Embraer S.A. (NYSE:ERJ) Q2 2025 Earnings Call Transcript

Embraer S.A. (NYSE:ERJ) Q2 2025 Earnings Call Transcript August 5, 2025

Embraer S.A. misses on earnings expectations. Reported EPS is $-0.02 EPS, expectations were $0.47.

Guilherme Paiva: Good morning, ladies and gentlemen, and thanks for standing by. As a reminder, this conference is being recorded. Its broadcast is intended exclusively for the participants of this event and may not be reproduced or retransmitted without the express authorization of Embraer. This conference call will be conducted in English, but please let me say a short announcement for Portuguese speakers. [Foreign Language] My name is Guilherme Paiva, and I’m the Head of Investor Relations and M&A for Embraer. I want to welcome you to our second quarter earnings conference call. The numbers in this presentation contain non-GAAP financial information to help investors reconcile Eve’s financial information in GAAP standards to Embraer’s IFRS.

We remind you, Eve’s results will be discussed at the company’s conference call. It is important to mention that our numbers are presented in U.S. dollar as it is our functional currency. This conference call may include statements about future events based on Embraer expectations and financial market trends. Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with the applicable rules, the company assumes no obligation to publicly update any forward-looking statements. For detailed financial information, the company encourages reviewing publications filed by the company with the Brazilian Comissão de Valores Mobiliários or CVM. [Operator Instructions] Participants on today’s conference call are Francisco Gomes Neto, President and CEO of Embraer; Antonio Carlos Garcia, Chief Financial Officer; Luis Harrison, Corporate Communications Director; and myself.

This conference call will have 3 parts. In the first part, top management will present the company’s Q2 results. In the second part, we will host a Q&A session only for investors. And last but definitely not least, in the third part, we will host a dedicated Q&A session only for the press. It is my pleasure to now turn the conference call to our President and CEO, Francisco Gomes. Please go ahead, Francisco.

Francisco Gomes Neto: Good morning, everyone. It is a pleasure to be here with you to share our second quarter 2025 year results. We had another strong quarter, reinforcing the consistency in our sustainable growth journey. Embraer delivered the highest second quarter revenue in its history, totaling $1.8 billion. Our adjusted EBIT margin was 10.5%, the highest level for a second quarter over the past decade. The backlog recorded a new $29.7 billion all-time high, driven by strong demand across all business units. Deliveries were up 30% year- over-year, a result of our focus on operational efficiency and on our production-leveling initiative. The book-to-bill ratio was closer to 2:1 in the last 12 months across all business units.

U.S. tariffs continue to be a major concern to our business, but with an important step forward last week, highlighting the importance of our industry not only for Brazil but also for the U.S. We are confident about further progress in negotiations in line with other recent agreements in our sector that have set a positive precedent. Now the main highlights for the company during the quarter. Commercial Aviation performed very well across both E1 and E2 platforms. SAS ordered 45 E195-E2s with 10 additional options. At the same time, SkyWest purchased 60 E175s with 50 additional options. The division’s backlog reached $13.1 billion with a strong 1.8:1 book-to-bill over the last 12 months. Executive Aviation delivered another strong quarter with record second quarter revenue of circa $550 million and a robust $7.4 billion backlog, supported by a 2.4:1 book-to-bill over the past 12 months.

In Defense & Security, Portugal confirmed its sixth KC-390 purchase, including 10 additional options that may be used by other European countries to facilitate future acquisitions. Lithuania also became the seventh NATO country to select the aircraft. The division ended the quarter with a $4.3 billion backlog and a trailing 3.6:1 book-to-bill in the last 12 months. Service & Support continued its global expansion, signing 8 New Pool contracts, increasing its MRO capabilities with commuter air and launching full- flight simulator partnership with CAE in Montreal, Canada and Madrid, Spain. The division closed the quarter with a $4.9 billion backlog and a 2:1 book-to-bill that means top of sales versus revenue in the last 12 months. We continue to work in our production-leveling initiative to increase efficiency, productivity, output and improve cash flow.

In the previous quarter, we shared with the market the improvements in our operator production line. This quarter, we highlight the KC-390 line in the Defense segment where we have also seen significant operational gains over the past year. These improvements include: double-digit increases in aircraft production, operational efficiency, reduction in production cycle time; and decreasing cost of poor quality, as you can see in the presentation slide. About tariffs, let me share with you what we have been doing to manage this situation. We have been very active with high-level authorities in Brazil and in the U.S. to demonstrate the relevance of our company in terms of job creation, investments, services to passengers and to support the development of a negotiated solution as we have seen with other countries.

As you can see in this slide, our company plays a key role in the U.S. regional aviation market as our aircraft transport approximately 100 million passengers every year. Our business currently supports 13,000 jobs in the country and should create another 5,500 jobs by 2030, with an impressive trade balance of $8 billion in favor of the U.S. Embraer is also willing to invest another $500 million in the U.S., which should create roughly another 2,500 jobs in the country with a combination of our organic growth in the country and the potential adoption of our KC-390 platform by the U.S. Air Force before the end of the decade. We are excited to say we are in advanced conversations with a relevant U.S. partner for this project. We continue to believe in and advocate firmly for a return to the zero tariff rule for the global aerospace industry, which was the status quo over the previous 45-plus years.

We also continue to encourage a constructive dialogue between the Brazilian and the U.S. governments to reach an amicable resolution. In the short term, as you know, we have taken measures to preserve this year’s results. The impact of the current 10% tariff is already considered in our forecast for the year. This means upside if tariffs return to 0 soon. I will now move on to operational results by segment over the next few slides. All figures are based on year-on-year comparisons. In Commercial Aviation, revenues increased 4% because of product and customer mix and adjusted EBIT margin remained flat at 4.3%. In Executive Aviation, the top line soared 64%, supported by higher volumes and product mix. The adjusted EBITDA margin increased to 14.5% because of operating leverage and cost containment initiatives.

Moving to Defense & Security. Revenues grew 18% because of A29 Super Tucano production. The improvement of almost 10 percentage points in the adjusted EBIT margin to 9.2% reflects higher A29 volumes and better KC-390 customer mix. In Service & Support, revenues rose 13%, driven by the ramp-up of OGMA’s GTF engine shop. The adjusted EBIT margin declined slightly to 15.5%, mainly due to higher past due credit provisions. Eve achieved an important milestone in the second quarter with the announcement of its first binding order with Revo for 10 vehicles in 40 options including aftermarket services. Let me pass it over to Antonio so he can highlight the main financial points of the quarter.

Antonio Carlos Garcia: Thank you, Francisco. Good morning, and good afternoon to everyone. There are a lot of moving parts around the world, but let me present to you what we really control, our operational and financial results. Our performance in Q2 was brilliant and consistent as you’ll see shortly. First and foremost, let me reiterate our 2025 guidance. We are confident we will achieve between $7 billion to $7.5 billion in revenues, 7.5% and 8.3% in adjusted EBIT margin and more than $200 million in adjusted free cash flow from a financial perspective. Meanwhile, we expect to deliver between 77 and 85 aircraft in Commercial Aviation and 145 and 155 in Executive Aviation from an operational point of view. Turning to the quarter, all my comments will be based on year-over-year comparison unless noted.

Let me move to Slide 12, beginning with deliveries. Embraer delivered 61 aircraft across all business units for a 30% increase. In Commercial Aviation, deliveries totaled 19 aircraft, in line with the same period of last year. In the first half of the year, we delivered 26 commercial aircraft, which represents 32% of the midpoint of our full year guidance of 81 aircraft, marginally below the 5 years average of 35% for the first semester. In Executive Aviation, we delivered 38 jets, of which 21 were in the light segment and 17 in the midsized for an increase of 41%. More importantly, in the first half of the year, we delivered 61 business jets, which accounts for 41% of the midpoint of our full year guidance of 150 jets, well above the 5 year average of 32% for the first semester.

In Slide 13, our company-wide backlog recorded a new all-time high of $29.7 billion, up a significant 40%. Looking at each division, the backlog for Commercial Aviation grew 16% while for Executive Aviation was 62%, reflecting the growing demand for our aircraft in both segments. In Defense & Security, the backlog doubled, supported by strong momentum in KC-390 and A29 Super Tucano sales. While in Services & Support, the backlog increased 55%, highlighting continued and consistent growth in the segment. Moving to revenue, our top line was $1.8 billion, the best second quarter in our history and 22% higher. In our breakdown by business, we can see Commercial and Executive Aviation were responsible for more than 60% of the revenue, followed by Service & Support with 25% and Defense & Security with 12%.

Moving to the next slide, Slide 14. We generated $246 million in adjusted EBITDA in the second quarter with a 13.5% margin. Now adjusted EBIT for the quarter was $192 million with a 10.5% margin, the best second quarter margin over the past 10 years. I’d like to highlight a key milestone. In the first half of the year, we achieved adjusted EBIT margin of 80.7%, a remarkable step-up from 1.1% average over the past 5 years. While this is a significant achievement, we are aware that the second half of the year will bring important challenges, driven mainly by inflationary pressures, foreign exchange rate volatility and ongoing tariff discretion in U.S. Now let’s move to the next slide, Slide 15. In second quarter, we consumed $162 million in adjusted free cash flow, mainly because of $312 million increase in working capital in preparation for higher numbers of aircraft delivered in the next 2 quarters.

For example, we have a handful of aircraft to be delivered in late June that moved to the right. Looking now to our investments. In the second quarter, excluding Eve, we allocated a total of $97 million or 10% lower. It includes $53 million in CapEx, $28 million in addition to intangibles, $9 million in research, and $90 million in new pool program to support new contracts. It is important to highlight our capital allocation remains focused on Executive Aviation, Services & Support, the segments with highest return rates, especially in U.S. market. To complete this slide, there are 2 important points here. First, our reported net income was $79 million during the quarter with a 4.3% margin, which was roughly $100 million lower than our reported EBIT because of the negative noncash impact of mark-to-market of Eve warrants and the losses associated with Azul restructuring.

Second, our adjusted net income ended at $5 million in the red with a margin of minus 0.3%. The almost $85 million shortfall to our reported net income was because of negative $163 million in deferred taxes, driven by stronger Brazilian foreign exchange rates and positive $79 million adjustment for Eve results. Let’s move to Slide 16. I’d like to start by drawing your attention to the top right corner. Over the past 12 months, Embraer, excluding Eve, has significantly reduced both its gross and net debt position by approximately $560 million and $720 million, respectively. We closed the second quarter with a net debt to EBITDA, excluding Eve ratio, of 0.7x, a substantial improvement from 2x one year ago. That said, the negative free cash flow of $547 million for Embraer stand-alone in the first half of the year because of business seasonality has contributed to a temporary increase in leverage compared to end of 2024.

As part of our liability management strategy, we remain focused on extending debt duration and lowering our cost of capital. As a result, our average debt maturity without Eve has increased to 6.1 years, up from 3.7 years at the end of last year. Slide 17. To conclude my presentation, I’d like to talk briefly about shareholders and shareholder remuneration. Firstly, I would like to thank you all for your support and say that I’m proud to mention our company celebrated in July our 25 year listing anniversary at the New York Stock Exchange. Second, Embraer declared nearly BRL 143 million in interest on equity during the quarter, which translates to BRL 0.19 per share. This amount may be complemented by a top-up dividend if needed to meet the minimum 25% net income distribution required by Brazilian corporate law.

The full amount will be paid in a single installment after our 2026 Annual Shareholders’ Meeting. With that, I hand back to Francisco for his final remarks, and thank you very much.

Francisco Gomes Neto: Thank you, Antonio. In summary, our Defense business brought good news from Europe with Portugal’s new purchasing and Lithuania’s selection of the KC-390. SkyWest order of our E175 aircraft consolidates our dominant position in the U.S. regional market. And I will take the opportunity to say thank you to SAS, a long-standing partner of Embraer through the E1 platform and now as a new operator of the E2 family. Our Executive Aviation maintained its strong performance in sales and deliveries. The second quarter of 2025 was another milestone for Embraer. We delivered record revenues, the highest second quarter adjusted EBITDA margin in a decade and reached a new all- time high backlog with back-to-back significant orders year-to-date.

We continue to work hard to generate value for our customers and our shareholders, and we are optimistic about a likely positive outcome for the current U.S. tariff overhang. I will also thank all the support we received from our U.S. customers and suppliers like American Airlines, SkyWest, Alaska, United, AerCap, General Electric, Honeywell, RTX, Parker Hannifin, and Eaton, among others in the tariff negotiation process. And I conclude this presentation by reaffirming the foundation of our culture, safety first and quality always. Thanks for your trust in our company and let’s now start the Q&A session.

Q&A Session

Operator: [Operator Instructions] We remind you again that this conference is being recorded. Its broadcast is intended exclusively for the participants of this event and may not be reproduced or retransmitted without the express authorization of Embraer. We also highlight this conference call is being conducted in English with translation to Portuguese. Please let me say a short announcement for Portuguese speakers. [Foreign Language] [Operator Instructions] The first question comes from Marcelo Motta with JPMorgan.

Marcelo Garaldi Motta: It’s regarding the outlook for the second half. During the conference call, Antonio mentioned about FX volatility, potential tariffs, inflationary pressure. So just wondering how big could this challenge be? Because when we look at the historical EBIT margin for the second half, usually, it is much stronger than what we see in the first half given the seasonality. So just wondering if there is — what are the risks and opportunities to revise the guidance upward during the second half, given that the first half was very strong?

Antonio Carlos Garcia: Marcelo, thanks for the nice question. I was expecting the first place. You’re right. Year-to-date, we are at 8.7% and we all know our margins at 8.3%, but some comments here. We only have, I would say, 20% year-to-date tariff impact with the big amount of tariffs still in our inventory to be invoiced in the second half of the year. That’s already something that was not in our plan. The dollars get weaker, real is getting stronger. That’s why when you do the translation, the cost in reals, we have also a negative impact and also in IPCA in Brazil, the inflation that we put our forecast. It seems a little bit stronger than was planned, more or less 1.3%. If you put in a nutshell, I would say be on the safe side.

We are keeping the guidance as long the next months and quarters evolve, then we could revise, but we are not in a position to do it. And nobody knows what can happen still in the tariff issue. That’s why I would say the guidance seems to be safe today, but we do prefer to be more waiting more months in order to tell the market a different story right now.

Operator: The next question comes from Kristine Liwag with Morgan Stanley.

Kristine T. Liwag: Francisco, Antonio and Gui, wow, like what a really strong operating quarter. I guess with U.S. customers facing the prospect that they would have had to pay a 50% tariff on Embraer E-Jets if the aerospace exemption wasn’t added, how is your conversations with those customers? Because now that for now, these tariffs are gone and they’re looking at their fleet, is it increasing the urgency for them to re-fleet? And could you see potentially more orders out of the U.S. and E175s as they evaluate their fleet needs?

Francisco Gomes Neto: Kristine, Francisco here. Thanks for the question. Actually, Kristine, since the implementation of the first round of tariffs last April, we have been working to mitigate the impact for us and for the customers. And for our customers, especially the E175 customers, the final tariff is lower than 10% because of the U.S. content that we have in our aircraft. So then since that time, we have been working with them and we were able to deliver a few aircraft since that month. But our focus is really to restore the 0 tariff. So we are happy that we were able to come from 50% to 10%, but which reduced a lot of the impact for our customers and we are working with them to deliver the aircraft. But in parallel, we are working hard to restore the 0 tariff and we see some precedents in the market. So about new orders, well, I mean, we are happy with the orders we have for E175 this year, and we do not expect new big orders for E175 along this year.

Operator: The next question comes from Myles Walton with Wolfe Research.

Myles Alexander Walton: Maybe for Antonio, within Defense, obviously great performance. In the commentary, you talked about POC completion driving a lot of the margin accretion. So I guess based on that, why wouldn’t this level of performance continue if it’s POC-driven and not A29 Super Tucano unit deliveries?

Antonio Carlos Garcia: Thanks, Myles, for the question. In fact, we are — as you could see that we are improving the performance, and for sure, the Super Tucano helps a lot. I would say, for me, Defense & Security is a straight line to moving to the higher single digit in the coming quarters. I don’t know if it’s going to happen this year, but we are going there because the majority of our POC customer right now is shifting from local contracts to export contracts, including the Super Tucanos. By doing that, I would say it’s accretive for a high single digit, even double-digit margin, but not yet. I would say let’s wait probably next year, but you could see the progression is clear — crystal clear about our margin way for Defense. And I would say — and everything we are doing is on the POC and when we revise the baseline, assuming the production level and the efficiency we are showing here, I would say we have, I would say, more chances than risk.

Guilherme Paiva: Myles, Gui here. Just to be clear, the A29s also follow the POC method. There’s a mix of both the A29s and the KC-390.

Myles Alexander Walton: Okay. And then just a clarification, those deliveries that moved to the right, were those moved to the right because of tariffs? Were they moved to the right because of supply chain? Any color on that?

Antonio Carlos Garcia: No, we are talking about just for Commercial Aviation, Myles. And I would say everybody knows about the Azul situation, and we are waiting the lessor to give us the authorization to issue the — to invoice the aircraft. And we have until end of June some commercial or other customers, but I would say nothing that is going to compromise the guidance of this year is really that, I would say, the paperwork was not finished to invoice the aircraft. But in regards to production output, we produced much more what we delivered for Commercial Aviation, I would say, continues to see effects of production leveling but not invoicing those aircraft, at least for Commercial.

Operator: The next question comes from Ronald Epstein with Bank of America.

Ronald Jay Epstein: I’m not sure if you can answer this but I’m going to ask it anyway. If you look at the relative valuation of Embraer compared to, say, Joby, Joby is $16 billion today. Your guys’ market cap in the U.S. is $10 billion. Archer’s market cap is $6 billion. Would you consider cutting Eve loose? Because it seems like maybe there would be more value there as a separate company than as part of Embraer, given that Joby and Archer are in that same market and other considerations.

Antonio Carlos Garcia: Ron, thanks for the question. Difficult to be answered. I would say our valuation picked up a lot in the last years from one side, and we do see a lot of value, a premium for being together when we talk about synergies, when we talk about efficiency, when you talk about product development. That’s why we didn’t change our strategy to be one conglomerate of our business units. And I would say, seeing also Joby, we have Eve. Eve still needs more liquidity in order to pick up as, I would say, let’s see how Eve develop but we don’t have any thoughts to change the way we are structured today as a full corporation with all units and really enjoy the premium for being together.

Francisco Gomes Neto: And remember that Eve is a separate company, right?

Antonio Carlos Garcia: That’s why let’s see. As long as we have more liquidity for Eve, we are going to see those effects. But I would say for the overall Embraer, I would say, legacy Embraer, we are so happy with what we are doing right now.

Ronald Jay Epstein: Got it, got it. And if I may, as a follow-on along that same line of questioning. Do you guys have any update on the thoughts on product development on what’s going on there? Is there anything you can share with the market regarding potential new aircraft?

Francisco Gomes Neto: Ron, thank you. You always come with a question. We keep investing in new technologies as we mentioned before. We don’t have any other news than that to share with the market at this point of time.

Operator: The next question comes from Andre Ferreira with Bradesco BBI.

Andre Ferreira: Congrats on the results. I have 1 question. You mentioned in the second quarter Service segments, there were higher credit provisions. Just wanted to check if those are related to the $9 million in the income statement. And if not, if you could please explain what do they mean and the impact they had on the Service EBIT margin.

Guilherme Paiva: Andre, thanks for the question. It’s Gui here. We know that there is a customer going through a restructuring process, so the charges are related to the process.

Antonio Carlos Garcia: Just to complement, we have, I would say, from Q2 onwards, we have almost 0 effect from this restructuring as well. Everything we booked already in Q2.

Andre Ferreira: And the specific impact on Service?

Antonio Carlos Garcia: That was a specific effect on Services on the EBIT side when we booked the provision for bad debt. That was the main impact on Services from a restructuring standpoint.

Guilherme Paiva: And just to be clear, Andre, I mean, clients buy aircraft but they also buy services and parts. So that’s related to that.

Antonio Carlos Garcia: Was the latest, last write-off we did.

Operator: The next question comes from Lucas Esteves with Santander.

Lucas Esteves: Congratulations for the results. I have a question, as Ron said, I don’t know if you can answer but I will ask anyway. On the Polish potential order for defense for the KC-390, do you have any updates? And also on that, would it make sense for you to build a new line of — a new assembly line for the KC-390 in Poland even if you don’t get the order from them to build the aircraft for NATO countries?

Francisco Gomes Neto: Lucas, thank you for your question. Francisco speaking. We continue working with Poland in that campaign. We have — as another campaign, we have a positive view about our opportunities to meet. And well, I mean, we have a plan to increase production of KC-390 from now to 2030, by 1 per year. This year, we should produce 5 and we are in our path to achieve 10 units per year by 2030. And at this point of time, I mean, we are working with big campaigns as India and the U.S. Those campaigns for sure, would require a localization of the production of the aircraft. In case of Poland, this will depend on other deals in the region for us to use Poland as a hub. We had this plan with them, I mean, combined with commercial jets, but unfortunately, they decide to go to the competition. So this changed a little our total plans for the country, but we still have plans for the KC-390 to do some local — more localization if we win the order.

Lucas Esteves: If I may make a follow-up on tariffs, just a quick one. Reading how the U.S. trade representative writes on their website about the World Trade Organization agreement on civil aircraft, they say the agreement requires signatories to eliminate tariffs on a nondiscriminatory basis to other signatories. When — what do you understand about the need for the U.S. to sign out of this agreement if they keep the 10% tariffs for Brazil on aircraft?

Francisco Gomes Neto: This question is difficult to me to answer. You should ask the officials in the U.S., but we are working hard. We are advocating the restoration of the 0 tariff. And we see this as part of other agreements. You see agreements between U.S. and U.K. and more recently, U.S. and Europe. And yes, we believe we can be the next in a bilateral negotiation between Brazil and the U.S. or even U.S. recognizing the importance of our industry to generate jobs and make investments in the country.

Operator: The next question comes from André Mazini with Citi.

André Chaves Mazini: So you mentioned in the prepared remarks that the U.S. capital allocation is going to be focused on Executive Aviation. So wanted to confirm if there will be no Commercial Aviation in the expansion of the Melbourne, Florida facility you guys put out there? Or if you — on the contrary, if you could see some E family jets coming out of there, particularly as the A220 does have an assembly line in Mobile, Alabama, right? They have U.S. production. So how you’re thinking about the Melbourne, Florida facility?

Antonio Carlos Garcia: André, thank you for the question. Welcome, by the way. For our investments we are doing right now in U.S., we have 2 big initiatives. Firstly, it is to set up capacity in our Melbourne facility for the business aviation. We are talking about $90 million. We are more or less almost finalized those investments. And second, we are also investing more than $70 million in Texas to expand our Services & Support facility. Those are the 2 big investments we are doing right now. And about new relocation of production, I’m going to pass to Francisco for any remark here.

Francisco Gomes Neto: Andre, thanks for your question. Again, for commercial jets, we have a hybrid line in São José dos Campos, where we assemble the E1s and the E2 jets in the same line. So I mean, it’s very, very efficient line for the volume we intend to make every year. And we believe that our business plan for the U.S. is also very attractive for both sides. So I mean, almost 40% of our aircraft is already made by U.S. equipment, U.S. parts. And if you look at the next 5 years, according to our production planning in the next 5 years, we expect to buy $21 billion in U.S. equipments and parts and we will export only $13 billion. So in 5 years, we will generate impressive $8 billion surplus for the U.S. So we have a very good business model already for both countries.

That’s why we are advocating for the restoration of the 0 tariff. And other changes in the footprint, yes, we are making studies. But again, we believe that we have a very robust, I mean, economic proposal, economic value for the U.S. with the footprint we have today.

Operator: The next question comes from Daniel Gasparete with Itau BBA.

Daniel Gasparete: The first question, I would like confirmation about something that Antonio said on the first question. I’m not sure if I understood correctly, but he said that 20% of the tariff impact expected for the year happened on this quarter. I’m not sure if I got that correctly. I would like him to confirm, if possible, please. And the second question would be if you guys could provide us some timetable on the test flight of Eve expected now — right now for the second half of this year. When you guys are expecting that to happen? If you could provide us with some outlook for that.

Antonio Carlos Garcia: Gasparete, thank you for your question. Firstly, about the tariffs, year-to-date, we have around 20% of the tariff’s impact already in our profit and loss and cash flow. And that’s why we do expect a bigger hit in the second half of this Q3 and Q4. That’s why we are a little bit, I would say, moderate by just reaffirming our guidance. For sure, we are performing better, but that’s why it’s going to hit more our profit and loss in the second half. 80%, we said 90 bps so you could calculate we have 20% right now year-to-date. The remaining 80% is going to flow Q3 and Q4. And for Eve, I’m going to pass to Francisco here.

Francisco Gomes Neto: For Eve, we are now working on the final assembly of parts in the prototype and the plan for the first flight is for December this year.

Daniel Gasparete: Francisco, sorry, December, is that correct?

Francisco Gomes Neto: December. Yes, correct.

Operator: The next question comes from Lucas Laghi with XP Investiments (sic) [ Investimentos ].

Lucas Laghi: Congratulations on the strong results. I have one question regarding working capital. I mean, we’re seeing a lot of production-leveling initiatives on the Executive division already bearing fruits regarding the delivery pace that we’re seeing. On the Defense, Francisco showed on the presentation some initiatives bearing fruit as well in terms of efficiency gains for the KC-390. My question is regarding the potential room that you guys see for working capital optimization, following all of your production- leveling initiatives going forward. How is the space that you see for some free cash flow improvement regarding these initiatives going through the working capital in the upcoming quarters? So some free cash flow discussion on your working capital, it would be very insightful as well.

Antonio Carlos Garcia: Thanks, Lucas, and thanks for the great question. I would say short term, we are continuing to fighting for cash flow steering, which is we are not happy because we accumulate negative cash flow Q1, Q3, then balance a little bit in Q3, then move highly positive in Q4. We are not there yet. But we — I would say we reiterate our guidance. That’s one of the indicators that we are fighting at most because of still the highest portion of the revenue is going to happen in Q3 and Q4. But for the long-term, I will pass to Francisco to give some ideas about what we could monetize on the working capital, especially inventories.

Francisco Gomes Neto: Lucas, thanks for your question. Actually, we have a lot of good initiatives to reduce inventory and to increase the inventory turn for the next years. It is true that in the past years, we have suffered with the inventory levels because we planned for a certain amount of aircraft a range. But because of the supply chain issues, we are not able to deliver all the aircraft’s we plan, and we put in the production process. But we are now, year-after-year, improving this process and we want to improve further in 2026 onwards. So the combination of a more accurate production planning with these production-leveling initiatives and other initiatives we have in place, we expect to increase our inventory turn for currently 1.6x to closer to 3x a year. This will release almost $1 billion from our inventory in 3 years.

Operator: The next question comes from Ronald Epstein with Bank of America.

Ronald Jay Epstein: I’m back. Just maybe one more question, and this was asked sort of but I just want to maybe peel back the onion a little bit on it more. When you think about the production footprint, why wouldn’t it make sense to move more Executive Aviation production to the U.S., given that so much of the market is here anyway?

Francisco Gomes Neto: Well, Ron, again, we have an important part of our production of executive jets in the U.S. already. On top, as I said before, I mean, our aircraft’s, they have a content of closer to 40% of U.S. equipment. So we believe we have a good combination today, I mean, to allow us to be very competitive. Yes, we are always making studies what else we can do in terms of footprint, but trying to be as lean as possible to offer good and competitive products to our customers.

Ronald Jay Epstein: Got it. And then the one question that nobody has asked yet, surprisingly is how are sales campaigns going on for the big airplanes for the E1s and the E2s? You guys do have a market outside the U.S., right, so what’s going on there? And if you can give some color around that.

Francisco Gomes Neto: Absolutely. Very good question, Ron. I mean, yes, we had a good start this year with the 2 important wins. I mean, [ ENA ] in Japan, you know how important is that airline, I mean, globally, and now SAS. So both orders we — ANA is up to 20, 15 plus 5 and SAS 45 plus 10, very good important orders. And we are working in many other campaigns that we expect to see the results in the next month. So we are optimistic that we announce new orders for E2s, especially. E1s, we got to the 60 plus 50 from SkyWest, big order. So we do not expect more orders for E1s for U.S. — for the U.S.

Guilherme Paiva: And Ron, for the E1, we are seeing also some movement outside the U.S. as well for campaigns, not big numbers, but some interest from other customers on the new E1s for outside the U.S.

Operator: The next question comes from Alberto Valerio with UBS.

Alberto Valerio: I would like to congratulate you guys for the efforts that you did for mitigating the tariffs with the authorities in Brazil, U.S. and also the American companies. My question is regarding tariffs. I would like to know if for the new business jet orders, you guys are able to put this higher price already to mitigate these tariffs. And also negotiations between the current backlog that you guys have in place, if there is any negotiations between the clients on business jets that you guys are paying for this tax? And also if the airlines, they are asking some support from Embraer because if I understand, they are the importers, they are paying those tax.

Francisco Gomes Neto: Alberto, thank you for your question. I mean, about tariffs in general, we are positive that we will come to a good resolution for this issue because of our — we believe we have a robust — very robust economic with the U.S. As I said before, $8 billion in surplus in the next 5 years. I mean, 13,000 jobs currently in the U.S., plus 5,000 to be created in the next 5 years. $0.5 billion of new investments in the U.S. And this was also based on the 0 tariff. So that’s why we believe — I mean, we have a robust economic to restore the 0 tariff as we have seen with other countries. I mean, commercial jets, we don’t have any plans to increase price because of tariffs because the tariffs will be paid by the customers.

And business jets, we will keep our price competitive in the U.S. to support our continued growth in the market. So again, all the impact this year is already included in the projections, and we are maintaining our guidance for this year with an upside if the tariffs are removed soon.

Antonio Carlos Garcia: And Alberto, sorry for not corroborating your recommendation to our share. We continuously improve our performance here.

Operator: This concludes the question-and-answer session for equity research analysts and investors. Now we’ll start the Q&A session dedicated to the press. [Operator Instructions] The first question comes from Jon Hemmerdinger.

Jonathan Hemmerdinger: I guess I’d want to touch on the tariff issue again. You mentioned that you think you have a good case to remove the 10%. I’m wondering if you could give us any guidance on to what else you might be willing to do to get rid of that 10% more — touch again on any more operations in the U.S.A., any commercial operations in the U.S.A. would be possible? Anything else? Any collaboration with a U.S. aerospace company? And also, any — are you negotiating on this issue right now because the 40% was already removed? So what’s next?

Francisco Gomes Neto: Jon, thanks for your question. I mean, just to make sure that the impact for our customers in the U.S. for commercial jets and the parts we send to the U.S., I mean, it’s lower than 10%, right, because of the U.S. — the high U.S. content we have in our products. So even then we have been working to mitigate the impacts, I mean, optimizing logistics, I mean, putting in place free trade zones, temporary imports, doing a lot of things that has helped us to reduce the impact. I mean, and we will continue making studies, Jon, to do that. I mean, footprint, more collaboration with U.S. companies. I mean, U.S. is a very important market for Embraer and do the best we can to ensure that we will have — we will continue having a strong presence in that market. What else? That’s it.

Jonathan Hemmerdinger: But we also — what would be — what are your next steps? Are you involve in discussions right now?

Francisco Gomes Neto: Thank you. Next step, important one would be the localization of the KC-390. We have been working hard in the country with the U.S. Air Force. We have reinforced our team in the U.S. We are advanced in conversation with a relevant partner to localize the production of the KC-390 once we succeed selling, introducing the KC-390 in the U.S. Air Force.

Operator: The next question comes from the live chat is from Juliana Rocha from [indiscernible]. Could you give more details on Azul impact on the results and future results? How many aircraft will you deliver to Azul that is waiting to be invoiced? The Embraer Jets Azul is returning to lessors with have — sorry, the Embraer Jets Azul is returning to lessors will have any impact on Embraer results?

Antonio Carlos Garcia: Juliana, thanks for the question. First of all, I’d like to highlight that Azul is a very important customer for Embraer for our E2 platform. And we know that it is very important for Azul, and we are continuing to support this customer to the restructuring process. All impacts from the restructure has been already booked into second quarter results. All write-offs has been made, okay? And now we need to wait the procedures about the Chapter 11. And from the aircraft’s we have in our backlog, we are currently on renegotiation with them, and we need — we cannot anticipate any change right now and good discussions ongoing, and we are going to find the solution.

Operator: The next question comes from the live chat as well from Chad Trautvetter. Can you please address tariffs on executive jets?

Francisco Gomes Neto: Well, I mean, I think, again, executive jets, we have a part — important part of our production already in the U.S., in part in Brazil with the aircraft and components that we send to the U.S. We have a good balance. And again, we — for us, the impact is less than 10% because of the U.S. content we have in our aircraft. So we are trying to find a ways to reduce this even further and by optimizing the process and also making studies about, I mean, further collaboration with the U.S. aerospace industry.

Operator: Another question from Mr. Trautvetter with AIN Media. Also, what is the specific purpose of the investment in the Melbourne Executive Jet production plant? Increased Phenom production expanded to final assembly of freighters there or something else?

Francisco Gomes Neto: So we are investing to expand our production capacity for Phenoms. Also our flight preparation area to receive and do the final — the deliveries of the Praetors and doing some local activities as well. And yes, painting booth, we are implementing a new painting booth that can paint both Phenoms and Praetors. So as you see, we have already activities with the Praetors in the U.S. as well on top of the production line of the Phenoms.

Operator: The next question comes from the live chat as well from Simone Chiellini. Congratulations on the great results. I would like to ask what is the progress on the E175 cabin improvements? And when is the first aircraft scheduled for delivery?

Francisco Gomes Neto: Well, good question, Simone. So yes, we are very excited about this improvement. This will bring more comfort for the passenger. And for sure, this will help us to sell — continue selling E175-E2. We are at this point of time working with the suppliers and the new luggage bins and seats as well in lightning. And we expect to deliver the first one by the end of 2026, beginning 2027.

Operator: [Operator Instructions] This concludes the question-and-answer session in English for the press. Now we’ll start the question-and-answer session in Portuguese. [Operator Instructions] [Foreign Language] Our first question is from Marcelo Rocha with [indiscernible]. Our next question is from Rebecca Crepaldi from Exame. So now we’re going to move on to a question in the chat. Our next question is from Bruno Mora. My name is Bruno Mora. I am a journalist at Agencia Brasil. How are you tackling the negotiation to go back to 0 tariffs? Is this negotiation performed through the Brazilian government or are you dealing directly with the American government?

Francisco Gomes Neto: Thank you for your question, Bruno. Both. We are still working on both fronts. We acknowledge the effort that is made, and we embrace the change that was mentioned by the American government last week. We are still working with the Brazilian government and with the American government, talking about our economic hypothesis of how advantageous this is to that country. We want them to find an option to go back to 0 tariffs in aviation. This is what we’ve seen for the past 45 years.

Operator: I see that Marcelo Rocha sent us his question in the chat. We now see announcements of tariffs on Brazilian products by the U.S. government. And people were worried about layoffs in Brazil in manufacturing like in São Jose dos Campos in the countryside of Sao Paulo. In addition to leaving aviation out of the tariff trends, what do you think about jobs? Is it possible that we’re going to have layoffs in our industry?

Francisco Gomes Neto: Right now, we have a more manageable situation. Our tariffs, the 10% or, better said, the impact of these tariffs have been incorporated into our financial forecasts. We’re keeping the guidance for this year, and we’re going to deliver every single aircraft that we planned to deliver. So right now, we have no plans whatsoever to reduce our workforce because of a reduction in production.

Operator: Our next question is also in the chat. It’s from [indiscernible] from the [indiscernible] newspaper. Francisco Gomes Neto, you made a personal effort in the negotiation with members of the American government regarding tariffs. Was this decisive to eliminate aircraft from the list of these tariffs? What is going to happen right now with an increasingly complicated situation with former President Bolsonaro? Do you think that Trump could increase tariffs for Brazil and include aircraft in that?

Francisco Gomes Neto: Thank you very much for your question. Embraer is about engineering. We focus on data and things that are under our control. This is what we’ve done from the get-go. We did careful research on the contribution that we’ve had towards the United States. So we saw the jobs that we created and we laid it out very clearly. We have a good impact on jobs there not only for Embraer operations, but also for the American suppliers from which we buy lots of equipment. We put that together. We added information on investments. We added information on the importance of our aircraft in their country because our regional aircrafts are the only ones that are approved for up to 80 seats. So we compiled this information and we took it to the right people who had to see it.

As I said, we have a very, very strong economic hypothesis here. And we did the same with the Brazilian government. We showed them how we contribute to Brazil and how risky it is for us to be subject to a 50% tariff. So we’re keeping course. We see other deals with other countries and aviation is going back to a 0 tariff. So we have high hopes that this is going to happen to us as well. This will allow for us to keep the journey that we had before. And we’re not going to be discussing politics here. We’re going to be focusing on the economy. And as I said, we have a very, very strong case to make here.

Operator: We have an audio question now from Hagel Brandon with Invest in Aeros — Invest News. Hagel, could you please ask your question in the chat. I believe we have some kind of technical issue. Our next question is also coming from audio with Mauricio Martins from Global News.

Unidentified Analyst: I also have a question about tariffs. I think this is the hot topic right now. So my question is related to the supply chain. What could be the impact here? All right. So regarding Brazilian exports, we have lots of suppliers for Embraer in the U.S. But with the current 10% tariffs, and if we have other tariff wars, what could be the impact on the supply chain? And how much does Embraer rely on suppliers of inputs and parts who are located in the U.S.? How are you dealing with these suppliers so that you have a harmonious relationship, so that you don’t run into issues regarding production?

Antonio Carlos Garcia: Thank you for your question, Mauricio. Please ask away regarding tariffs. We were ready for it. We knew that we’d have lots of questions on tariffs. We’re here for that so please feel comfortable to ask questions about this even though we have uncertainty about it. So at the beginning of this journey, there was a lack of clarity on tariffs for suppliers. However, we’ve made progress in our relationship with them. We’re understanding this impact or that impact. And so far, we haven’t seen big impacts from tariffs on the cost of inputs. We buy lots of parts from the U.S., but also from Europe, and Asia, and Brazil. I think we are managing this well. So far, we haven’t seen any impact. We still have a good relationship with them, a harmonious relationship with our main suppliers.

Operator: Our next question is from [ Hagel Gamersky ]

Unidentified Analyst: So on tariffs, do you have any other investments that you are planning or negotiating for the U.S. to get to a 0 tariff base? And the investments that we saw in the presentation, were they in your plan or were you negotiating them because of this exception list?

Francisco Gomes Neto: The investments that we announced had already been previously announced. But please remember it, these are investments to expand our capacity in our operations in Melbourne. This includes production of aircraft’s, the finishing of aircrafts in the U.S., major investments in Dallas, in Texas, so that we’re able to expand our capacity to work with commercial jets. And these investments are a foundation to support our thesis of a 0 tariff for our industry. We did the math based on a certain volume of trade with the U.S. This is what we’ve been sharing with them. If they have additional tariffs and we sell fewer aircraft in the U.S., first, we’re going to buy fewer parts. We’re going to make fewer planes. We’re going to create fewer jobs.

And we’re also going to have a limited ability to invest in the future. And this is going to be damaging for the American market. This is why I’m doubling down on the thesis of economic robustness. If you have tariffs for Embraer, this is going to harm the American market, too.

Unidentified Analyst: Are you negotiating any additional investments in the U.S. to reach a 0 tariff?

Antonio Carlos Garcia: What we do have for the U.S. is the possibility of assembling KC-390 locally. This is a big investment. This is $0.5 billion. With this investment, we could create an additional 2,000 jobs in the U.S. So yes, we mentioned this as an opportunity of local investments if we have 0 tariffs.

Operator: Our next question is from Rebecca Crepaldi with Exame.

Unidentified Analyst: Congratulations on these results. I’m still a bit confused; I apologize. I think you mentioned this over and over again. But if you could go over this once again, I’d appreciate it. Could you please talk about the 20% impact? Because you just said that there’s no impact whatsoever on the cost of inputs. However, at the same time, you said that 20% of impacts coming from tariffs are felt in your cash flow and that you expect bigger impacts in the last second half of the year. Could you please explain that? What is the actual impact of tariffs on your results?

Antonio Carlos Garcia: Rebecca, this is Antonio. Let’s go over this again. In our last earnings release presentation, we said that we had around 0.9% of our revenue being impacted. It’s $65 million a year. 20% of that happened in the first half of the year, and the rest of that is going to happen in the second half of the year if we have 10%. So for business aviation, we pay tariffs. We don’t for Commercial Aviation, and we haven’t seen impact with suppliers. So the 10% has been levied. But the good news is that we have a number of initiatives to mitigate these effects with other cost reduction initiatives. This is why we’re keeping our guidance for this year.

Francisco Gomes Neto: Rebecca, let me make this clear. We have around $65 million in impact this year. This is what we expect. We have realized 20% of that so far. And this comes from what we pay when we export parts into the U.S., not from when we buy parts from suppliers. Is this clear now?

Unidentified Analyst: Yes, it is perfectly clear.

Operator: Our next question is in the chat. We have Hagel Brandon from Invest News. I’d like to confirm the guidance for margins. I understood that you’re being very cautious when it comes to the impact of the 10% tariff, inflation and the FX rate. Should we see any changes here? Also, I would like to understand the impact of this 10% tariff throughout the years. Without American content, this is not going to be exactly 10%. How much should we expect in the second half of the year?

Antonio Carlos Garcia: This is Antonio speaking. Second question first, we just told Rebecca that we have $65 million expected for this year, 20% already happened. The rest is going to be realized in the third and fourth quarters. If we see a continued 10% tariff for us, this is the impact that we expect. Regarding IR guidance, we’re doing really well until Q2. We’re a bit above it. Our margins have been confirmed. We think that our expenditure base is going to be a bit worse in the second half of the year because of the 80% that we are still going to have to absorb from the tariffs. We’re also going to have higher inflation compared to our forecast and a worsened dollar. We have costs in reals, so when we convert them into dollars, we have higher costs in our functioning currency.

So what I would say is that we try to be consistent with our numbers. It would be risky for Embraer through so much volatility to share different numbers with our industry, but we have a good forecast if we see sustained conditions.

Operator: Our next question is from [indiscernible] with [indiscernible].

Unidentified Analyst: Francisco, let me change gears a bit. We have been talking about tariffs. But you have been announcing so many investments in the U.S. because of tariffs also. And I was curious regarding the types of investments that we could see in São Jose dos Campos and Taubaté [indiscernible] area, or perhaps other cities in the Paraíba Valley. Let me also take this opportunity to talk about Eve. Could you please go into details regarding the maiden flight that you should have in December? Should we see the maiden flight in our region too?

Francisco Gomes Neto: Thank you for your question, Jesse. Most of our investments are made in Brazil. You might recall that a few months ago, we announced that Embraer was going to invest BRL 20 billion by 2030. So BRL 20 billion, if you divide it by 5 and some, it will be almost close to $4 billion. And then you can compare this number with the number that we refer to when we talk about the U.S. So most of the investments, I mean, are in Taubaté and Gavião Peixoto to investments in São Jose dos Campos in terms of many enhancements capacity expansion. And most of the investments are localized in Brazil because we — the bulk of our operations are in Brazil. So Eve is a separate company. The plan is to have the initial flight in December.

But about Eve, I think you should get further information during the conference call conducted by Eve. There is another investment that came to mind and that has to do with return to work. We are making robust investments to renovate the facilities in São Jose dos Campos, [indiscernible] to get — to welcome our people back starting in January. Another important investment is in Portugal for the maintenance of the GTF engines, and this will pay an important contribution to our service revenues. Just to give you a general idea, these are the investments. But as you can see, the U.S. is part of that. And this is also an important part that we are now telling those that have the decision-making power regarding tariffs.

Unidentified Analyst: But if you allow me, I have another question. At the beginning of the presentation in Portuguese, you said that you do not anticipate any dismissals in Brazil, mainly because of the initial adjustments referring the quotas or the tariffs. Is there any possibility going forward in case there is no change in the world economic landscape? Do you think that you would hire more people for your Brazil operation?

Francisco Gomes Neto: Our plan envisions growth in the coming years. We are growing at a rate of 2 digits year-on-year, and we are increasing production every year and the plan still stands. I mean, unless there is any drastic change to the macroeconomic scenario, just like 50% tariff in Embraer’s biggest market. But now we are back to a more reasonable level. But our production plan and our revenue this year remains unchanged. And if you look at the years post pandemic, we hired more than 5,000 people. The vast majority of them were hired in Brazil. Therefore, Embraer continues to grow, and this is the plan going forward. Eventually, if there is any drastic change in the scenario, this will not only apply to Embraer but to all of the other companies. But we have a very positive outlook.

Unidentified Analyst: Congrats on your results.

Operator: Thank you. With that, we conclude the Q&A session. And also, we conclude the conference call of Embraer. Thank you very much for joining us, and we wish you all a very good day.