Embraer Needs Big 2H Sales To Meet Book-to-Bill Goal
While last week’s announcement of a firm order for six E190s from Venezuela’s Conviasa Airlines certainly helped buoy Embraer’s sales outlook for the rest of this year, it hardly assuaged concerns among financial analysts about the fact that the manufacturer’s airliner backlog had dropped to its lowest level in six years by the end of the second quarter. Falling from $14.7 billion on March 31 to $12.9 billion as of June 30, the backlog at its peak stood at $21.6 billion at the end of the third quarter of 2008.
Carrying a numerical backlog of 200 airplanes at the end of the second quarter, the company nevertheless continues to hold its position on production rates. This year Embraer plans to build 110 E-Jets and, according to CEO Frederico Curado, won’t change that output in 2013 unless sales don’t materialize as expected through the end of this year.
Speaking during the company’s second-quarter earnings call with investment analysts last week, Curado acknowledged, however, that reaching its goal of a 1:1 book-to-bill ratio this year looks more “challenging” than it did three months ago. Still, he said he remains optimistic about the long-term prospects for its airliner business, despite recent economic “headwinds” that resulted in sales of just five E-Jets during the second quarter from China’s Hebei Airlines.
So far this year Embraer has sold 17 E-Jets and renegotiated a contract that resulted in the cancellation of five others. Its backlog of 200 airplanes now accounts for less than two years of production at its current pace.
Having delivered 35 E-Jets during the period and 56 during the first six months of the year, Embraer posted a book-to-bill ratio for the first half that stood at far below the 1:1 ratio Curado envisions for this year. By the end of this year, however, Embraer will likely see a significant order from a U.S. airline, apart from enough business elsewhere to fill its delivery slots for next year, he said.
Although he said he didn’t know the exact figures, Curado rated “about right” an estimate that Embraer has filled between 65 and 70 slots for next year, meaning it will need to fill at least another 40 to maintain its production goal of 110.
While expressing “surprise” at the announcement this month that St. George-Utah-based SkyWest signed an MOU for 100 Mitsubishi MRJs, Curado nevertheless voiced confidence that loosening scope clauses in the U.S. will open opportunities for E-Jets, well before the re-engined version reaches the market in 2018. “We believe it will happen over the next 18 months,” said Curado, referring to a coming relaxation of scope clause restrictions.
Meanwhile, Curado acknowledged that Embraer has begun to feel pricing pressure, although it hasn’t yet acted on it. “So far we haven’t done anything outside our classical behavior,” he concluded.