* Order for United Express fleet worth up to $2.9 bln
* Profit falls by two thirds in Q1 on falling output
By Brad Haynes
SAO PAULO, April 29 Brazil's Embraer 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
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, 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
"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 won an order from
Delta Air Lines 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
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.