Embraer’s 170/195 line has experienced strong orders. The Legacy line also experienced increasing demand. The company is planning to deliver the mid-sized Embraer MSJ or Legacy 450 and the mid-light Embraer MLJ or Legacy 500 by the second half of 2012 and 2013, respectively.
It is remarkable that Embraer has been able to pull through the challenging period with decent results. The recent sales and the support of the Brazilian government will also help Embraer in the difficult moments ahead.
However, the inadequate airports infrastructure in Brazil will stunt the growth of the market in the mid-term and will also impact Embraer’s domestic top line. There were many delays and flight cancellations at the most important Brazilian airports. The problem seems to be less severe now. However, we do not expect this difficult situation to return to normal in the coming quarters.
For the worldwide airline industry, 2009 was one of the toughest years. The only good news was the price of oil, which came down to mid 70’s from close to $150 per barrel in 2008. However, with fluctuating fuel prices we do not expect better prospects in 2010. Thus, we reiterate our long-term Underperform recommendation on the ADR.
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