Embraer SA (ERJ) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's third quarter 2014 results.

(Operator Instructions)

As a reminder, this conference is being recorded and webcasted at ri.embraer.com.br.

This conference call includes forward-looking statements or statements about the events or circumstances which have not occurred. Embraer has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance.

These forward-looking statements are subject to risks, uncertainties, and assumptions including, among other things, general economic, political, and business conditions in Brazil and in other markets where the Company is present. The words "believes," "may," "will," "estimates," "continues," "anticipates," "intends," "expects," and similar words are intended to identify forward-looking statements.

Embraer undertakes no obligation to update publicly or revise any forward-looking statements because of the new information, future events, or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call may not occur. The Company's actual results could differ substantially from those anticipated in forward-looking statements.

Participants on today's conference call are Mr. Frederico Curado, President and CEO; Mr. Jose Filippo, Chief Financial Officer and IRO; and Mr. Luciano Froes, Director of Investor Relations.

I would now like to turn the conference over to Mr. Jose Filippo. Please go ahead, sir.

Thank you, and good morning to all the participants. We'll start this event with the presentation, and then we'll be moving to the Q&A section.

So, if you could start with page 3, before the first business highlights, we would like to report this important date which was last August 19 that Embraer celebrated its 45th anniversary. It was a very important moment for the Company that happened last August.

With the next page, page 4, and now on the business highlights, starting with the inauguration of Embraer Engineering & Technology Center in Melbourne, Florida. This facility is initially focused on executive jet business, but later will expand to all our other business segments.

Continuing with the example of Embraer commitment to sustainability, we had the milestone of a 10-year anniversary of the certification of the ethanol-powered Impanema airplane. And in line with that, Embraer was listed for the 5th consecutive year on the Dow Jones Sustainability Index.

During the third quarter also, Embraer received several awards and recognition in Brazil, especially related to people management and corporate governance, a very important priority for the Company.

Next page, page 5, now moving into the business unit highlights, that we're starting with the commercial aviation business. We had a delivery in the third quarter of 19 E-Jets, a couple less than we planned, which we expect to be delivered in the fourth quarter.

Also, we continue to sell our current generation. Two important announcements. The first one is Japan Airlines, which signed a firm order for 15 E-Jets, with an additional 12 options. Together with Republic Airways Holdings signed a contract for 50 firm jets which will operate under the United Express brand.

In relation to the E2 development, we are moving along with an important event of the first metal cut of the E-Jet E2 manufacturing in the Evora plant in Portugal.

Next page, page 6, in relation to executive jet business. We delivered 15 executive light jets in the third quarter, for a total 54 year to date light jets. We also received recently certification both in Brazil and the US of our Legacy 500, which paved the way for deliveries which the first one happened in early October, the first delivery of the Legacy 500 program.

On page 7, still on the jet highlights, important milestone of the delivery of the Phenom 300 to NetJets. They delivered number 25, which will turn into total of 200 deliveries of this model by the Company. Currently, our total executive jet fleet surpassed 800 aircraft.

Another important recognition was the ranking of Embraer as number one in customer support and service satisfaction by the AIN magazine.

With regard to our global footprint strategy, Embraer broke ground the Legacy 500 and Legacy 450 assembly complex in Florida, Melbourne. And also during the quarter, we continued to expand our customer support and service network into a Brazilian area.

Now, moving to defense and security, on page 8, two announcements of a rollout program. The first one related to the first prototype of the KC-390. It happened in last October, and this airplane and this program we had planned for the first flight to schedule for the end of this year. We also have the rollout of the first Super Tucano built in our Jacksonville facility for the US Air Force light air support program.

In relation to the Brazilian border control project, SISFRON -- Savis participate in the successful exercise to verify the SISFRON-implemented operational capabilities which lead us to keep on track for the development of this project.

In terms of commercial activity, two important contracts. First, there was the sale of six Legacy 500 to the Brazilian air force, and this equipment will be used to perform flight inspection missions. Also, Bradar was contracted by the Brazilian navy to supply three radars.

Now, next page, and moving to the financial results, we'll go now to page 10, with regards to our backlog. We reported a total of $22.1 billion of firm orders in the end of the third quarter. That represents the all-time high for the Company. The big drivers of this number were the 28 KC-390 ordered from Brazilian air force and the commercial contracts as mentioned earlier in the presentation.

Page 11, next page, in terms of aircraft deliveries, we delivered 19 commercial aircraft in the third quarter, to a total of 62 year to date. And with respect to business unit jets, I already mentioned the 15 light jet deliveries, for a total of 10 large and 54 light jets year to date. At this point, we take the opportunity to reaffirm our guidance figures for the year.

Page 12, regarding the revenues, we had a total of $1.2 billion in the third quarter, which can be broken by commercial aviation, of $661 million; in the executive jets, $213 million; and defense and security, $346 million. We believe we are on track to meet our guidance figures for 2014.

Next page, still on net revenues, in terms of year to date both in Brazilian reais and US dollars, we had the year to date in dollar terms of $4.2 billion in terms of revenues and BRL9.7 billion in terms of local currency. Our outlook for the year: a range between $6 billion and $6.5 billion.

On page 14, next page, in terms of operating expenses, we continue to have a stable and controlled expense level. We had in the third quarter $52 million of G&A and $99 million of selling expenses. We believe that total SG&A for the year will be represented as 10% of the revenue range, which is in line what we've been saying before during the year.

On page 15, regarding EBIT, we had a total of income of operations of $68 million, with a margin of 5.5% in the third quarter. That reflects the lighter deliveries and the mix that we had in the quarter. In terms of year-to-date numbers, we had a total of $347 million, with a margin of 8.2%. Our outlook for the year is in the range of $540 million to $602 million (sic - see slide 15, "$620 million") and an EBIT margin of 9% to 9.5%.

Next page, page 16, in relation to EBITDA, following the same drivers of the EBIT, we had a total of $136 million in the third quarter, with an 11% margin. In terms of the accumulated number for the year, we had $548 million, with a 12.9% margin. We are now confirming our expectation to meet the guidance figures for 2014.

Next page, page 17, in terms of net result, we reported a net loss at $11 million in the third quarter, primarily due to the exchange rate fluctuation which affected the Company's deferred income tax. This effect already happened in the past. But excluding that effect, the net income would be approximately $93 million in the third quarter. We have with the $11 million loss in this quarter, the accumulated of $243 million in terms of 2014-to-date numbers.

Next page, page 18, in terms of inventory, we had a total amount of $2.8 billion in the end of the third quarter, in line with the last year third quarter figure and comparable to what we expect as we prepare to the stronger delivery activity in the last quarter of the year.

Next page, page 19, in relation to free cash flow. During the third quarter, we generated $49 million of operating cash flow, and we also continued to our investment plans with program development [and] CapEx. So, the free cash flow was an outflow of $138 million in the third quarter.

It is important to mention that this cash flow reflects an increase in our working capital requirements year to date, mainly due to the increase in accounts receivable. We have roughly $300 million related to defense contracts that we expect to receive by the year-end.

This effect, coupled with the typical strong cash generation in the fourth quarter, lead us to believe that we will meet our guidance figure for the year.

In page 20, next page, in terms of investment, in general we are trending below our outlook. Research should not exceed $60 million for the year. Development should stay below $300 million. And the CapEx should be in line with the outlook of $250 million. So, so far, in terms of the year-to-date numbers, we had a total of $243 million in terms of investment.

Next page, page 21, the Company capital structure. We continue to show a comfortable debt profile, with a 5.6-year average maturity terms, with 4% portion in the short term. Reflecting our cash flow generation discussion before, we end the third quarter with a net debt position of $327 million.

With that, we close this presentation and we are ready now open for the questions. Thank you.

(Operator Instructions) Pete Skibitski, Drexel Hamilton.

I guess first question I'll ask is on the large-cabin business jets, you delivered 10 year to date, and I was wondering of the 15, or so, you need to deliver in fourth quarter to meet your guidance, could you give us a sense of how many of those have already been ordered as of today, or maybe how many are really close to closing?

Sure. We had forecast from 80 to 90 of the light jets and 25 to 30 of the large-cabin jets. So, as of today, we believe we're going to come to the lower end -- on the small-cabin, we're probably right in the middle of the range, with maybe some potential upside within the range. On the large-cabin, though, we are looking more towards the lower end and with maybe a little bit risk on the lower end of the large-cabin. Having said that, we are still comfortable that between the two families, we shall achieve the revenue guidance for the segment for the year.

Okay. Got it. And then, I had a question on gross margins, also: 19.5%. They were up about 30 basis points year over year on really comparable revenue overall and comparable revenue at commercial also. But the mix was much better last year at commercial as well as at executive. So, I wanted to ask how do I reconcile that? Is it all FX related? Or, maybe are the margin headwinds on the 175 maybe not going to be as bad as you'd initially suspected? I was wondering if you could help me understand that?

A little bit more color on that. Basically, when we think about the consolidated gross margin, you had a slightly lower commercial aviation segment margin, driven again largely because of the mix of more E-175s in the quarter. But that was offset to some extent by higher gross margins in both the executive jets as well as the defense and security segment.

Okay. Executive, was that just lower selling expenses within the segment? Or, actually, no, that wouldn't impact gross margin. How would I --? Why were gross margins higher in executive this quarter, given the mix was so much worse?

Actually, there were a lot of Phenom 300s delivered in the quarter: 14 out of the 15 light jets. So, that contributed to that. That reflects this gross margin of north of 22% that I alluded to.

Okay. Great.

Cai von Rumohr, Cowen and Company.

So, I guess you're saying you're keeping your cash flow guidance, but you also indicated, I think, that CapEx plan of $250 million but you only did about $106 million as you define it in the nine months; and your development plan of $320 million, you've done $111 million. So, you indicated $320 million is probably high. So, those are pluses. How come the cash flow wouldn't be even better than that? What are the offsets to that?

The investments will be lower, but as we mentioned we had the pressure on working capital. So, that's what we expect to see. So, we're working on reducing the accounts receivable. We had a higher number in the end of the third quarter. So, we expect to see that coming down in the fourth quarter. That's what we're working on.

If it comes down $300 million, you basically would be down year over year and you would be up. So, I'm still a little bit confused in terms of what the real offset is, because it looks like that should correct itself in the third quarter unless there's something else happening.

Yes, but there's going to be the cash generation in the fourth quarter which is stronger than the previous quarters that will be adding.

Let me just add a little bit of color. As we can see the year-to-date cumulative free cash flow, it's significantly negative. So, we ought to generate a very strong quarter, which we are foreseeing. But I must say, we do have a risk in this $300 million accounts receivable related to defense, more specifically the Brazilian government programs.

So, there is a risk there which may even prevent us from achieving our guidance. So, the view is that we will -- this is due. So, this is something which it's contractually due. But it is of course the fiscal or, let's say, the governmental budgets in Brazil, it's public information. There are some constraints. So, I think we must at this stage emphasize that, yes, there is a downside risk to that guidance.

Thank you very much. And just one two-part follow-up. Could you maybe give us color in terms of 2016, how you're sold out in terms of the E-Jets?

It's looking good. I would not put a figure at this stage, Cai, but it's getting better. So, when we were sitting in 2012 looking at 2014, and 2013 looking at 2015, and now 2014 looking at 2016, we're probably in the most comfortable position of these three years.

Terrific. And the last one, labor. Where are you with your labor negotiations? And what kind of a wage hike should we expect for 2015?

Let me take the opportunity to give you a broader answer. We have several factories in Brazil. We have already settled in agreement with the factory in Botucatu. That's a 7.4% increase in wages applicable from September on. The same proposal has been offered to our plants in Gaviao Peixoto, where the defense people are; in Sorocaba Taubate; and Sao Jose dos Campos.

We have not yet a position from the Gaviao Peixoto and Sorocaba Taubate unions, and we had a negative position from the Sao Jose dos Campos union. We have three [unions] in Sao Jose dos Campos, and one of them, our employees since last night they have not been allowed -- the union has completely blocked the entrances of the factory. So, we are paralyzed in our operations in that specific site, which is our largest site in Sao Jose dos Campos. The other two sites in Sao Jose, they are operating normally.

So, we do not know how long that's going to take to settle. It's considerable that this will end up in the legal system, in the courts. But it is -- our proposal is final.

And what we really regret is that this specific union in Sao Jose dos Campos, with this very, let's say, aggressive attitude of really blocking people's right to go and come freely is something we have seen happening in the same region, in General Motors' plant, and the outcome is very negative for both the Company and the employees. So, we just now have to see how this thing unfolds.

And technically, obviously we have some slack as far as being able to be shut down for a few days and still deliver all of our guidance numbers [in deliveries, et cetera]. But at this stage, we have to live day by day and see how this thing unfolds.

Other than that factory, [everything else is] operating well.

Thank you very much.

Derek Spronck, RBC Capital Markets.

My first question is on 2015 aerospace production. You should have a fairly good visibility on your [productions guideline] for 2015. Can you provide any color as to how you see 2015 shaping up as that compares to 2014 with regards to executive production as well as commercial aviation production?

Yes. I think it's a fair question. Of course, we will provide specific direction around early March. But as an indication, we see on commercial, in the commercial jets, production levels probably sustaining, with the possibility of a little bit of a higher number. But I think sustaining the same level is probably a very fair assumption at this stage.

We will have a pressure on the gross margin due to pricing. Pricing has become aggressive with of course the stiffening of the competition.

Obviously, on the tailwind sides, we have a potentially more favorable FX next year and our continuous effort to hold productivity to keep our costs where they should be. Also, the standardization of the assembly line, where we have large quantities of airplanes, 175 airplanes for the same customer, that also shall give us some benefit as far as productivity.

On business jets, two important markets we see some reduction in activity. These are Brazil and China. But on the other hand, we are seeing an increasing level of activity in Europe, believe it or not, and the United States. That adds to the fact that we will be ramping up the Legacy 500 next year.

So, we are probably looking to some degree of increase in our business jet business. And as we increase the top line, of course the trend is we also improve our results, because we do not need probably much more, if any more, fixed costs to do that.

As far as defense, I pretty much see a stable activity, a lot of execution to be done. We have been executing very, very well in that business. In this particular business, FX will play against us because of course a large part of our revenues is in reais, but it's probably a wash. So, stability is probably a fair outlook at this stage.

That's great color, Frederico. Just another quick question on the Legacy 500 and the 450. I was at the MBAA and there was quite a bit of buzz around those two aircraft products. Has that buzz and anticipation of the product, has that been translating into a good order backlog and healthy pricing/margins on the first initial order set?

As far as book orders, I would say it has been reflected in the pipeline. So, there is a significant amount increasing in activity in the pipeline. So, hopefully, that will translate in a few months in actual orders in the increasing backlog. And you're right. The product is really superior. So, we do expect that family to move us in a good direction.

As far as margin, in the very first units, no. This is much more typical industrial learning curve. The only comment I would add is that this, so far, knocking on the wood here, has been the best entry into service that we have had in our airplane programs, and this is not just a coincidence. We invested a significant amount of work and money and testing and [reason and et cetera] to achieve that.

So, so far, the airplane is -- we have one prototype continued its flying, way ahead of the initial deliveries, and the airplane has a very good degree of maturity. So, we should have -- I think it's fair to say that we should have a relatively smooth learning curve ahead of us.

Okay. Great. That's all for me.

Myles Walton, Deutsche Bank.

Fred, I was hoping you could give me a little color on the defense sales for the year. I think the target is $1.2 billion to $1.3 billion, and you did $1.1 billion year to date. So, I guess I'm a little confused that the fourth quarter could fall off quite that much?

Myles, you're right. I think if in the executive jet business we may be looking at the lower end of the revenue guidance, in the defense we certainly will be looking at the high end. And in that case, I think we have some upside risk of surpassing that. So, it's a fair question, a fair point.

And is there anything in particular that's driving it -- modernization work or short-cycle work? I would just imagine with the real weakening it would have actually been more of a headwind to your full year.

Myles, no, it's across the board. One anecdote that we have for a potential negative impact in the revenues in reais in the fourth quarter is the deliveries of the LAS Super Tucano in the United States. So, I think, again, it's very likely that we are in the end range, or even surpass it.

Okay. And then, one other one was that you talked about in the release the lower development and R&D expense and you talked about it on the call. And you made a point to say that development timelines haven't moved, though. So, presumably, the net cost of your developments have actually come down? And I'm curious, is that more from a supplier contribution perspective? Or, just the net cost of your developments have come down? And in particular, on what programs?

It's a combination of factors, Myles. I would say a little bit of conservative planning probably from our engineering, because this has been probably the highest volume of engineering work the Company has ever endeavored. So, I think there's maybe a little bit of conservative in there.

There was a little bit of efficiency itself. So, there is a continuous effort from our [internal] team to drive efficiency.

And also, as you mentioned, our [partner's] contribution which are more event-related.

So, I think the combination of several factors shall keep us probably below $300 million. I would say more maybe between $250 million and $300 million.

All right. And then, just one last one, just to confirm. You said that defense sales flattish into 2015 or growth. And presumably, you're going to overachieve your guidance this year. So, I guess that's flat to where you achieve, but maybe growth from where your guidance currently is? Is that the way to think about it?

That's a good question for clarification. I meant flattish as far as the guidance.

Okay. All right.

Joe Nadal, J.P. Morgan.

Just this first question, on the $300 million of defense receivables. Are those related to any milestones, like first flight on the 390? Or, is this now due and payable and the government is just late?

It's contractual. So, we have a progress accrual. And it's not past due. I'm just raising this possibility, because of course if you remember the last quarter we did have this, I think it was, $150 million to $200 million which was a little bit past due. It was paid. So, we sense some difficulties there. But contractually speaking, and we know the efforts on the government side are to honor those payments. But I think at this stage, it's correct to say that, yes, there is a risk.

But is it due -- is it in any way tied to first flight on the KC-390?

No, it is not.

Okay.

The way we have the revenues in our contract is just a development program -- percentage of completion, that's the term. So, there's no specific event, first flight, which we still believe is going to happen, by the way.

Okay. That was my next question. So, on another area, the Legacy 650, you said you expect growth next year overall in executive, driven by the 500, which of course makes sense. I'm wondering if you could give a little more commentary on the 650 and how it's competing right now -- there's a lot of new aircraft in the mid-cabin area -- and what your expectations are going into next year for deliveries of that platform?

I think we probably will also see some improvement in the 650. It's an airplane that has a very good potential in the US. I think we have a homework to do as far as our own marketing, our own -- the way to sell the product and really have it in the market, positioned in the market. It's a great product. And I think we ought to do a better job. So, yes, I also expect improvement in the 650.

As far as the lineage, this is much more a niche product. We'll also be seeing low single-digit numbers -- [3%, 4%, 5%, 6%,] things in that range -- year over year, but the 650 should perform better. This has not been a great year for the 650, and it should improve next year.

Can you give just a little more color on that, Fred? I don't want to push too much on it, but there is a lot of new competition and there are some signs of certainly the US market improving in general. I know this has been more of a European product at times in the past. But maybe a little more color on why you don't think it sold as well this year and why you do think it will get better next year?

Very candidly, Joe, I think it's been more our own ability to market the aircraft. I think that there is nothing wrong with the airplane, quite the contrary. And we have had a specific, let's say, underperformance in the United States. This airplane is not a European scenario airplane. This airplane is perfect for the US. But I think we have done a much better job of selling the airplane abroad than we have in the US. So, we are focusing on that as well. And these things does not happen overnight. But my team is really focusing on also improving the 650 next year.

Okay. And then, just one more, if you guys wouldn't mind providing as you've done in recent calls the segment operating margins and gross margins?

The third quarter, on the specific quarter --.

In Q3, yes.

On specific quarter, we as far as operating margin -- Luciano help me here. It's around 4% commercial, around 13% defense, and a negative 5.5% for executive due to the very low deliveries.

Okay. I'm sorry. I missed the commercial. And if you wouldn't mind giving gross as well?

Commercial: gross was 15.9% -- 16% -- and operating margin, 4%. Executive: 22% gross, and negative 5.5%. Defense: 23% gross, and 13% operating margin.

Very good. Thank you very much.

Eduardo Couto, Morgan Stanley.

Congratulations on the strong results. I have a question on the currency, on the BRL. We saw a big movement in the currency in the last month, or so. Can you remind us what is the lag between the movement in the currency and the impact of that in your results? Or, in other words, when can we expect to see this BRL2.50 or even weaker being reflected on ERJ's results?

Normally, it takes like two quarters to have the full impact, because it has to pass by the inventories and then go into revenue. So, that's the timing of the effect, typically.

Growing, right? So, we have from no impact to full impact.

Yes.

Within two quarters.

Okay. So, probably, we're going to see that more reflected next year?

Yes, we still can capture something if it remains in that level in the last quarter. But if it stays -- because normally we reduce the inventories in the end of the year. So, if it was a stable quarter, several quarters, that would be something like that. But probably we're going to capture a part of that in the last quarter as we deliver most of the inventory.

Okay. And just a second question, regarding commercial orders. Can we expect more orders from the US already next year or the conversion of options into firm orders in the US already in 2015? Or, this is more for 2016, 2017?

No, I think it's correct to assume that we should see some more activity next year which will lead us towards filling up the production line by the back end of 2016 and mainly 2017. So, yes, we expect that.

Okay. And just a final point, Fred. Can you give us your view regarding this Brazilian regional aviation plan? I think it should be approved this month in the Congress. So, any additional thoughts on that?

Yes, we are obviously very close to the issue. There will be -- the issue is in Congress right now. There was a report issued yesterday by the special commission, and the report changed the government executive branch project. So, they decided to postpone the vote from today to next Tuesday.

We are in the hope that in Congress they do not distort the bill sent by executive branch. But now, it's really down to the basic politics in Congress and we will know by Tuesday. So, at this stage, it's a bit hard to predict where this thing is going.

Okay. Can we expect orders coming out of this regional plan? Or, it's still too early to assume that?

If the bill sent by the executive branch is approved as it was issued, yes, there will be -- because it's a cascade effect. Fundamentally, there will be support for probably 100 more -- 50 to 100 new communities which do not have air service today. This is low-density traffic. So, that will drive demand for more airplanes and for smaller airplanes, airplanes typical of our size.

So, we have -- as it is public information, we have been discussing not only with Azul, which has already confirmed a new order, but also with TAM and GOL in that respect.

But it's kind of a go/no-go. If the plan is approved, I think the potential is there. And by the way, this is not -- we have to expect some competition there as well. There is no protection for our airplanes. So, Bombardier. We also have ATR which has a large fleet in Brazil. They also will potentially benefit. We work very hard to prevent that, but it's a potential for regional airplanes in Brazil, which still today is very much concentrated in the trunk lines and it's a little bit uneven fleet distribution compared to the US or Europe.

Okay. Thank you.

Darryl Genovesi, UBS.

Can you just put a little bit more -- and I know you've done some of this already -- but just put a little bit more color on the moving pieces for 2015? So, I guess, in particular, I think you guys have given some guidance in the past with regard to the real. For a -- I guess it's a 1% EBIT margin benefit for every 10% that the real weakens. Is that guidance still good? Or, has that changed with the ramp-up of the Florida factory?

As far as next year, it's still a little bit too early to try to put specific numbers on that. Of course, we have to see exactly where the revenue and cost structure will be, especially as all the three business units comprise the revenues and cost structure. So, of course, the general move will help and is a tailwind, but putting specific figures for next year will have to wait a little bit more, to get more clarity. As Fred mentioned, in early March we'll have a better view there.

Okay. Is the --? When I'm just thinking about the percentage move on your currency exposure, my impression is that almost all of that is related to Brazilian labor. So, when thinking about the big weakening in the real that we've seen year to date relative to the labor inflation numbers that you're talking about, should we assume that those apply on roughly the same dollar cost base?

On the cost, we may simplify that. But keep in mind that there is also the pricing issue which I mentioned, specifically more on the commercial jet side. Smaller airplanes, the 175, the mix, the more 175s than the 190s. So, lower-priced airplane. And large transactions. And stiff competition. So, it's -- we are sorry, but I think we really cannot advance much further at this stage.

Okay. Maybe a little bigger picture question then. With regard to the Legacy 450 and 500, any updated thoughts on what you think the ultimate market is for those airplanes? I think you guys had initially thought of it as kind of a 40-a-year kind of number. But with the additional capacity that you're putting into Florida for Legacy 450 and 500 production, I think maybe your expectations there have increased? Is that a fair assessment?

You're breaking up. So, the last part of the question we missed it, because you're breaking up.

I was saying, with regard to the ultimate Legacy 450 and 500 production rate that you think you can achieve, I think a few years ago you were sort of characterizing it as a 40-a-year kind of opportunity. And just wondering if that expectation has increased? I guess, based on the fact that you guys are putting more mid-sized capacity into Florida, it sounds like maybe your expectation had moved up there? And just wondering where you think that program ultimately goes?

If you look at that segment, pre-crisis, that segment was a very healthy one. So, although in the short term, we may look at numbers which are in the 40 or 50 range, we have decided to have -- just in Melbourne, where these airplanes would be manufactured, just there we're going to have -- already launched an infrastructure for six a month; so, for 72 airplanes.

Right.

We just started producing these airplanes in Brazil. So, if that goes (technical difficulty), which may sound like a little bit of a dream today, but if you look back to pre-crisis numbers, the numbers were actually higher than that. We can easily add capacity. So, today, we are committed to an infrastructure for 72 airplanes a year, six airplanes a month. And we will of course as the demand takes us.

Great. Thank you.

Pete Skibitski, Drexel Hamilton.

Fred, I just wanted to ask on the Saab contract for Gripens getting signed with the FAB. I think I read it to be $5.4 billion, which seemed to be larger than I expected anyway. So, I was just wondering if you can tell us what Embraer's share of that would be at this point, now that it's signed, and maybe what kind of a time frame you would expect to get started and complete that contract?

Sure. My understanding about the -- although we have no direct involvement in this contract between Saab and the air force -- is that this $5.4 billion is probably related to escalation and stuff like that. So, to my knowledge, there is no change in the subject matter of the contract: 36 airplanes and all the logistics associated.

We have moved from an MOU to, let's call, a very advanced MOU or almost like a semi-contract with Saab. And at this stage, I do not have yet numbers. So, I can't tell you "x" percent is going to be us. But as far as scope of work, we will have a significant -- the most significant amount of engineering work on the [B-place] version. We will also have a significant amount of work in engineering as far as the adaptations of the aircraft to the Brazilian air force specific requirements.

We will assemble a number of airplanes in Brazil. That number may be probably no less than 15 airplanes, the last 15 airplanes in Brazil. That's still under discussion.

And we also -- there is also provision where there will be some sort of joint marketing of the airplanes between Embraer and Saab to new markets.

This is a complex content, and as I said, we'll be able to put figures in that probably within six months. There is some work which would be started -- but very, very small -- as far as just contacts between the engineering teams. So, time frame: in six months, we shall have a full, final contract between Embraer and Saab. And then, of course we'll be able to disclose to you more precise figures.

Are you expecting to generate some revenue on it in 2015? Is that a fair statement?

No. If there is some, it would be negligible. No.

Okay. Got it. Thank you.

This concludes today's question-and-answer session, and that does conclude Embraer's audio conference for today. Thank you very much for your participation. Have a good day.