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KC-390 resumes flight tests as defence unit rebaselines

Embraer has flown the KC-390 again for the first time in eight months as the company’s Defence and Security business adapts to a devalued Brazilian currency and a slower development schedule for the new tanker-transport.

The flight on 26 October at Embraer’s test centre in Gaviao Pexioto, Brazil, ends an eight-month hiatus caused by a fiscal crisis in Brasilia. As the Real currency has devalued by 50% since the beginning of the year, the government had slowed payments to Embraer on a host of projects, but none bigger than the KC-390.

Last July, Embraer announced signing an agreement with the Brazilian air force that extended the KC-390 development schedule by a year, with entry into service beginning in 2018. The agreement also included provisions to reimburse Embraer more than $370 million owed by the air force on the KC-390 so far.

Meanwhile, company officials have also restructured the division to remain profitable despite sharply lower revenues as shown on the balance sheet, which is converted to suddenly much more valuable US dollars.

The Defense and Security segment has done “ a great job rapidly adjusting the business to the new reality,” says Embraer chief executive Frederico Curado, who addressed analysts on a third quarter earnings call on 27 October.

“It’s a year of transition,” Curado says.

The timing of the Brazilian economic crisis posed a severe test for the KC-390 programme, in particular. Embraer completed a 1.5h first flight in Gaviao Peixoto on 3 February, but never flew again until 26 October. In the interim, Embraer’s team moved forward with ground vibration testing, Curado says.

The public will be “seeing the airplane flying much much more than the last several months”, Curado says.

Embraer’s Defense and Security revenues declined to $182 million in the third quarter, compared to $346 million in the same period a year ago.

The segment has now stabilised at a lower level and the business should remain profitable in 2016, Curado says. Declines in Brazilian defence spending may be partly offset by new export deals, especially for the A-29 Super Tucano. Embraer also has kicked off development of the F-39 Gripen fighter for the Brazilian air force with prime contractor Saab.

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