Boeing Rival Embraer, Up 43% YTD, Spreads Wings In China

Brazilian aerospace company Embraer is correcting its flight path as it extends its markets further into Asia. The smaller rival of Boeing (BA) is expected to post its first annual profit in five years. Embraer shares, up roughly 42% since Dec. 31, have pulled back to test a buy point.


Sao Paulo, Brazil-based Embraer (ERJ) produces a fleet of commercial, defense and luxury jets. The company claims to be the world’s third-largest commercial jet manufacturer, and to have delivered more than 8,000 airplanes.

Embraer’s commercial aviation segment represents about 34% of its total revenue, FactSet data shows. Its services and support division accounts for 28% of revenue. Executive aviation, or its luxury jets business, is a 27% piece of the total. Other revenues, including the defense and security segment, make up the remaining 11% of total sales.

More than half Embraer’s revenue comes from the United States, with 75% of sales coming from the North and South Americas. Its home nation of Brazil generated about 11% of revenue in 2022. Only about 2.2% of sales came from Asia, but that may soon change as Embraer extends its relationships in China.

The Civil Aviation Administration of China approved Embraer’s 195-E2 commercial jet this week, Aviation Week reported. The jets still need certification from regulators before the company can take sales orders, but it is a major step toward developing a market in China.

China certified Embraer’s 190-E2 jet in 2022. Neither aircraft represents a competitive threat to locally-made jets, which government officials reportedly view as a benefit.

EVs For The Skies

The move marks Embraer’s strategic shift to Asia as its commercial jets weren’t selling as well as hoped in Western markets. The company is also directing marketing efforts further into India, where it hopes to sell the C-390 military transport jet as well as more commercial aircraft, Aviation Week reported. Embraer plans to eventually open assembly lines in China or India, so long as it secures enough orders.

Embraer also founded Eve Air Mobility as a spinout of its Embraer-X incubator in 2017. Eve Air Mobility is an independent company that produces electric vertical takeoff and landing (eVTOL) aircraft for urban environments. The company opened a production facility in Sao Paulo, Brazil at the end of July. In May 2022, Eve announced a partnership with Porsche Consulting to define its eVTOL global manufacturing and supply chain strategy.

Its eVTOL V3 is a four-passenger aircraft that looks similar to a giant drone for short-range transportation in major cities. Eve signed a partnership with Uber (UBER) in 2017 to integrate the aircraft into its Uber Elevate Network, its aerial ride-sharing program.

Eve also has an agreement to launch operations in San Francisco in 2026, the company said in June. United Airlines (UAL) invested $15 million in the venture in 2022 with a conditional purchase agreement for 200 eVTOLs, plus an option for 200 additional aircraft.

Orders On The Rise

Ohio-based NetJets agreed to purchase up to 250 of Embraer Praetor 500 executive jets in May, in a deal worth over $5 billion. Deliveries begin in 2025.

In June, American Airlines (AAL) ordered seven Embraer E175 aircraft for its subsidiary Envoy Air in a deal worth $403.4 million. The deliveries are set to start in the fourth quarter and will bring Envoy’s fleet of electric jets up to 141 by the end of the year.

Deliveries leapt 47% in Q2 the company reported in August. Embraer delivered 47 jets for the quarter, completing orders for 17 commercial aircraft and 30 executive jets. So far, Embraer has delivered 24 commercial aircraft and 38 executive jets this year.

Embraer’s total backlog for the quarter was $17.3 billion, essentially flat from Q1.

Clear Skies Ahead

Embraer is finally projected to notch a gain this year, after posting annual losses since 2018. The company only reported two losses during the past six quarters. It has shown positive earnings growth the past three quarters.

For fiscal 2023, FactSet analysts expect Embraer to report earnings of 74 cents per share on a 28.9% spike in revenue to $348 million. Embraer posted a loss of $1.01 per share in 2022.

Embraer Stock

ERJ stock has rallied 42.5% so far this year as travel rebounded and orders ramped up. The advance had trouble getting above 17, and shares are trading about 8% below a 17.14 buy point for a cup base.

The pattern’s current entry is also Embraer’s 2023 high.

ERJ stock is trading above its key moving averages, though much of the current base formed below the stock’s 10-week moving average. Embraer ticked lower to 15.72 during trade Thursday.

You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison


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