Embraer SA (ERJ) 2017 Q4 法說會逐字稿

Okay.

Good afternoon, everyone, and welcome to the Embraer Day 2018, Brazil.

We'll start the conference call, and we will review the Embraer's fourth quarter 2017 results.

This conference call is being held during the Embraer Day with the presence of investors and market analysts.

At this time, the conference will -- the company will present its fourth quarter 2017 results and financial outlook for 2018.

Afterwards, we will conduct a question-and-answer session, and instructions to participate will be given at that time.

(Operator Instructions) As a reminder, this conference call is being record and webcasted at ri.embraer.com.br.

Before we start, I will go through our usual disclaimers.

This conference call includes forward-looking statements or statements about 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 and political and business conditions in Brazil and in other markets where the company is present.

The words believe, 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 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 might not occur.

The company actual results could differ substantially from those anticipated in the forward-looking statements.

Participants today on the conference call are Mr. Paulo Cesar de Souza e Silva, President and CEO; Mr. José Filippo, Chief Financial Officer and IRO; and myself, Eduardo Couto, Director of Investor Relations.

Now, I would like to turn the conference over to Filippo.

Please go ahead, Filippo.

Thank you, Eduardo.

And welcome, everybody, to our conference of financial results 2017 and estimates for 2018.

As usual, we'll go through the presentation, and then we'll be ready for the Q&A.

So starting in -- with the highlights of financial results 2017.

We delivered 101 E-Jets -- please, Page 4. Okay.

We delivered 101 E-Jets and 109 Executive Jets, delivering -- reaching our delivery guidance.

Net revenues in 2017 were $5.8 billion, also in the guidance range.

Regarding EBIT, we reported adjusted EBIT of $397 million, with 6.8% margin.

EBIT was $50 million below guidance due to additional costs in our defense programs.

We will detail that later in the presentation.

Adjusted EBITDA was $713 million with 12.2% margin, below the guidance for the same reason already mentioned.

In terms of free cash flow, we generated $405 million, driven by working capital gains and lower investment.

The total investment in 2017 were $610 million.

Next page.

For the highlights of the business units, starting with Commercial Aviation.

We delivered 101 E-Jets in 2017 and achieved a book to bill of 0.92, close to our 1x target.

The E-Jets program reached an important milestone, with the delivered number of 1,400, which was delivered -- of E175 to American Airlines.

Our backlog reached 280 firm orders, with a total of 715 commitments.

We recently received the unique triple certification from ANAC, FAA and EASA for the E190-E2.

In terms of delivery schedule, we confirm that the first E-Jet E2 delivered for April 2018 to Widerøe from Norway.

Continuing the E2 program, development in 2017 was successfully rolled out and had the first flight of the E195-E2 prototype.

And finalizing the highlights for Commercial Aviation, the information that the E-Jets family reached the milestone for 1 billion passengers transported since entering to service.

So moving next page, the highlights for Executive Jets.

We delivered 109 Executive Jets in 2017, broken by 72 light jets and 32 large jets.

Including the delivery of the 1,100 Executive Jets in 2017, we also had the delivery of the first Legacy 500 assembly in Florida, and the Phenom 300 was the most delivered light jet for the sixth consecutive year.

In terms of product update.

We launched the new Phenom 300E with new interior, increasing its competitive position.

As far as customer satisfaction, we are ranked #1 in customer support for the second consecutive year by AIN.

In next page, highlights of Defense & Security, starting with the KC-390 program.

We achieved the initial certification with more than 1,600 hours of flight tests.

In terms of commercial activities, we delivered 4 Phenom 100 to the U.K. Ministry of Defense to be used as flight training.

And also, we sold 18 Super Tucanos in this year, and that aircraft was selected by the U.S. force light attack experiment to do further demonstration.

In 2017, we successfully launched the Brazilian satellite in May.

And finalizing the highlights of Defense & Security, we have the first flight of the new-generation Gripen.

Moving to next page.

As far as corporate highlights in 2017, we launched the Passion for Excellence program to gain efficiency and reduce costs.

Also, we continued our compliance program improvement in 2017 for the first year of monitorship.

And we had the new business -- launch a new business, which was dedicated to service and support.

Regarding this innovation, we inaugurated outpost in Silicon Valley and Boston and launched our international venture funds to explore possibility in this area.

Okay.

With that, we close the highlights, and we start the financial results.

Page 10.

Backlog, we reached a total of $18.3 billion in the end of 2017, broken by 73% of commercial, 23% defense and 4% executive.

The next page.

Net revenues, we had a total of $5.8 billion in 2017, meeting the guidance.

We had a reduction when compared to 2016, mainly due to the lower deliveries as already expected.

Next page.

In terms of deliveries, starting on Commercial Aviation on the left, we delivered 101 E-Jets in 2017, within the guidance range.

On the right side, Executive Jets.

We delivered 109 Executive Jets, being 72 light and 37 large, also within the guidance range.

Next page, revenues by segment and geography.

In the left side, revenues by segment.

Commercial Aviation accounted for 58% of the revenues in 2017.

Executive was 26%, and defense 16%.

Regarding the breakdown by region, North America remains our major market, followed by Europe, Brazil and Asia with similar contributions.

Next page, revenue by business units and by quarter.

Commercial Aviation reported total of $3.3 billion, within the guidance.

Executive Jets was slightly below the guidance range as a consequence of an unfavorable delivery mix.

Defense returned slightly above the guidance range, reflecting weaker dollar against the real.

Next page, SG&A expenses.

We reported a total of $486 million of sales; general and administrative expenses in 2017, equivalent to 8% of the revenues, from 9% in 2016.

The G&A expenses were slightly above the previous year, primarily due to the weaker dollar against the real as those expenses are mainly in Brazilian local currency.

Regarding selling expenses, we had a reduction compared to the previous year, coming mainly from Executive Jets business.

Next page, as far as EBIT.

The adjusted EBIT was $397 million in 2017, with 6.8% margin.

These numbers below estimates reflect the negative impact of $50 million in the program development of the KC-390.

Excluding that impact, the EBIT margin for 2017 would have been 7.7%, close to the lower end of the guidance as we previously indicated.

Next, we reported margin of 6.8% in 2017.

The breakdown by business was Commercial Aviation, 13.5%; Executive Jets, breakeven; and defense, negative 4.7%.

Actually, the 4.7% negative would return on a positive 0.5%, if we exclude that effect of the cost of the KC-390.

Next page, adjusted EBITDA.

The total adjusted EBITDA for 2017 was $713 million with 12.2% margin.

The numbers were affected by the same negative impacts of the cost increase of the KC-390 development program.

Next page.

Adjusted net income was $280 million in 2017, with net margin of 4.8%.

In terms of adjusted earning per ADR and payout, the adjusted earnings per ADR was $1.52 and the payout ratio was 26%.

In the next page, regarding investments.

We had a total of $610 million of investments in 2017, broken by $434 million in R&D and $176 million in capital expenditures.

In more detail, research was $49 million, development was $385 million and capital expenditures was $176 million.

Most of these investments were related to the development of the E2 program.

Next page, Page 21.

Adjusted free cash flow.

We reported free cash flow generation of $105 million (sic) [$405 million] in 2017 and $407 million in the fourth quarter of 2017.

This number was above our initial expectations and positively impacted by the improved working capital with an inventory reduction of approximately $300 million, mostly Executive Jets, lower investments of about $50 million and sale of used aircraft owned by our leasing company.

Next page, capital expenditures.

Our net debt as of the end of 2017 was $4.2 billion, and our cash position, $3.89 billion, returning to a net debt of $311 million.

Better than the previous year.

Regarding our debt, its average terms was 6 years, very adaptive and ready in terms of our product cycle.

Okay.

Next page.

Now we finished the financial results, and we like to present our financial outlook.

We usually do this in the beginning of the year.

This information updates the preliminary guidance that was released together with the 2017 third quarter financial results at the end of October and on the (inaudible) much of those but present more details.

So in next page, starting with net revenues and deliveries for 2018.

We are estimating the total revenues for 2018 in the range from $5.4 billion to $5.9 billion.

Revenues estimate by business units now including service and support business are $1.35 billion to $1.5 billion to Executive Jets; $0.8 billion to $0.9 billion to Defense & Security; and $0.9 billion to $1 billion for service and support.

In terms of deliveries, for Commercial Aviation, the range between 85 and 95 deliveries; and for Executive Jets, 105 to 125, broken by 70 to 80 light jets and 35 to 45 large jets.

Next page, for results and cash.

We expect EBIT to be in the range of $270 million to $355 million, with margin range from 5% to 6%; EBITDA on the range of $540 million to $650 million, with the margins between 10% and 11%.

Free cash flow is expected to be a consumption of $100 million or better.

And investments are expected to be $550 million, broken by $50 million for research, $300 million for development and $200 million for capital expenditures.

Next page, we consolidate and present our 2018 outlook.

So with that, we conclude the presentation and are now moving to the Q&A section.

Thank you.

Okay.

Thank you, Filippo.

Now, we're going to start the Q&A section.

(Operator Instructions) But first, we start with the audience here.

If you have a question, just raise your hand.

We have mics on the room.

We start the questions from the audience.

Thank you.

(foreign language) Pedro Bruno, Santander.

(foreign language) Should I do it in English or in Portuguese?

Sorry.

In English.

The deliveries in 2019 -- or actually not just 2019, but beyond 2018, for which should be a lower deliveries year as per the guidance provided by the company.

My question is actually how fast should we expect these deliveries to return to regular levels or closer to 100 units on the Commercial Aviation?

Thanks for the question.

I think we already indicated before when we said that there was going to be a transition period between the phase-in and phase-out of the E1 to E2.

So we still expect 2008 -- 2018 and 2019 to be weaker years in terms of deliveries, but we're expecting these terms just would recover, that's typical when we have 2 models.

At the same time, they bring some inefficiency.

Also, the learning curve of a new model takes a little bit longer than another mature one but we expect to be in midterm something better, maybe 2, 3 years, that's what we said we'll be recovering to normal levels.

Normal levels will mean historical of couple of years.

We'll take another one from the audience.

Turan?

Turan Quettawala from Scotiabank.

My question was on your 2018 margin guidance.

If you look at the margin -- when you guided for 2018 back in October, you had provided a same guidance of about 5% to 6% EBIT margin.

But at that point, you were expecting a higher margin in 2017.

So your margin in 2017 is about 100 basis points lower than what you are expecting it to be in 20 -- back in October.

So my question is, how comfortable are you with that 5% to 6% EBIT margin guidance for 2018?

And why is -- is there any risk to that?

And what are you doing to make sure that whatever pricing, I guess, that's been maybe a bit more negative, is that coming back to give you confidence on that 2018 margin target?

Okay.

Thank you, Quettawala.

I'd say that the -- what happened 2017 was this cost recognition that we had to make in the end of the year in the KC-390 program.

If we add that back, we're going to go to the 7.7% margin 2017, which would be very close to the lower end of the guidance, which I already indicated that I -- that we expected to have.

And by the way, it's good to recall now that this $50 million, it was not something that was already cashed out.

This is a recognition of the [problem], this has to be achieved or incurred going forward.

It's already included in the calculation for the future 2018.

So we still maintain the 5.6%.

So we think that excluding that effect we're basically where we expected to be in 2017.

So we're still maintaining that for 2018.

That's what we expect.

By the way, let me add information to you.

In terms of how Europe is 5% to 6% -- normally we give some information on this.

In terms of Commercial Aviation, we think about something like high single digit.

In terms of Executive Jets, low single digit.

For Defense & Security, low single digit as well.

And service and support, low double digit.

That combination will lead us to the 5% to 6%.

We don't send out guidance specific for margins for the business.

Okay.

Now we're going to take a question from the phone.

Operator, I think we have Pete Skibitski from Drexel Hamilton.

Can you hear me?

Yes.

Yes, we can.

Okay, great.

Paulo, is there anything you can add to the statement in the release regarding a potential tie-up with Boeing in terms of maybe how it might be structured and if you think the Brazilian government would approve such a deal?

Well, we continue to work with the governments.

So there is a working group that was appointed by the governments.

So we are engaged with them in order to find structure that can work for all the stakeholders.

So we have, of course, our shareholders, we have the government, we have the buyer, we have Embraer.

So we have to make sure that we have a structure that can be acceptable by the parties.

So that's what we are doing now.

There is a very good engagement.

So that's all I can say.

So I can't say more than that.

Okay.

Understood, understood.

And if I could, I'd like to ask a follow up on the KC-390.

I'm wondering when you'd expect to firm up the order from Sky Tech for the LOI for 6 KC-390s and when first delivery might be.

Well, we are working on that.

This LOI was announced, if I'm not mistaken, at the Singapore Air Show.

So it's a good sign.

So we are very optimistic that we can sign and engage in a firm contract throughout this year.

So it's a good addition to -- it would be a very good addition for our KC-390 program.

And hopefully -- so we can move forward with that until end of this year.

Okay.

We're going to take another question from the phone.

The next question will come from Cai from Cowen.

Cai, the line is open.

You can ask the question.

Yes.

So your -- the Executive Jet book to bill looked particularly low in the fourth quarter.

Can you comment on that and give us color on demand in the Executive Jets sector?

Yes.

So thanks for the question.

So the business -- jets business -- so it's improving rapidly, right?

So I think, until last year, we saw very challenging markets.

If not mistaken, the industry altogether delivered last year 641 units in 2017.

2016 was just one unit right below that, 640.

So the market still, last year, was under huge pressure.

However, we are seeing signs of a smooth recovery.

It's not an aggressive one.

But however, saw good signs on the used inventory.

So it's -- so the price are not falling any further -- the used aircraft prices.

And the market is beginning to clear on the older jets -- used jets.

So that's a very positive sign because the next step now definitely will be people and companies looking to buy new jets -- brand-new jets.

So the tax reform by Trump in the United States is a big driver for the business -- jet business.

Together with that, the growing GDP in United States, going forward, will be also a big driver.

So don't forget that 60% of the business jet market is within the United States.

So we are more bullish this year that the business jet units -- you have more opportunities.

Okay.

Now we're going to get back to the audience.

So if you have a question, please -- on the left.

My name is Ricardo from [BNVS.] I want to ask a question about the KC program.

When the plane is in line for production, do you expect the gross margin to be similar as the Commercial Aviation or not?

Yes.

We have this starting of the process of manufacturing now.

First delivery will be in the second half of this year.

And of course, it depends on the type of order, because this product and the type of customer is not typical like the commercial.

So each plane tends to be more customized or includes other things than the plane itself.

However, we believe that they can be in the level of the commercial that you mentioned.

So something like a 2 digit -- something mid-single -- mid to -- margin would be reasonable to assume.

I'm talking about the margin.

Anyone else from the audience?

On the right.

Mariana Perez Mora from Bank of America Merrill Lynch.

Could you please drive us through the puts and takes on the free cash flow, from a positive $400 million free cash flow this year to a negative $100 million next year?

Yes, I think we have -- Mariana, thanks for the question.

We had the situation in 2017, which were -- first, like I mentioned, that adjustment in the working capital.

We saw reduction in inventories, especially in finished goods.

And the management, the way we manage the production is the deliveries.

So we end up with lower inventory in the end of 2017, but that is something that we should not expect going forward, this was adjustment.

Part of focus on the margin of enterprise rather than deliveries itself.

It was a major impact for 2017, but we don't expect to see the same magnitude to 2018.

Another thing was the reduction -- or the lower investments that we had, $50 million.

We guided $650 million, and we end up $610 million or $40 million that also helped.

We're thinking of $550 million for 2018.

We think we're confident with that and an opportunity of selling some used aircraft that we have in 2017.

We had a window of opportunity in some used markets such as in Africa, smaller aircraft that we took that opportunity.

So it's more like a onetime thing that we don't count on that to happen again.

So that basically how we bridge what drove us to the improvement in 2017, 2018.

Of course, there is a commitment for us to be disciplined in terms of generating cash and to take those opportunities again as we can.

Definitely going to be looking for opportunities to improve the cash generation.

But at this point, our best expectation for 2018 would be the negative $100 million which we -- is a little bit better than what we initially expected for 2017.

Ricardo Alves, Morgan Stanley.

Just a follow-up on this question -- actually, a clarification.

One of the reasons for the lower free cash flow generation, I think you mentioned the lower investments, so just to clarify, if I remember correctly, we're talking about something like $430 million -- around $430 million in terms of R&D over the past 2 years.

And I thought that, that number was coming down in a major way to $350 million or so next year.

So just a clarification on that point, when you mentioned that investments were a little bit lower last year.

Okay.

Thanks, Ricardo.

I would say that, of course, we still are in the process of developing the E2, which is our major program that's still -- as you know, entry to service of 190 will be -- this year, in April the first delivery.

195 next year.

And the 175, we rescheduled that for 2021.

So that brings us still to the development phase of this program.

Of course, as we get to this point of -- that we have today, we start to think about starting to decrease but not a major decrease.

So I think that the extension of the 175 already brings us to more of investment in a couple of years, but we don't see that in 2018 -- will be that drop.

I understand that you're referring to normal levels, like if you take out some major investment in a new product or in a product that will lead us in the level that we have in terms of depreciation.

Now assuming that, we're going to be reinvesting depreciation talking about the level of 300, something like that, that's basically, I think what we probably have in reference that we mentioned sometime before.

Okay.

Let's take another one from the phone.

Next question will come from Noah Poponak, Goldman Sachs.

Noah, your line is open.

I wanted to ask, if you looked at the last few years on average, what has been the average -- rough order of magnitude, change in pricing annually across the business?

I know it's different by segment, but if you could give us any indication of that?

And then separately, what has labor cost inflation been on average over the last few years?

And then what are you expecting for those 2 items going forward?

Noah, in terms of price, we saw -- of course, remember that we had larger campaigns in the U.S. We are delivering most of them these days.

That's why we already showed that our delivery piece is larger in the North American market.

Those campaigns, as we have larger amount, they were price-pressured.

We already indicated that.

However, because of that, we were able to reduce cost as well.

The standard type of plane helped us to do this.

Our focus on cost reduction already got some good results.

So price was reducing.

I wouldn't say that it's dramatic reduction.

It depends, of course, like you said, in the size of the campaign, size of the order, on the conditions itself and the competitive situation, but I think that the price reduction was not major, but it was followed by the improvement in efficiency in terms of keeping the margins, as if you follow, that's what we said.

This is more commercial.

But again, it depends more on the specific campaign in the deal.

In terms of Executive Jets, we don't see a major reduction now.

And by the way, as you know, we have been focusing on the quality of the sale, so not bringing necessarily the volumes, but getting a price.

And we still saw this year, the first quarter of the year already indicated that, now we're confirming that the price was a little bit above the average that we had before.

So of course, we should not deliver the same number of aircraft on that, a little bit less, but keeping a certain level.

But I -- we don't see that major reduction.

The other question was?

In terms of labor cost.

Labor cost, labor cost.

As you know, inflation in Brazil has been low.

And labor cost tends to follow that.

We had in 2015 -- 2016, something around 5% -- 5% to 6%.

Last year, 2017, was 2%, labor adjustment in average, to give you an idea on that.

And we still see inflation under control in Brazil and not increasing.

So we tend to see the labor cost should follow inflation rate, which is very low at this point.

So we don't expect that to be a major concern going forward.

Great.

And then if I could ask one more, in some of your more recent communications with the market, your New York City event and some others, I just -- I thought you sounded fairly bullish on the degree of regional jet campaigns and the potential for new orders there.

Obviously, I'm looking at a relatively small sample size of time, but there hasn't been anything announced since then.

Maybe just update us on that.

Are you still seeing as many opportunities?

Have some of them come and gone?

Or any explanation you can give as to either being stretched out, if they are even being stretched out.

Thank you, Nick (sic) [Noah].

So I think, last year, we had almost 1:1 book to bill.

Was a relatively good year, right?

So when you look to the other guys, who -- I believe we were the best in terms of taking new orders.

That was very positive.

Going forward now, so -- and John will talk more about that when he makes his presentation.

But with the certification of the 190-E2 which occurred this month, and the first delivery next month, in April.

Of course, the dynamic will be a bit different.

So we have an aircraft that is delivering more than we had promised when we launched this program, fuel burn is much better, range is better.

So the performance of the aircraft, overall speaking, is such that the markets will appreciate as it enters into service.

Having said that, we are engaged in many campaigns, not only in the United States, which is our largest market now, if you see the last year, but very good campaigns all over.

So we are quite bullish going forward.

Okay.

Next question from the audience here.

Talking about Defense & Security.

What do you expect for growth opportunities in other revenues like radars, satellites, maintenance and like OGMA?

And what about the expectations for margins in these other revenues?

Well, overall speaking, I think the defense business is -- has a very good future.

When you look at the KC-390, the opportunities that it may have in the whole world, so it's going to be great.

So we are on time with the development.

So the first delivery is going to be this year.

In defense, you have to deliver the aircraft to your airport in order to have, right, market recognition.

That we have gotten there, right.

So the KC-390 is a very complex aircraft.

And I'm sure that as we start delivering to the Brazilian airport this year, the interest will be even greater.

So there are 2,700 C-130s in operation, 34 years old in average.

So it's a huge potential for the KC-390.

So I'm not saying that we will get all these replacements.

But if we get a portion of that, let's say 1/3 of that, right.

So it's going to be great.

It's going to be really something that will boost a lot of the defense business.

And we have this -- the opportunity to grab the sales, went for it.

So the interest in the aircraft is absolutely fantastic.

So we are seeing a lot of governments -- like countries, more and more interested in seeing these aircraft.

These recent LOIs for SkyTech, I think was -- I'm sure that is a tremendous opportunity to showcase also the KC-390 to other countries since these -- SkyTech is not a leasing company but they are an operator of this type of aircraft for special missions, right?.

So it's going to be very important.

So the Super Tucano is an amazing aircraft.

So it's tested, it's in operation, it's doing absolutely fantastic for the countries that have bought it.

So look at the United States Air Force, they have bought for the Afghanistan operations, and they are very much involved in other projects.

And they're ones that, of course, everybody is looking for, especially us, is for the replacement of the A-10 in the United States.

They are an opportunity here, for maybe 300 aircraft.

And the U.S. Air Force like the Super Tucano a lot.

So I'm not saying that we will win, but we have definitely a great opportunity to make this happen.

So we are quite bullish on that.

On the other areas that you mentioned.

I think we have to be very realistic here, right.

So the other areas are more linked to the Brazilian budget at site.

So we have to see this in a way that we don't expect that there will be a big boost since we need the budget.

We need the budget from the government in order to enter into these new programs.

Having said that, I think there are some priorities that the government will have to make, like for instance, the second satellite, SGDC.

Since the first one was launched this year, and there is a huge need for this kind of right investment, right?

So because Brazil does need additional internet band, right, for that.

So I believe this will come.

So let's hope that, this year -- until end of this year, so the Brazilian government will take a decision on that.

So regardless, the new president, so this is an area that Brazil will have to invest.

And the Sisfron project will continue, maybe not in the same speed that we would like, but [right to] come.

And for the -- and for OGMA, I believe OGMA is set for growth because it's -- we are investing in OGMA.

So we are giving OGMA the opportunity to have more business.

So we are integrating OGMA more into the other business units.

So OGMA is set for growth.

So it's already like the profitable business, but now we have to grow.

So we are very optimistic of how we speak on defense.

I will stop here, because otherwise, [Jack] will not have other talks to present to you, okay?

Okay.

On the right side.

Next question from the audience.

Josh Milberg from Morgan Stanley.

I just wanted to go back quickly to the question of pricing.

I think that you had suggested in the recent past that perhaps one source of pressure there, not just on pricing, but also on profitability in 2018, could be the -- a special configuration of your E175 aircraft.

And I was just hoping you could kind of update us on what the situation is with that configuration, if you've already started delivering that aircraft and maybe what the magnitude of the impact could be in terms of margins?

Well, there are big opportunities in there, right, in the U.S., from 50 to -- up to 106, right.

So depending on the airlines, so they can go not exactly to the 76 seats, but they can go up to 70 seats.

So offering the 76 seater in a configuration that is -- have less seats is a good opportunity for the airlines to upgrade from 50 seats, right.

Or replace the old CRJ700 or E-jets 170, right, to more, right -- bring new aircraft.

So we believe that this strength may continue.

Of course, it depends also whether or not there will be more scope relief for the airlines to go straight to the 76 seats.

But we see, as of today, we see a very good opportunity to increase the number of the 175 in the United States.

So a big opportunity.

Did I answer your question?

Yes, I think so.

Maybe if you could just touch on the question of pricing?

Because our understanding had been that the 70 seater configuration does have a lower selling price and that, that in turn, might explain some of the downside to profitability in 2018.

And I was also just wondering if that had been a variable in -- behind your margin performance in the fourth quarter itself already?

No, no.

Not at all, and for 2018, so our margin in Commercial Aviation will be a little bit lower, why?

Because we are in a transition period, right.

So we are moving from E1 to E2 gradually, right?

And we have the ramp-up cost.

So we have the introduction cost of the -- right, of the E2, but as far as the 175 is concerned, so margins are good.

Okay.

I just understand that in addition to the ramp-up of the E2, that this configuration could also be a variable in -- but you're saying that it's not that product.

It's not.

Okay.

Another one on the left side.

This is Lucas from Banco Safra.

A more broad question on my side.

Have you guys received any change in the commercial behavior of Bombardier after the deal with Airbus?

And is this positively affecting commercial aircraft prices already?

Well, the announcement by Airbus and Bombardier, that moment was very important, right.

Because, first of all, it validated this segment between 100 and 150 seats, right.

So definitely was a big validation by Airbus that it's an important segment and that Airbus should be there, right.

So this, of course, is bringing more interest from the market in general.

That's why I mentioned before here that we are seeing more activity and we are engaged in very good conversations globally.

We can't see yet any change because Airbus cannot work with Bombardier now.

So they have to wait until all the authorities in many countries clear the deal, right.

So they're -- contact first authorities.

So I think, so far, only Germany has cleared.

So it's still missing many others.

And of course, other steps as well going forward so I believe on -- in the third -- on the third quarter or so this year, that Airbus and Bombardier will do a joint effort, right.

So, so far, business as usual.

More interest from the market.

The 195-E2 -- especially the 195-E2 is being perceived a very efficient, right, aircraft.

And so we are very bullish on this segment.

And John will elaborate more on that.

Okay.

Now we'll take our final question from the phone.

The final question comes from Victor Mizusaki, Bradesco.

Victor, your line is open.

I have 2 questions here.

The first one is a follow-up on the sales campaign.

Can we assume that the negotiation with Boeing will likely delay any big announcement in the short term?

And the second question.

With regards to your -- the impairment of $54 million in executive aviation.

I don't know if you can give any color on this.

And what would be your operating margin in executive aviation in Q4 if we exclude this impairments?

Okay.

For your first question, no, it's not -- we can't say.

So it's -- we don't know, right.

So we don't know.

So we -- I think what's important is that other parties are working very hard to have an outcome, right.

An outcome as soon as possible.

So all the party involved, so they understand the need to have an outcome as fast as possible.

From our side here, we don't want to go too long on that.

We do recognize that a solution for that or an outcome -- so because we don't know if it's going to -- if it's going to be happen or not.

So it's not possible to, right, say this at this stage, but we are working hard to have, as I said, an outcome very soon.

And Victor, regarding the margin on Executive that you asked, we -- this margin would breakeven that we set for 2017 was already not impacted by impairment.

For 2018, like we said, we expect in the low single digit for Executive Jet.

And we have to take into account that we are not considering the service revenues on the Executives for 2018.

Now we separate that, so only Executive itself low single, that's we expect for 2018.

There's still work being done.

As you know, we have a new leadership in Executive Jets since the first quarter of 2017.

So adjustments have been made.

And as I already pointed out about the reduction in selling expenses, which is not prioritizing what to do, focusing more how you spend in terms of commercial -- sorry, selling expenses and marketing activities.

So we believe that's going to be an improvement if we compare that also with the past, and adding that we expect the market to start to be better going forward.

That's basically, the points for the margin.

Okay.

But Filippo, and do you -- and this is specifically the body impairment, this is something related to the intangible of -- I mean, is that the aviation?

Or let's say, this is a write-off of inventory?

No.

That was related to assets associated to Legacy 650, that in terms of how we see the projection of sales and manufacturing of that aircraft, we had to do the calculations, and we returned to a negative net value.

So had to write-off, it is an impairment, this is same as the write-off of the assets associated to the specific program.

That's what happened.

Okay.

I think that concludes our fourth quarter 2017 earnings call.

I want to thank you all over the phone.

For those in the audience, we are going to follow with the individual presentations after a short break.

Filippo, do you want to have any comments?

No.

Thanks again for everybody that joined us in the call.

And we'll continue here with the others.

Thank you.

Okay.

Now short break.

10-minute break, and we'll start the presentations right after that.

Thank you.