United order boosts Embraer outlook despite profit miss
SAO PAULO (Reuters) - Brazil's Embraer SA (EMBR3.SA), the world's biggest maker of regional jets, said an order for at least 30 new planes from United Airlines on Monday raised the odds of greater production next year.
The order, which included options for 40 additional E-175 jets, is worth a combined $2.9 billion at list prices, providing a silver lining for the company after weaker-than-expected quarterly earnings.
Hurt by rising labor costs and a drop in commercial aircraft production, Embraer posted a 67 percent drop in first-quarter net income to $30 million, falling short of an average estimate of $58 million in a Reuters poll.
The new order from United Continental (UAL.N), which will include the 76-seat regional jets in its United Express fleet, reinforces hopes that this year's lower E-Jet output was just a cyclical ebb.
"Without a doubt, this order makes it more likely we'll increase the pace of production next year," said Paulo Cesar de Souza e Silva, the head of Embraer's commercial aviation unit, in a telephone interview.
"We're doing really well this year."
The planemaker is trimming output of its regional E-Jets by as much as 15 percent in 2013 after years of scarce demand. But fresh demand has been unleashed after major U.S. airlines last year renegotiated labor contracts that had limited their regional fleets to jets with 50 or fewer seats.
United said it expects its new E-175s to achieve fuel savings of 10 percent compared to the 50-seater regional jets they will replace in 2013 and 2014.
Silva said he continues to expect 200 to 400 new orders for regional jets from major U.S. carriers between this year and the middle of 2014.
Canadian rival Bombardier Inc (BBDb.TO) won an order from Delta Air Lines (DAL.N) for larger regional jets in December, but Embraer responded a month later with an order for American Airlines' regional network.
"American and (planned merger partner) US Airways LCC.N still need to renew their fleets. They've done that partly with the order in January," Silva told Reuters. "I see good chances for us to close more deals ahead."
Waning production of Embraer's regional jets seating less than 120 passengers, its biggest source of revenue, was offset in the first quarter by rising revenue from its defense and executive jet divisions.
But the less profitable product mix and rising labor costs weighed on operating profit. Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, fell by nearly a third to $100 million, missing a forecast of $135 million in the Reuters survey.
The retroactive cost of a recent wage hike and a $9 million provision for an outstanding labor lawsuit also hurt EBITDA.
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