Embraer lags in orders at Paris Airshow, but longer-term recovery seen (updated)

Eve Holding

27/06/2023 19:40

(Adds JPMorgan comments, share reaction in paragraphs 5-6,
13-14)
    By Gabriel Araujo
       SAO PAULO, June 27 (Reuters) - Investors were left
disappointed by weaker-than-expected order numbers for Brazil's
Embraer  EMBR3.SA  at the world's largest airshow last week,
though some analysts were heartened by a bid from China and
interest in Embraer's electric aircraft unit. 
    The world's third-largest aircraft maker after Airbus
 AIR.PA  and Boeing  BA.N , Embraer bagged 13 fresh orders for
commercial jets at the Paris Airshow, falling short of market
estimates and previous years' levels.
    That led shares in the company to fall roughly 18% in a
week, reversing the 11% gain realized in the days ahead of the
show, when market players seemed excited by the prospects of new
deals.
    The 13 new orders compared with 74 secured at Le Bourget in
2019 and 28 in Farnborough last year. They also lagged some
upbeat market forecasts, including expectations by JPMorgan
analysts for at least 30 orders.
    The U.S. bank said in a note to clients on Tuesday that it
hosted Embraer for a webinar and the company acknowledged the
low number of orders announced, but said it was in line with its
strategy to preserve margins and profitability.
    "Embraer continues to hold talks with several airlines, both
in the U.S. and abroad, and expects to announce more new orders
in the midterm," JPMorgan said as it reiterated its "overweight"
rating on the firm.
    In Paris, investors were especially disappointed by the lack
of orders from the booming Indian airline market, which handled
an all-time-high 500-plane transaction to Airbus and new orders
to Boeing.
    
    SLOW BUT LUCRATIVE
    Still, a number of analysts remain bullish on the Brazilian
company as a post-pandemic travel rebound continues to drive
money into the sector.
    BTG Pactual, which has a "buy" recommendation for Embraer,
noted that the sales to existing clients Binter and American
Airlines  AAL.O  were equivalent to 19% of its outlook of 65-70
deliveries this year, making them "significant deals."
    Those orders add to a backlog that remains robust, with the
E2 aircraft seen as largely sold out for this year and 2024
after garnering new customers such as Royal Jordanian, Salam Air
and Scoot recently.
    Other upbeat takes from the airshow came from Embraer's
electric aircraft subsidiary Eve  EVEX.N , which signed deals
for the sale of up to 150 flying cars, as well as Embraer's deal
to return to China by converting passenger jets into freighters.
    JPMorgan called Eve the "big winner" of the event, as the
New York-listed company announced key equipment suppliers and
increased its industry-leading backlog, outpacing global peers.
    Eve's shares rose as much as 7% on Tuesday, while Embraer
was trading up 2%, holding on to gains of around 20%
year-to-date, as some analysts believe upside remains.
    "We believe that most of the pre-event excitement has
already been adjusted in share prices," said XP Investimentos,
while also rates Embraer a "buy." "There is limited room for
further pressure."

 (Reporting by Gabriel Araujo; Editing by Conor Humphries and
Leslie Adler)
 ((Gabriel.Araujo2@thomsonreuters.com; +55 11 5047-3352;))