E195-E2 aircraft

Embraer shares soar in 2024 amid Boeing nightmare

Shares of the Brazilian planemaker had already appreciated by more than 50% by March 25th. Analysts point out that the company could benefit from the bottlenecks of Airbus and Boeing to serve the commercial aircraft market

The scenario is better than the most optimistic Embraer executive could have imagined. The Brazilian aircraft manufacturer has already reached a valuation of more than 50% in 2024 on both the NY and Brazilian Stock Exchanges.

In Brazil, it is the publicly traded company that has gained the most value this year and it seems that the sky is the limit. But why did Embraer suddenly become the darling of investors and analysts?

Certainly the perception that Embraer has good financial foundations is one of them. Since the end of the joint venture with Boeing almost four years ago, the company’s management has had to implement a broad cost reduction and optimization program to make up for lost time in the frustrated partnership.

The results have been seen in the increasingly solid quarterly data, but that does not explain the current frenzy.

Split backlog

In terms of business, Embraer has managed to win more orders and agreements, but within expectations. Executive aviation is doing well, the services and support division continues to gain ground in revenue, but they represent 40% of the backlog in dollars.

The Defense and Security division is finally beginning to reap the benefits of the C-390 Millennium program, with more customers selecting the multi-role aircraft. But it is the smallest of the four segments in which Embraer operates.

Hungarian Air Force C-390 Millennium first flight (Embraer)

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That leaves commercial aviation, which has long been Embraer’s workhorse. In 2023, the order backlog reached US$8.8 billion, or almost half of the company’s business.

The number of aircraft pending delivery was 388 as of December, the highest level since the second quarter of 2018.

Orders will get a big boost with 90 firm orders for E175 jets from American Airlines, taking Embraer to a level it has not reached for a long time.

American Airlines Embraer E175 (Embraer)

Taking advantage of the Boeing crisis

These are encouraging data but they do not seem to be enough for such optimism. However, there are other factors at play, especially the problems facing Boeing, ironically the company that made Embraer have to rethink its business strategy.

The US aerospace giant is going through the biggest crisis in its long history, which has been going on for several years. The last chapter of the soap opera was the resignation of CEO Dave Calhoun, followed by two other important executive changes.

Since the 737, its money-making machine, began to lose ground to the Airbus A320, Boeing has tried to find shortcuts to compete, but they have in practice been big traps in its path.

Alaska Airlines 737 MAX 9 door plug found (NTSB)

The conclusion of several analysts is that Boeing will go through a long restructuring process until it identifies what is wrong with the company.

This will cause deliveries of commercial jets to be delayed, also placing a burden on Airbus, which is also suffering from other problems such as shortages in the supply chain.

For investment banks like Morgan Stanley, Embraer is the hot ticket in the air travel market as it would be available to meet part of the demand that Boeing and Airbus cannot.

In fact, the agreement for up to 133 E175 jets signed with American Airlines confirms this opinion. The US carrier needs to renew its single-aisle fleet and ordering more A321neo and 737 MAX was not enough.

Porter Airlines E195-E2 (Andrew Heneen)

E2 Family

The tendency is for other airlines to follow American’s path and appeal to Embraer to have more efficient and cheaper aircraft to operate.

It is at this moment that the E2 family, until now almost ignored by large carriers, can change the game.

The largest of the jets, the E195-E2, has a very high passenger capacity, up to 146 seats, although it is common to see it configured with 132 to 136 seats.

With good range and low fuel consumption, the aircraft has demonstrated its virtues with Porter Airlines, a Canadian airline that offers lower fares but excellent service.

Porter has 75 firm orders for the E2, having received 30 aircraft in just over a year. Proof that Embraer is able to supply its potential customers while Boeing, previously interested in its commercial planes, struggles to do so.


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