Sign up  |  Log in

Embraer (ERJ) five year holding period

zerohedge wrote:

That’s where our perspectives diverge. If you want to go from the South to the North of France, you are most likely looking at railway tickets; if you’re going from London to Prague you’re looking at low-costs; for unpopular long-distances, you have some national carriers that are occasionally flying Embraers. The US is a different market. We’re comparing pears with apples. Key to our discussion is which model will be adopted by the growing economies. The European experience suggests flourishing companies are operating 200+ capacities, while the Embraers operators are on the verge of going out of business.

I admit the Embraers are a better choice compared to 737/A320; hence my overall bullish sentiment.

The record profitability was one timer; now everything is back to normal with capacities/guidance going down (rode $SAVE from $40 to $55 myself). Talking about American Airlines – what was the capital structure over there once again? I am bearish on oil too. Didn’t jump back on US airlines mostly due to the poor signals coming out of the latest earnings. Might be missing something. You will tell me.

The Monte Carlo was about semiconductors (dont like what the market is implying). Airlines are a different story.

Thank you for answering my questions. I will most likely add some shares on a trend reversal.

What are you even talking about the high profitability was one time?  Blue chip airlines have seen three straight years of surging EBITDA 3-4x above normal levels with 2017 consensus expected to hold level for all North American airlines.  Clinging to the fact that AA is BB rated (and the lone major US carrier not IG) like it’s some kind of vindication demonstrates how flimsy your argument is.

You’re still not getting it, the seats has nothing to do with distance.  It has to do with route volume, airport size and network.  They just flew a CS100 across the Atlantic a week ago to begin planning to open a 40 passenger route direct from London City to New York.  Bombardier specifically had that route in mind when they designed the plane.   Saying the E2 is better than a 737 literally makes no sense.  They’re completely different aircraft for different markets.  Both of which are necessary and popular.  Because a route is not “as profitable” as another route doesn’t mean it isn’t profitable, regional airlines have been operating those for decades.  You can’t operate Southwest with E2’s or 787’s and narrowbodies continue to outpace widebody sales over the past few years with the 737/A320 being the most popular models in the world (Europe included).  By implying the failing airlines are all using regional and narrowbody jets as a differentiating factor, you’re just saying non-sensical things at this point.  The strongest airlines all operate the largest narrowbody aircraft fleets.  

British Airways just announced a push further into long range narrowbody service last month and long range narrowbody jets orders have been rising while widebody have almost completely ceased with production cuts beginning to take place at BA and Airbus.

Then of course there’s the fact that 40% of their current backlog is evenly split between Europe and Asia.

This is Boeing literally three months ago on the future demand need in parts of Asia:

“As for the Oceania market, Boeing expects that it will need 1,020 new aircraft valued at $160 billion over the next 20 years. They will be comprised of 800 single-aisle jets, 130 small widebodies and 90 medium-sized widebodies. It also sees no demand for large widebodies in the region.  “Clearly we think that the single-aisle airplane is going to be the major airplane in the market there, said Keskar.”

Then there’s this article from a quick google at home:

http://www.asianaviation.com/articles/378/Asia-drives-regional-aircraft-...

The point here being that literally no analyst or aerospace firm in the universe of analysts is saying there is no future need for regional jets in Asia.

#FreeCVM #FreeTurd #2007-2017

Automate your Excel models with the industry's most accurate financial, market and economic data.

Worth reading the Commercial airline deck if you need to:

http://ri.embraer.com.br/listgroup.aspx?idCanal=Nhqvlo6cT0TV9wfjLtVtLw==

#FreeCVM #FreeTurd #2007-2017

The savings from the jet fuel are given back to the consumer and airliners are currently in a price war. Aren’t the fares at record lows right now? Fingers crossed AA will make it to IG as all pension funds are around the corner :) 

I am comparing E2 to 737/A320 as they are of similar capacity. Yet, the Embraers are cheaper. Indeed, there’re a lot of Embraers flying across Europe even at the moment.

If your logic is correct and North America renews its fleet while the Chinese/Japanese continue making their planes, isnt a safer bet to go for avionics rather than ERJ? Or is this a value thesis, exploiting the Brazilian factor?

I checked ERJ’s latest presentations before starting this conversation.

zerohedge wrote:

The savings from the jet fuel are given back to the consumer and airliners are currently in a price war. Aren’t the fares at record lows right now? Fingers crossed AA will make it to IG as all pension funds are around the corner :) 

I am comparing E2 to 737/A320 as they are of similar capacity. Yet, the Embraers are cheaper. Indeed, there’re a lot of Embraers flying across Europe even at the moment.

If your logic is correct and North America renews its fleet while the Chinese/Japanese continue making their planes, isnt a safer bet to go for avionics rather than ERJ? Or is this a value thesis, exploiting the Brazilian factor?

I checked ERJ’s latest presentations before starting this conversation.

Fares are actually not at record lows after hiking through 2015 and most of 2016 and load factors are high showing good capacity restraint.  So that’s just generally false.  Asia’s seen some pressure but North America in particular is actually seeing a good period of strength.  Not sure where you got that impression.  The pension fund point is a non point, particularly with rising rates.

E2 capacity ranges from 80 to 130, 737 is from 160 to 250 in most configurations.  They’re completely different classes, one’s a regional jet and one’s a large narrowbody.  Embraer’s are cheaper because they’re a different, smaller plane. 

ERJ is a better value hands down.  You’re making money off of Brazilian optics and the cycle of their development.  Avionics names have a lot of widebody demand risk that isn’t priced in.  

If you checked the presentations, I’m not sure how you made so many obvious misstatements about the geography of their order book, model lineup and aircraft market.

#FreeCVM #FreeTurd #2007-2017

BS takin em to church yes love it when he gets a little fire going

'A flute with no holes, is not a flute. And a donut with no hole, is a danish'

Black Swan wrote:

Fares are actually not at record lows after hiking through 2015 and most of 2016 and load factors are high showing good capacity restraint.  So that’s just generally false.  Asia’s seen some pressure but North America in particular is actually seeing a good period of strength.  Not sure where you got that impression.  The pension fund point is a non point, particularly with rising rates.

E2 capacity ranges from 80 to 130, 737 is from 160 to 250 in most configurations.  They’re completely different classes, one’s a regional jet and one’s a large narrowbody.  Embraer’s are cheaper because they’re a different, smaller plane. 

ERJ is a better value hands down.  You’re making money off of Brazilian optics and the cycle of their development.  Avionics names have a lot of widebody demand risk that isn’t priced in.  

If you checked the presentations, I’m not sure how you made so many obvious misstatements about the geography of their order book, model lineup and aircraft market.

2015? As far as I remember the first hikes were announced in late 2016, around the time I jumped in. Load factors vary between airlines; admittedly quite impressive recently but there you’re bounded from above and only way now is down (so two blades edge).

737 ranges from 85 to 215; the one in the 160+ space might be more common due to strong competition from ERJ and Bombardier / lack of efficiency of flying such aircrafts, but 737 is definitely a competitor.

I was not referring to the current book, but rather new orders opportunities. Plus, as far as I remember the cancelations are a big risk to this particular industry. Anyway, I bought a chunk, might add if it goes lower / bulls take over

zerohedge wrote:

Black Swan wrote:

Fares are actually not at record lows after hiking through 2015 and most of 2016 and load factors are high showing good capacity restraint.  So that’s just generally false.  Asia’s seen some pressure but North America in particular is actually seeing a good period of strength.  Not sure where you got that impression.  The pension fund point is a non point, particularly with rising rates.

E2 capacity ranges from 80 to 130, 737 is from 160 to 250 in most configurations.  They’re completely different classes, one’s a regional jet and one’s a large narrowbody.  Embraer’s are cheaper because they’re a different, smaller plane. 

ERJ is a better value hands down.  You’re making money off of Brazilian optics and the cycle of their development.  Avionics names have a lot of widebody demand risk that isn’t priced in.  

If you checked the presentations, I’m not sure how you made so many obvious misstatements about the geography of their order book, model lineup and aircraft market.

2015? As far as I remember the first hikes were announced in late 2016, around the time I jumped in. Load factors vary between airlines; admittedly quite impressive recently but there you’re bounded from above and only way now is down (so two blades edge).

737 ranges from 85 to 215; the one in the 160+ space might be more common due to strong competition from ERJ and Bombardier / lack of efficiency of flying such aircrafts, but 737 is definitely a competitor.

I was not referring to the current book, but rather new orders opportunities. Plus, as far as I remember the cancelations are a big risk to this particular industry. Anyway, I bought a chunk, might add if it goes lower / bulls take over

The current book do represent the most recent orders.  It tells you what the people who actually have a clue and not L3 candidates are actually buying and from where.  It also tells you where the experts see the industry headed since these things have a 40 year asset life. 

While the 737 CAN be laid out as low as 85, literally not one airline in the world operates them that way because it’s completely uneconomical.  Which is why I clearly stated 737 is operated >160 in most configurations.  So talking about 85 seat configurations because of a google search you made just shows how clueless you are.  It’s not a competitor because there are literally no airlines buying 737’s in lieu of regional jets.  The last blue chip airline to do that was Delta.  They literally fired those executives and the first thing the new team did was cancel the order, citing the inefficiency of the 737 for regional service and begin the renegotiating process with Embraer and Bombardier.  There are also things like union regulations that stipulate a number of aircraft for each size that can be operated by each airline that you’re not even accounting for.

First hikes were in 2015:
“In 2015, various airlines initiated five fare hikes but only two were matched by the country’s largest carriers, according to Farecompare.com.”

http://time.com/money/4233599/airlines-airfare-price-increase/

At any point in this discussion have you actually had an idea what you’re talking about?

#FreeCVM #FreeTurd #2007-2017

From now onwards we can only hope that everything you said is correct and everything I’ve pointed is nonsense. Lets see these 1160 deliveries in Europe alone by 2035.

On the bright side, I needed some tax credits to offset the capital gains from my own stupid, senseless, ridiculous positions :)

I had to sell one of my kidneys due to this position! 

'A flute with no holes, is not a flute. And a donut with no hole, is a danish'

avg down bros

"You want a quote? Haven’t I written enough already???"

RIP

zerohedge wrote:

The Monte Carlo was about semiconductors (dont like what the market is implying). Airlines are a different story.

what did you take away on semis? I jumped out of them last Oct/Nov was holding NVDA from 25 in 2015 and jumped out at 85 in October i think as it seemed the market had priced in a ton of growth and execution would have had to be perfect. Was a little early but looks like things are cooling off

'A flute with no holes, is not a flute. And a donut with no hole, is a danish'

yeah im getting crushed from this position BS the Bser.

Well hell, I’m waiting to see what they add on the earnings call.  My guess is they pulled a deliveries into 4Q to hit their YE #’s and had a steeper than typical fall off (1Q always seasonally low) especially in the business jet segment.  Mix was weak too with a lot of small jets.  If it helps, I got hit hard on a large position but at this point I’m in set and forget mode for the long haul unless something changes fundamentally.  

#FreeCVM #FreeTurd #2007-2017

yea i added a bit today to avg down. Still relatively small portion of my portfolio so not overly concerned and willing to add based on what they come out with and how they perform

'A flute with no holes, is not a flute. And a donut with no hole, is a danish'

The action was quite strange. It went up premarket just after the figures came out. Feeling comfortable I moved on. On the second check, it was down more than 2 standard deviations while a brokerage house releasing a price target at $27(BS, was that you? :) Later MS set at $23). At that point it was hard to make a decision. A few takeaways:

  • BS said it is a long-term investment and we should treat it as one. The macro is improving with the FED about to start unwinding its balance sheet. It will flatten the yield curve and corporate borrowing will continue (although longer duration will be riskier). Demand for oil is weak; OPEC got their act together but for how long?
  • Results show how vulnerable/irrelevant the mighty backlog is. Indeed, at this point Embraer looks like a safe/value bet, but jumping solely on bookings is hardly a wise move. The deliveries, although weak, follow the downward trend seen recently. No drama here as long as our sell-side friend is correct with regards to the upcoming fleet replacement in the US.
  • Usually I don’t look for triangles and rectangles on the charts, but bear momentum seems strong at the moment. Put the political uncertainty in Brazil back to the equation and current levels doesn’t look like a hard bottom. Hence I wouldn’t recommend purchasing at this point. Buying on catalysts rather than weakness is better in my eyes.

Yayyywork wrote:

what did you take away on semis? I jumped out of them last Oct/Nov was holding NVDA from 25 in 2015 and jumped out at 85 in October i think as it seemed the market had priced in a ton of growth and execution would have had to be perfect. Was a little early but looks like things are cooling off

Playing the automotive with German’s Infineon as a top pick; holding $MU and a really small position in $NVDA (Love the company; bullish in AI/AR, but current risk/reward is terrible. Might buy on weakness). Hedged with shorts on the equipment makers ($UCTT, $ICHR). Market is indeed pricing a ton of growth across the whole industry, but it seems justified.

yea I think GPUs are/have certainly been getting a lot more love lately. I do like them over the next 2-3 years but after catching ~250% on them I felt the market was heavy and dont like to get greedy. Was certainly hurting when I saw NVDA at 115ish but still comfortable with my decision.  Was following MU for a while a year or so ago but never found a time I was comfortable pulling the trigger, obviously would have been a good call couldnt miss with semis last year.

'A flute with no holes, is not a flute. And a donut with no hole, is a danish'

The difference with backlog is that they each come with scheduled delivery dates and many of them are second generation aircraft that obviously can’t be delivered until they’re ready for manufacturing.  So it won’t be surprising to see deliveries fluctuating based on those two factors, particularly until 2018 (new gen) deliveries really start to kick in.  Also 1Q is typically the weakest with about 1/2 to 2/3 as many deliveries as 4Q.

Also if you map CRB index over Brazil GDP YoY growth you wind up with a very high correlation and a bottom that appears to have occured in 4Q15 with 1Q17 growth likely to post just a hair below break even.  This with government spending reductions (so not stimulus driven).  Plus first job adds in brazil in two years just occurred and QE taking place in BRL.  

That being said, I don’t want to push this one too much harder right now given that I’m already in the hot seat.  I have a pretty large position locked in for the long haul, (although only down a few percent), so for better or worse I’m along for the ride.

#FreeCVM #FreeTurd #2007-2017

"You want a quote? Haven’t I written enough already???"

RIP

igor555 wrote:

http://finance.yahoo.com/news/boeing-plans-more-layoffs-affecting-hundre...

Clearly can’t stand the competition of the mighty Embraers! Next! :)

Black Swan wrote:

ERJ is a better value hands down.  You’re making money off of Brazilian optics and the cycle of their development.  Avionics names have a lot of widebody demand risk that isn’t priced in.  

the widebody cycle is in late cycle while regional narrowbodies are just coming into play

narrowbodies continue to outpace widebody sales over the past few years

British Airways just announced a push further into long range narrowbody service last month and long range narrowbody jets orders have been rising while widebody have almost completely ceased with production cuts beginning to take place at BA and Airbus.

“As for the Oceania market, Boeing expects that it will need 1,020 new aircraft valued at $160 billion over the next 20 years. They will be comprised of 800 single-aisle jets, 130 small widebodies and 90 medium-sized widebodies. It also sees no demand for large widebodies in the region.  “Clearly we think that the single-aisle airplane is going to be the major airplane in the market there, said Keskar.”

#FreeCVM #FreeTurd #2007-2017

downgrade =/

"You want a quote? Haven’t I written enough already???"

RIP

I think this post is still best summary of the risk on the name:

Black Swan wrote:

IsThereAny wrote:

What’s the biggest risk here BS? Delayed production? Lower than expected demand? FX?

Is the Brazilian government’s defense spending cuts not going to continue to suppress growth? 

The biggest risk would be a major collapse to commercial aerospace which is late in the cycle.  This is where it gets a little nuanced though.  ERJ and Bombardier build these <160 seat regional aircraft while BA and Airbus build above that.  The >160 seat space is very late in the cycle and most demand has been filled with orders that are now sitting in backlog.  However, back of the envelop, I’d estimate only about 1/3 of the regional order books have been filled, making the <160 seat still early in the cycle.  The way this works is, with the growth that’s been expected, most of the emerging market airlines (primarily Asia) have built out their primary routes between major hubs and are now filling in the cracks off of those hubs (regional jet market).

The biggest threat would be a widespread collapse in Asian and emerging market airlines so complete they can’t spend the CAPEX to fill in those cracks or in which they go under all together.  It’s not a completely benign risk.  That being said, ERJ caters more ot the developed market and blue chip airlines (think Americas and Europe) with a premium product, so barring a DEEP cycle in the >160 seat space, I don’t think their order books will be overly impacted, especially with the recent protectionism that will help keep EM airlines from pushing excess capacity into developed markets at subsidized rates.  

Development risk is more or less in the rearview mirror at this stage.  Delayed production seems like a miniscule risk as well for several reasons.  First, this was not a clean sheet design, with the E2 (their new generation of <160 seat jets which comes on in three models with entry to service in 2018, 2019 and I believe 2021 for the smallest model).  So they’ve already been producing a similar variant successfully in the past off the same assembly lines.  In addition, it uses the GTF engines which are made by the same supplier as the C series by Bombardier.  There were issues ramping this engine into full rate production that caused the C Series to be delayed in 2017, but expectation is for the C Series and GTF supplier to supply at full rate in 2018.  What this means, is the C Series created a nice trial run for P&W to work out the kinks in engine development.  So I don’t expect any major setbacks in either aircraft or engine production for the E2.  

FX is a pretty small risk as well as they’ve moved a lot of production to the US and Europe and transact primarily in USD with most debt USD denominated.

Defense as a whole is roughly ~15% of revenue (this is off the top of my head, so could be a little off), only a portion of which is to Brazil.  While they initially had to slow the development of the KC390 around 2016, Brazil seems to be on the up and payments are now up to date on KC390 development with deliveries about to take place and that development completed as well.  In other words, I don’t see the defense segment to be a major factor either way.  

Most of the price risk you see in this name simply comes from the fact that it’s a Brazilian domiciled firm which comes with a high headline beta.  If this firm were US based with it’s current backlog and dominant market position, I’d bet my left nut it’d trade in line with the low beta aerospace and defense market.

As a positive risk, there are signs of a very gradual tailwind finally forming in the business jet segment and after taking market share there steadily for the past few years in a down market, I would expect ERJ to see serious benefits if that segment saw any significant strength.

Let me know if that covers your questions.  In case you’re wondering, I’m up at 2am because my wife is out of town and I just finished binge watching Stranger Things.  Holy crap, great show, gotta get some sleep now.

#FreeCVM #FreeTurd #2007-2017

igor555 wrote:

downgrade =/

From BB:

Bradesco BBI analyst Victor Mizusaki downgraded the recommendation on Embraer SA to underperform from neutral.

Mizusaki lowered the target price to $18 from $22, implying a 13 percent decline from the last close. The target is 33 percent below the consensus average of $27 and matches the lowest in a Bloomberg survey of analysts. Embraer had 13 buy recommendations, 7 holds and 1 sell before today.

Investors who followed Mizusaki’s recommendation would have received a 31 percent return over the past year before today, compared with the -16 percent return on the shares.

Analysts raised their consensus one-year target price for the stock by 6.6 percent in the past three months. Forecasts range from $18 to $35.

#FreeCVM #FreeTurd #2007-2017

earnings out

"You want a quote? Haven’t I written enough already???"

RIP

I’ll preface this by saying I don’t know anything about industry but I came across this about the 190

“jetBlue Airways has joined many other US airlines in undertaking a comprehensive fleet review, but its reasons are different from those of its larger counterparts United and Delta, which are assessing their future widebody needs. jetBlue is focused on the opposite end of the spectrum, studying the future viability of the smallest aircraft in its fleet – the 100-seat Embraer 190.

The airline is reiterating declarations it made regarding the Embraer 190s earlier in 2017 to determine whether the unit revenue benefits it derives from their operation are worth the aircraft’s higher operating costs. jetBlue is the largest worldwide operator of the aircraft, and represents 33% of existing orders for the Embraer 190.”

I saw the JetBlue release and I think that’s a huge part of the weight on price right now alongside just a lot of broad weakness.  The JetBlue review is specifically around their fleet size, not the overall viability of the plane.  So they are reviewing their leases and new orders that would add to an already heavily outsized fleet.  One potential outcome is that their outstanding E190 order gets moved to an E2 order.  

Right now, admittedly the situation looks pretty rough with weakness across the board.  The biggest problem I see is that Boeing and Airbus have responded to widebody weakness by more or less dumping narrowbodies into the market and Bombardier is doing the same with the C Series.  These are planes that in a normal environment would never compete with one another, but instead because of bargain pricing driven by widebody weakness are now suddenly lumped together in consideration.

It’s interesting because its such a change of tone from last quarter.  I still think the fundamentals are there for the business jet market and nothing seems to have changed other than having a weak quarter.  Military demand for the KC390 still looks strong, although first deliveries won’t be until end of 2017.  That really leaves the E2 as the big question.  For me, personally, it’s the most common regional aircraft in service with a demonstrated track record and new model deliveries less than a year out.  It’s also not a significant credit risk given a cash position at 72% of total debt and free cash flow improving from ~(800M) TTM to a consensus estimate of ~ ($162M) in ‘17 and positive $82M in ‘18.  Right now, it’s been a deluge of negative sentiment across the commercial aerospace on the new order front but I’m personally still holding this one through the time horizon.

#FreeCVM #FreeTurd #2007-2017

OUCH…. time to buy more?

I’m already maxed in terms of position size for ERJ, CF and UAN so at this point I’m just riding this one along to see where it goes.  On the positive side, nothing fundamentally seems to have changed, but holding through these sort of drops is always uncomfortable.

#FreeCVM #FreeTurd #2007-2017

I’ve been debating whether or not to jump on this crazy train. Looks like today is decision day.

RIP bchad - the long-winded peacemaker of AF