FILE PHOTO: The logo of Brazilian planemaker Embraer SA is seen at the company’s headquarters in Sao Jose dos Campos, Brazil February 28, 2018. REUTERS/Roosevelt Cassio/File Photo
January 16, 2019
SAO PAULO (Reuters) – Brazilian planemaker Embraer SA <EMBR3.SA> said on Wednesday it expects to keep $1 billion in cash after paying off all of its debt once a proposed $4.2 billion deal with Boeing Co <BA.N> closes, although it warned of little or no profit in the next two years.
Embraer expects earnings to break even before paying interest expenses and taxes in 2019, according to a securities filing. The measure, known as EBIT, is expected to rise to between 2 percent and 5 percent of revenue in 2020, the company said.
In 2018, Embraer did not meet several of its projections, coming up at least $250 million short of its revenue forecast in its executive jet division and $200 million short in its defense division.
The company burned through twice as much cash as expected, with final negative cash flow of about $200 million for 2018. But it hopes to reverse that result with Boeing money, forecasting positive cash flow of $1 billion if the sale goes through.
Embraer shares, which fell as much as 5 percent in early Sao Paulo trading, were down 3.5 percent in the afternoon.
Embraer is finalizing a deal to sell 80 percent of its commercial aviation division, its most profitable, to Boeing for $4.2 billion in a deal expanding the intense competition between the U.S. planemaker and Airbus SE <AIR.PA> in smaller passenger jets.
Company executives said at an event in New York that Embraer would start receiving dividend payments from Boeing five years after the deal is approved.
“The new Embraer is a valuable asset,” Chief Financial Officer Nelson Salgado said in New York. “Generally the market has not been attributing a big market to our executive and defense business, but we think there is a big upside.”
Salgado pointed to sales potential with its newly launched executive jets and its signature defense plane, the KC-390, which Boeing will help market to “geopolitical allies” of the United States.
The deal with Boeing was approved by the Brazilian government this month and should be put to a vote by Embraer shareholders in February before an expected close at the end of the year. The agreement also needs U.S. regulatory approval.
Overall, Embraer would give shareholders over 35 percent of the proceeds from Boeing, with owners of stock trading on the New York Stock Exchange receiving approximately $8.50 per share, the company said.
Aircraft deliveries from the commercial division, which would be controlled by Boeing starting in 2020, are seen roughly flat this year from a year ago, ranging between 85 and 95 planes.
The company said that its projections for 2019 include costs associated with its proposed deal with Boeing, the most significant being taxes.
Embraer also published projections for 2020, the first year after the deal closes. It expects revenues to fall by about 50 percent after the separation of the commercial division in which it will retain a 20 percent stake.
(Reporting by Marcelo Rochabrun; Editing by Jason Neely and Jeffrey Benkoe)
