RIO DE JANEIRO, BRAZIL – A little more than a week from releasing its Q3 financial results, EMBRAER‘s CEO Francisco Gomes Neto urges investors to remain calm.
“The message to our shareholders is this: believe in EMBRAER and be patient because we will get there,” he says in an exclusive interview to Estadão newspaper. According to him, restructuring within the company and planning for the next five years will strengthen EMBRAER beyond what it was before the crisis and the Boeing acquisition setback.
In April, the American company announced that it would not complete the purchase of the Brazilian company’s commercial aviation division, a US$4.2 billion deal. In its plans for the coming years, EMBRAER will reduce costs and diversify, while believing in a sector rebound from 2022. However, there is some market skepticism, given that idle existing airplanes may dominate sales in the coming years. The following are the main parts of the interview.
EMBRAER is experiencing the Covid crisis while also needing to recover from the failed agreement with Boeing. Was it a mistake to try the partnership?
No. It was an important strategic move for both companies. Unfortunately, it didn’t work out. So we will go on with our lives, reintegrating the commercial aviation area.
The company lost money to unbundle its commercial unit to deliver it to Boeing. It cost R$485 million in 2019.
It’s true. The process to unbundle the commercial aviation section was complex. It involved tremendous costs. This is in arbitration in the USA. Meanwhile, we will do our homework to overcome the crisis and prepare the company for growth.
EMBRAER said that the deal with Boeing was critical because the sector was consolidating and the company would be vulnerable to compete with giants like Airbus. If the deal was so critical, how to survive without it?
As I said, I think at the time it was a proper strategic move. Unfortunately, it didn’t work out. We also experienced a major change in scenario with Covid. What I can say is that we have advanced in the reintegration of commercial aviation and we developed a strategic plan for 2021-2025. It is robust and provides good growth and profitability improvement prospects.
I understand that two management systems are being maintained, which will ‘communicate’ with each other. It would be like a zipper, whose sides can be separated if there is a sale to another company. Are new agreements on the radar?
We are implementing this integration intelligently. Where it makes sense to go back to what it was before, we are doing this. Where it doesn’t make sense, we are maintaining it, but working to simplify the processes and make them more agile, recovering synergies. This has nothing to do with the company’s strategy. We have no plan to sell commercial aviation or any other business unit at this time. But we are open to partnerships that allow us to open new business for the company, develop products, and grow.
When the sale to Boeing was about to be completed, it was said that EMBRAER would become a kind of holding company with different technology and service businesses. Without the agreement, does the strategy change?
I came to EMBRAER last year to work on the completion of the agreement with Boeing and also to create a strategy for EMBRAER to continue. We did a nice job. We recreated the team spirit, brought focus on results and on simplifying processes. With the news of the agreement termination, we led commercial aviation into this mindset. We reviewed our strategic plan, considering the impacts of Covid.
The concept then is to be what EMBRAER was before the failed agreement with Boeing? Is the focus back on commercial aviation?
Let’s focus on aviation and defense, but also diversification. We have deals with the Navy and the Army. We are expanding the maintenance and repair services of aircraft not only from EMBRAER but also from third-party manufacturers. We should launch a nanosatellite family. So, EMBRAER will not be the same again, it will be greater than it was in the past, because now, in addition to diversification, we have new products, such as the C-390 Millenium (military freighter), a product that will help us grow. We expect EMBRAER to achieve higher revenue levels than in the past and with higher profitability within the next five years.
How to do this when a pandemic is paralyzing the sector?
We designed this 2021-2025 plan with our feet on the ground. We believe that 2021 will still be challenging, with no significant sales growth. But we are preparing the company to have a much better financial performance than this year, despite this scenario. We think that the market will grow again from 2022. The executive aviation and defense segments have been more resilient. In terms of commercial aviation, we believe that regional and domestic flights will rebound before the others. This opens an opportunity for us (EMBRAER planes are smaller and more suitable for these segments).
You said that by 2025 the company will be greater than it was before the crisis. When you joined EMBRAER, the information in the market was that your goal was to double the company’s revenues within five years. Is this still feasible?
Last year, when we were working on the new EMBRAER, without the commercial area, our expectation was very optimistic. The units that remained – defense, executive aircraft, and services – had good growth potential. It would not double, but it was a significant growth potential. Now, with commercial aviation involved, considering that it is the most affected by Covid, to double would be too much. We expect to reach the end of these five years with a higher level of revenue than EMBRAER ever had and our expectation is that profitability will improve substantially because we are focused on efficiency gains. The message to our shareholders is this: believe in EMBRAER and have patience because we will get there.
EMBRAER dismissed 2,500 employees this year and there are rumors of further cuts before December. Is this planned?
I can’t say yes or no. We are doing our best to preserve jobs, but the crisis is not over and we do not control it.
Source: Estadão Conteúdo