Embraer profit misses on restructured airline financing

SAO PAULO Tue Oct 23, 2012 10:50pm EDT

SAO PAULO (Reuters) - Brazil's Embraer (EMBR3.SA), the world's third-largest commercial planemaker, missed estimates for its quarterly profit on Tuesday as it helped to restructure aircraft financing for a U.S. regional airline.

Embraer reported third-quarter net income of $65.2 million in a securities filing, missing the average estimate of $103 million in a Reuters survey of nine analysts.

The company said last month it was working with U.S. carrier Chautauqua Airlines, a subsidiary of Republic Airways Holdings (RJET.O), to ease leasing costs for a fleet of regional jets on which Embraer had offered financial guarantees. The cost of that restructuring reduced earnings by $41.9 million.

Still, the planemaker remained confident in its full-year projections, despite canceled orders and slow deliveries.

"The company believes it is in line to meet its 2012 revenue guidance," Embraer said in the filing, adding that the expected mix of fourth-quarter deliveries meant it was well-positioned to deliver on its profit margin targets.

Embraer is grappling with a fragile global economy that is sapping demand for its executive aircraft and hurting the commercial airlines that fly its regional jets.

The company's net cash position shrank in the quarter as it paid $49.5 million due to the Chapter 11 bankruptcy of American Airlines' parent company AMR Corp (AAMRQ.PK), which is renegotiating the leases on its fleet of Embraer regional jets.

Embraer booked a $361 million provision for such expenses at the end of 2011, leading to a $92 million fourth-quarter loss.

DELIVERY REBOUND

In corporate jets, where canceled orders have threatened the full-year delivery target, Embraer said it expected rebounding deliveries at the end of the year to reduce stocks.

Still, the manufacturer said inventories may end 2012 at a higher level than where they began the year. Embraer forecast between 195 and 215 deliveries of commercial and executive jets this year, but delivered just 129 in the first nine months.

Slower deliveries and the restructured aircraft financing dragged on earnings before interest, taxes, depreciation and amortization (EBITDA), a gauge of operating profit, which slipped 12 percent from a year earlier to $166 million.

One bright spot for Embraer is its defense unit, which the company noted was outperforming its targets and contributing more than 18 percent of revenue, up from 14 percent a year earlier.

The division's top executive told Reuters recently that the unit would likely generate revenue near $1 billion in 2012, beating an annual target of $900 million to $950 million.

Embraer's net income from July to September rose 19 percent from the prior quarter. Revised earnings from a year earlier showed a narrow $1.9 million net profit in the third quarter of 2011, when a currency tumble wiped out most earnings.

The company also said it saw no need to make provisions at this time for possible fines or sanctions in connection with a bribery investigation by the U.S. Securities and Exchange Commission and Department of Justice, adding that it was not now possible to estimate the duration, scope or results of the probe.

In an update to investors on the investigation, which Embraer disclosed last November, the planemaker said its outside counsel continued to investigate the case and provide information to U.S. authorities.

Embraer recognized that if it was found guilty of violations, it could face steep fines or other sanctions, but added: "Our management, based upon the opinion of our outside counsel, continues to believe that there is no basis for estimating reserves or quantifying any possible contingency."

(Editing by Richard Pullin and Edmund Klamann)

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