Embraer expects flat commercial aircraft deliveries in 2010

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Embraer is expecting to deliver roughly the same number of commercial aircraft next year as it is this year but is hoping growth will resume in 2011.

The manufacturer's CEO, Frederico Curado, told reporters at a media briefing in Washington today that it appears market conditions have stabilised. He says late last year and early this year there was "a constant movement of deferrals and this has stopped".

But Curado adds it is too early to predict if this is the beginning of a recovery or if there will be a drop from the current plateau. "This is a plateau - not necessarily the bottom. We don't know yet," he says. "The signals we've seen are too faint to interpret as a recovery or even as the worst is behind us.

"Optimistically we think we'll have a stable 2010 and we'll be able to resume growth in 2011. Are we sure? We are not. Until we have solid economic recovery it's going to be really tough on the industry."

Embraer previously said it would deliver about 115 commercial aircraft this year, a 29% drop compared to the 162 aircraft delivered in 2008. While the manufacturer hopes the E-170/190 line will eventually return to the peak levels it reached last year, when it produced 156 E-Jets compared to 123 in 2007, Curado is not yet prepared to say when this will occur.

"We don't see growth before 2011 and 2011 frankly is still very foggy," he says.

While several airline customers have requested deferrals due to the economic downturn, several also have had trouble securing financing for new deliveries. Curado says Brazilian development bank BNDES has picked up some of the void left by the tightening of the capital markets and will finance about one-third of this year's commercial deliveries compared to only 11% last year. He says Embraer needs BNDES to continue to be active in aircraft financing for the manufacturer to maintain its current rate of deliveries.

"They are clearly ramping up their participation," Curado says. "We hope this increased participation will continue over the next few years Without BNDES we would probably be in a situation where we can't deliver one third of our deliveries."

But he adds "we still significantly rely on the markets to finance" new aircraft deliveries. Embraer also has provided bridge loans on a few occasions but these are only temporary measures that are intended to be used until loans with BNDES or private banks can be completed.

"Given our balance sheet our customer finance is very low and stable," Curado says. "We need to keep it this way. Cash management is a priority."

BNDES has primarily stepped up to finance deliveries this year to Brazilian carriers Azul and TRIP. With activity in the US slowed due a standstill, Brazil and Latin America overall has become Embraer's biggest market for commercial aircraft.

This year Embraer will deliver aircraft to at least five Latin American airlines - Aeromexico, Azul, TRIP, Colombia's Aerorepublica and Panama's Copa. Next year most or all of these carriers are expected to take more E-jets and deliveries are scheduled to begin to new customer Austral, a subsidiary of Aerolineas Argentinas, with financing expected again from BNDES.

Curado says Latin America "is becoming an increasingly important market" but "in the long run it's a much smaller market than the US. The industry needs the US to rebound. Any airliner programme has to rely in the US market in the long-run. It's very hard without the US market."