Embraer Gets $2.85B Contract


Embraer SA’s (ERJ) Commercial Aviation unit has entered into an agreement, worth $2.85 billion at list prices, with International Lease Finance Corporation (“ILFC”) to deliver 50 E-Jets. The deal has an option to extend the potential order to up to 100 aircraft. This firm order was initially announced as a Letter of Intent at the Paris Air Show held in Jun, 2013.

Per the contract, Embraer will deliver 25 E190-E2s and another 25 E195-E2 aircraft. If ILFC utilizes the order-extension option, it will buy 25 additional E190-E2s and 25 E195-E2s.

ILFC is an organization, which deals with the leasing and remarketing of jet aircraft to commercial airlines.

During second-quarter 2013, Embraer announced the launch of the E-Jets E2 - E175-E2, E190-E2 and E195-E2. The E2s have spacious cabins, and high-tech engines together with new aerodynamically advanced wings, new engines and full fly-by-wire flight controls, which reduce external noise, maintenance expense and emissions. In fact, E-Jets E2 burns at least 16% less fuel per seat with E-195 specifically burning 23% less fuel.

The first delivery of E190-E2 is scheduled for the first half of 2018. The E195-E2 and E175-E2 jets are slated to enter into service in 2019 and 2020, respectively.

One of the main purposes of introducing this fleet is to tap the 70-130 seat commercial aircraft market. In addition, low-cost, fuel efficient, low emission and spacious cabins are making the E-Jet commercial jets more popular.

It is evident from past records that Embraer is flooded with E2 airplane orders. A large commitment for the E-2 variant came from the world's largest regional airline group SkyWest Inc. (SKYW). The company signed firm orders, valued up to $8.3 billion, to deliver 100 units of E175-E2 aircraft, with another 100 Purchase Rights. SkyWest will fly 40 units of E-175 airplanes for United Continental Holdings Inc. (UAL) under a 12-year contract.
We believe these big-ticket deals, including signing a series of contracts and tie-ups with several companies for its jets, will boost the performance of Embraer’s commercial aircraft division. Continuous demand for E-Jets demonstrates the confidence of its customers, which will improve its forthcoming results.

Embraer currently has a Zacks Rank #3 (Hold). Currently, The Boeing Company (BA) looks attractively placed with a Zacks Rank #2 (Buy).

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