Embraer and American Airlines Inc. signed a firm order for 15 E175 jets in a 76-seat configuration. The contract has a value of USD 705 million, based on current list prices, and will be included in Embraer’s 2018 fourth-quarter backlog. Deliveries will take place in 2020. Combined with the airline’s previous orders for the E175, this new contract results in a total of 104 E175 jets for American Airlines since 2013. The most recent order took place in May 2018 for 15 aircraft.
American Airlines selected Envoy, a wholly owned subsidiary of American Airlines Group, to operate the 15 aircraft, which will be configured with a total of 76 seats, being 12 in First Class and 64 in Main Cabin, including Main Cabin Extra seats.
“This new order from American Airlines continues to show the value that airlines place on our best-selling E175 aircraft,” said Charlie Hillis, Vice President, Sales & Marketing, North America, Embraer Commercial Aviation. “We are fully committed to providing fleet solutions that have a positive bottom line impact, and our E175 leads the charge with over 80 percent market share in the North American market.”
Including this new contract, Embraer has sold more than 435 E175s to airlines in North America since January 2013, earning more than 80% of all orders in this 76-seat jet segment. Embraer is the world’s leading manufacturer of commercial jets up to 150 seats. The Company has 100 customers from all over the world operating the ERJ and E-Jet families of aircraft. For the E-Jets program alone, Embraer has logged more than 1,800 orders and 1,400 deliveries, redefining the traditional concept of regional aircraft.
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Embraer (NYSE: ERJ) didn’t exactly deliver blowout results in the third quarter. On Tuesday, the world’s third-largest commercial aircraft manufacturer reported that revenue sank 11.5% to $1.15 billion last quarter, while adjusted operating profit plunged 23.1% to $45.4 million. However, most of the weakness in Embraer’s results came from its commercial aviation segment.
Given that Boeing (NYSE: BA) plans to buy 80% of this business next year, this division’s quarter-to-quarter results have become much less important for Embraer investors. Meanwhile, profitability is improving in the executive jet and defense businesses that will remain wholly owned by Embraer.
A year ago, Embraer warned investors that 2018 would be a year of transition for the company’s commercial jet franchise. Earlier this year, Embraer delivered the first of its second-generation E-Jets, which have been in development for five years. The new jet models will initially be more expensive to manufacture, temporarily weighing on the jet maker’s profitability. In addition, demand for first-generation E-Jets is slowing, leading to fewer commercial jet deliveries.
Last quarter, Embraer delivered just 15 commercial jets, compared to 25 a year earlier. This led to a steep 45% drop in segment revenue. While a few deliveries were rescheduled to the fourth quarter, that clearly wasn’t the only factor driving the massive declines. The lower delivery volume caused the commercial aviation segment’s operating margin to come in at 1.1% last quarter. That compares to 10% just one quarter earlier.
For 2018 as a whole, Embraer expects to deliver about 90 commercial jets, down from 101 in 2017. Thus, the level of revenue and margin declines will be smaller on a full-year basis than in the third quarter, but it will still be significant.