Embraer predicts a “gradual” improvement in the performance of its executive jets division from 2017, on the back of growing economic confidence and increased profit margins, but says the sector’s recovery is being hampered by a stubbornly large inventory of used aircraft.
The airframer’s business jet unit posted flat revenues of about $1.73 billion in 2016, reflecting a delivery output of 117 aircraft – 73 light jets and 44 large jets. This compares with 2015 revenues of $1.72 billion on the back of 120 shipments – 82 light jets and 38 large jets.
Speaking on a 9 March full-year earnings call, Embraer chief financial officer Jose Filippo predicted “better results going forward”, but cautioned that any improvements would be “small”.
Filippo cites the robust US economy and that country’s new administration as key drivers to market recovery. “The USA is the largest market in the world for business jets,” he says, pointing to its installed base of around 60% of the global fleet.
“Stock markets are going up, and we know that business jet [acquisitions] are very much linked to both GDP and the stock market [performance],” he says.
Filippo argues that recovery is being hampered by the “very large inventory” of used business jets for sale – which he puts at 12% of the global in-service fleet. “That’s too many,” he says. “We need this inventory to drop to around 7% in order to have a neutral market. It’s going to take a while.”
Embraer says it is now focusing on profitability rather than on growing its share of the business aircraft market, as the latter approach has led to industry-wide pricing pressure and cost-cutting.
In fact, Filippo says the company’s decision in August to cut its 2016 delivery guidance from 150 to 119 aircraft, prompted both an increase in sales and profit margin. “We believe we can keep the deliveries more or less the same, and still have a margin improvement,” he says.
Embraer ended 2016 with a business jet backlog worth $1.3bn, and forecasts deliveries of 105-125 units in 2017, featuring a more balanced mix of light and large jets. The division expects to post revenues of $1.6-$1.7 billion this year.