Embraer's chief executive has emphasised that a new airliner larger than the Brazilian airframer's E-jets is just one of three product development options under consideration, following a second quarter in which profits fell 50% year on year.

During an investor conference call on the results, Frederico Fleury Curado confirmed that Embraer was continuing to study the potential viability of turboprops in the sub-100-seat segment, noting that a consensus had yet to emerge among airlines. An upgrade of Embraer's regional jet family is another option under review. "Re-engining of the E-jets is a possibility," said Curado.

On the subject of a possible move into larger jets, Curado reiterated that timeframes were dependent on engine research under way at Rolls-Royce and General Electric. "Any decision of our next move has to take into account a few variables which are still moving, still undefined," he said. "It's a bit early to make bets on what is the best engine configuration for the next generation of aircraft."

Embraer's second-quarter profits totalled $67.8 million - down from $134.4 million in the same period of 2008 - on an 11% reduction in sales to $1.46 billion. In the first quarter a loss of $23.4 million was incurred.

Deliveries reached 56 aircraft in the second quarter, up from 52 in the same period of 2008 and 40 in the first quarter of 2009. The deliveries comprised 35 commercial airliners, 19 business aircraft and two defence aircraft.

However, it has received orders for only eight jets so far this year: seven Embraer 190 options converted by KLM Cityhopper, and a third Embraer 175 ordered by Japan's Fuji Dream Airlines.

"We still haven't resumed businesses in commercial aviation or executive aviation, which are the cash cows of Embraer, so there is nothing to celebrate in terms of new demand," cautioned Luiz Carlos Aguiar, Embraer's chief financial officer, during a separate results briefing. However, business jet demand is "stable", albeit at "a very low level", says Curado.

In the first six months of 2009, Embraer delivered 21 Phenom very light jets, leaving it with 89 to deliver in the second half if it is to meet its full-year target of 110 deliveries. Curado expects deliveries of between 34 and 39 Phenoms in the third quarter, insisting: "Fundamentally, I do not see any major hurdle to fulfil our number." However, he added: "If we miss a few of them I don't think that will have any material impact to our plans."

Second-quarter operating margin rose to 12% from 6.9% a year ago as operating expenses fell 33.9% to $161.9 billion, a decrease attributed by the airframer to "strict control" of costs and manpower, as well as productivity gains and a weakening of the Brazilian real against the dollar. However, currency fluctuations also contributed to a sharp rise in income tax expense, from $9 million to $63.4 million, which weighed heavily on net profit and was mostly accounted for by deferred taxes.

The company estimates that each 10¢ movement in the exchange rate translates to a shift in margin of between 0.3% and 0.5%.

Embraer values its backlog at $19.8 billion. Commercial aviation accounts for $10.6 billion, executive aviation for $6.4 billion and defence $2.8 billion, up from $1.5 billion at the end of the first quarter.

The second quarter saw the airframer win contracts to develop the KC-390 military transport aircraft programme for the Brazilian air force and upgrade nine AF-1 and three AF-1A jets for the navy.

Curado admitted that, with the market "still depressed", Embraer faces a "double challenge" in 2010, given the need both to win new sales and to navigate problems caused by customers' financing issues.

Source: Flight International