On Monday, Embraer reported financial results from a turbulent first quarter of 2020. The headline numbers were down: revenue decreased 24% compared to Q1 2019, and commercial aircraft deliveries declined 55% from the previous year. Nonetheless, Embraer heads into the rest of 2020 in a strong cash position, with $2.5 billion on its balance sheet, in large part due to strong Q4 2019 results.

The beginning of 2020 challenged the Brazilian aviation company with both an unprecedented slowdown in air travel, stemming from the Covid-19 virus, and also the collapse of a multi-billion dollar sale to Boeing
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of Embraer’s commercial aviation unit.

Embraer CFO Antonio Carlos Garcia shared on the earnings call that, “During the first quarter, we finished the internal segregation of the commercial aviation business, which basically shutdown the whole company during the month of January.”

Only in April did Boeing withdraw from that agreement. Garcia committed to, “pursue any and all remedies available to compensate Embraer,” in arbitration, but otherwise declined to comment on the matter.

Boeing was not the only problematic relationship this past quarter. Embraer recorded $33 million in selling expenses during Q1, to account for bad debt among its customers. Although Embraer declined to name specific accounts, the company has not loosened its credit policies. “We didn’t change the procedures we have internally. What has changed is the rating of the major customers.”

Responding the new reality facing the world’s third-largest aircraft manufacturer, CEO Francisco Gomes Neto laid out a five-point plan, starting with the health and safety of Embraer employees. The plan also includes updated five-year plans for each business unit, cash preservation, realization of synergies across units, and making Embraer a lean and efficient organization.

Both Embraer’s executive aviation unit and its defense unit fared better in Q1 than did commercial aviation. “Defense & Security” revenue declined only 17%, while “Executive Jets” revenue actually increased 11% over the previous year’s results.

Defense margins increased to double-digits as the KC-390 military transport moved from development to production, reducing the company’s ongoing investment.

Gomes Neto held out executive jets as a potential growth area for the company, due in part to Covid-19 concerns.

“We might have more opportunities next year because I mean more executives might increase the use of shared flights or even decide to buy their own jets for a more reserved transportation.”



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