But the Brazilian company still achieved record profits for the second half of the year

Embraer has announced a further cutback on the planned expansion in production of the ERJ-145 family of regional jets as airlines begin to defer the conversion of outstanding options in the face of an economic slowdown. However, the company has still managed to turn in a record profit for the second half of the year, buoyed by favourable exchange rates and improved productivity.

The Brazilian manufacturer has scaled back on a previously planned production rate hike from 16 to 20 ERJs a month by the end of this year and will not now meet its target of delivering 220 aircraft in 2002. "I don't see there will be any increase this year," says chief executive Mauricio Botelho.

Embraer is already projecting that deliveries of ERJ-135/140/145 regional jets will fall 10-15 aircraft short of its goal of 200 for 2001 because it is unable to firm up two expected deals.

Local carrier Rio Sul has held off firming up 15 ERJ-145 options after the Brazilian Government hit it with an additional tax bill on US leased aircraft. Embraer is also still waiting on Chinese Government approval for two orders totalling 40 ERJs plus 10 options.

More than half of Embraer's $23.5 billion backlog comprises options, most of which are accounted for by 423 ERJ-145s. "We have a situation where customers are becoming cautious about converting options at the rate they were first doing so," says Botelho.

Embraer nonetheless generated a profit of close to $259 million for the six months ending 30 June, compared with $118 million in the first half of 2000. Sales totalled nearly $1.6 billion - an increase of 55% - reaffirming the company's position as Brazil's biggest exporter. Actual aircraft orders in the first half were less impressive, totalling just 18 versus 208 in the first six months of last year.

This was offset by a much higher 45.3% gross margin in the second quarter because of productivity gains and a 6.6% appreciation in the value of the US dollar over the Brazilian real. Embraer is hoping for better sales figures in the second half, having just finalised the sale of 20 ERJ-140s to Skyways and putting tentative deals in place for 38 more to Chautauqua and Trans States airlines.

Embraer is looking to the corporate jet and military market to help cushion the slowdown in regional jet sales. The company has 34 Legacy orders and 38 options in hand and claims to be negotiating contracts "for about double that". It has also just been awarded a $400 million contract from the Brazilian air force for 76 ALX light attack/trainer aircraft.

Source: Flight International