Embraer (ERJ) to Deliver C-390 Millennium Jets to South Korea
Embraer S.A. ERJ recently announced that it has been selected by South Korea's Defense Acquisition Program Administration to supply its C-390 Millennium military transport aircraft to the Republic of Korea Air Force (“ROKAF”). The value of this contract will be reflected in Embraer's backlog in the fourth quarter of 2023.
Apart from providing an undisclosed number of aircraft configured for ROKAF specifications, Embraer will provide associated services and support, including training, ground support equipment and spare parts.
Significance of C-390
The medium-sized military transport aircraft, C-390 Millennium, is capable of carrying a payload of more than 26 tons, higher than other aircraft of this category. With a flying speed of 470 knots, it is capable of performing multiple missions, including cargo and troop transport, medical evacuation, search and rescue, firefighting and humanitarian operations.
Additionally, when equipped with air-to-air refueling capabilities, designated as KC-390, it has been proven successful in aerial refueling operations, both as a tanker and a receiver, enhancing its operational flexibility.
Since operation, the C-390’s existing fleet has completed more than 10,800 flight hours, showcasing an operational availability of around 80% and mission completion rates exceeding 99%. This surely has been attracting more customers like South Korea to select C-390 as their choice of combat jet, thereby ushering in contract flows for Embraer.
Embraer’s Prospects in Asia-Pacific Market
As nations are ramping up their defense spending to strengthen their troop, the prospects for military aircraft have increased manifold, with the Asia-Pacific region dominating the market. Per the report from Mordor Intelligence, the Asia-Pacific military aircraft market is expected to go from $13.08 billion in 2023 to $20.76 billion by 2028, at a CAGR of 9.68% during 2023-2028. This unfolds immense opportunities for companies like Embraer that already have exposure in the region’s military aircraft market.
In October 2023, Embraer participated in the ADEX 2023 in Seoul to display its defense and security products and solutions. In 2022, a number of MOUs were signed with Korean companies, like Aerospace Technology of Global, EM Korea Co. and Kencoa Aerospace, to supply parts for the C-390 Millennium in the future.
Peer Moves
Apart from Embraer, other aircraft manufacturers that stand to gain from the enhancing Asia-Pacific military aircraft market are as follows:
Boeing BA: It has a presence in the Republic of South Korea (ROK), India and Southeast Asia. Boeing has had a presence in Korea since 1950. The defense products supplied to ROK include the AH-64E Apache, F-15K Slam Eagle fighter jets, Peace Eye Airborne Early Warning and Control aircraft etc. In July 2023, Boeing was awarded a contract to produce 47 CH-18F Chinooks for operation in South Korea.
BA boasts a long-term earnings growth rate of 4%. The Zacks Consensus Estimate for 2023 sales implies an improvement of 15.6% from the 2022 reported figure.
Airbus EADSY: The Asia-Pacific region is one of Airbus' core markets. For military operations, more than 150 light and medium tactical aircraft (C212, CN235 and C295) are in service in the region. The A330 MRTT (multi-role tanker transport) has been used by Air Forces of Australia, Singapore and South Korea.
EADSY boasts a long-term earnings growth rate of 12.4%. The Zacks Consensus Estimate for 2023 sales implies an improvement of 12.9% from the 2022 reported figure.
Lockheed Martin LMT: The company has a well-established presence in the Asia-Pacific region. LMT has been serving ROK for more than 30 years with its F-35 Lightning II, T-50 Golden Eagle, C-130 Hercules, Black Hawk etc. It also helps the Indian Air Force in advancing its defense capabilities. In March 2023, Lockheed signed a MOU with Tata Group for fighter wing production in India.
LMT boasts a long-term earnings growth rate of 8.6%. The Zacks Consensus Estimate for 2023 sales implies an improvement of 0.9% from the 2022 reported figure.
Price Performance
In the past year, shares of ERJ have rallied 78.1% against the industry’s 9.9% decline.
Image Source: Zacks Investment Research
Zacks Rank
Embraer currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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