Embraer Closes Deal Worth US$104.68 million
Today, Empresa Brasileira de Aeronautica S.A. (ERJ), or Embraer, Brazil’s manufacturer of aircraft for commercial and government use, secured a US$104.68 million deal from Algeria’s oil company Sonatrach to supply three 100-seat jets.
The deal would not only add new customers to its firm order backlog, but will also enhance the cash flow of the company. The company has maintained a high level of liquidity, with net cash position of US$122 million at the end of the first quarter of 2009.
In addition, the company’s diversification into broader defense and corporate jets, as well as more geographically diversified clients, will provide additional and more stable earnings stream and cash flow growth in future. Moreover, lower oil prices from a high of US$150 per barrel to US$64 per barrel currently and the support of the Brazilian Government are positive support.
The Brazilian Government is trying to help Embraer in every way. Some weeks ago, the Brazilian Government announced an increase in credit lines for ERJ from existing US$120 million to US$1.5 billion to finance trade with Argentina.
However, the Russian Government, in order to protect its local manufacturer Sukhoi Civil Aircraft, has restricted ERJ to selling large regional jets in its market. This would decrease revenue for the Brazilian aircraft maker.
Additionally, the recent appreciation of the Brazilian real against the U.S. dollar will negatively affect operating margins in the upcoming quarters. The international economic environment also remains a problem, considering the company’s exposure to the U.S. and the European market. Thus, we rate the shares of ERJ a Hold.
Read the full analyst report on “ERJ”
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