Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's First Quarter 2019 Results. Thank you for standing by. At this time, all participants are in a listen-only mode. Later 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 is being recorded and webcasted at ri.embraer.com.br. 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, 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 obligations 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 in this conference call might not occur. The company's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference call are Mr.

Nelson Salgado, Executive Vice President, Finance and Investor Relations; and Mr. Eduardo Couto, Director of Investor Relations. I would now like to turn the conference over to Mr. Nelson Salgado. Please go ahead, sir..

Good morning, everyone. We start our presentation at Slide 4 talking about business unit highlights first on Commercial Aviation. We delivered 11 new jets in the first quarter 2019, including the first delivery of E175 jets in Africa to Mauritania Airlines.

In terms of new E175 sales, the American Airlines SkyWest signed an additional front order for nine E175 jets, reaching an interesting mark of 158 orders since 2013. From this, 147 aircraft have already been delivered to SkyWest.

Excited about E2 program, we have a very important result in the first quarter [indiscernible] not to what happened last year we deliver 90 E2 -- deliver 95 E2 was granted Triple Certification by ANAC, FAA and EASA with first delivery to our school from Brazil, U.S. and Europe.

With the first delivery of the E195-E2 to Azul Airlines is expected to happen in the first quarter of 2019. And finally regarding E2 new sales, the Nigerian carrier Air Peace placed an order for up to 30 E195-E2 jets. And this was our first E2 order in Africa. Moving to Slide 5, highlights of Executive Aviation.

We have delivered 11 Executive jets in the first quarter. And important to say, we sold more than $300 million in new jets during this period. This was our best first quarter results in terms of our sales in the last three years.

Embraer was also very proud to deliver the 600th Phenom 300 aircraft, the only business jet to achieve this milestone in the last 10 years. This is a real proof of the huge success of the Phenom program and its ability to deliver superior performance technology and comfort to our customers.

Finally, talking about our most recent launch, we announced in the first quarter that PRAETOR 600 was granted its type certificate by ANAC, the certification authority from Brazil.

And thus became the only super-midsize business jets to be certified since 2014, very important to say that with the certification and the last flight tests, we are very happy to announce that the Phenom, the Praetor 600.

So there should all mainly the line goes and including a range that goes beyond 4,000 nautical miles being able to make most of flights between London and New York, Sao Paulo and Miami, Dubai and London. Customers have already noticed the superior performance of the Phenom 600 and Praetor 600.

And we're happy to announce that the Praetor sold out until May 2020, with first delivery referring now in the second quarter of 2019. Next slide is Slide 6, we move to Defense & Security. The KC-390 program continued its preparation for entry into service with the Brazilian Air Force in 2019.

Flight test campaign exceeded 2,000 flight-hours with focus now on the military missions. The aircraft has successfully accomplished two important airdrop, gravity series of tests in Brazil and in the U.S.

As far as new programs, the Consortium Águas Azuis formed by Thyssenkrupp, Embraer and Atech was chosen as a preferred supplier to use four new ships to the Brazilian Navy. And finally two A-29 Super Tucano aircraft were delivered to the Light Air Support Program (LAS) of the U.S. Air Force in the first quarter of 2019.

Moving to Slide 7, with highlights of our Services & Support, we continued to expand the Services & Support business with revenue and profitability growth. In the fourth quarter, the first quarter of 2019, we added to our pool program, new customers with the new E1 operators, including WDL Aviation, Mauritania Airlines and Air Botswana.

We have also added new E2 operators to our Services & Support base such as Air Astana from Kazakhstan and Binter Canarias from Spain. Moving now to the financial results. We'll start in the Slide 9 with few order backlogs that reached $16 billion at the end of the first quarter.

This is slightly down the value at the end of 2018, but significantly above the value that we registered in the first quarter of 2018, which was $13.6 billion. We reaffirm believe the trend of recovery in our backlog.

As far as deliveries in the Slide 10, in Commercial Aviation, we have first quarter with 11 deliveries versus 14 mixing period last year. This does not impact our guidance for the year, which remained 85 to 95 deliveries in 2019. Just as an additional information, in April alone we delivered nine additional jets.

On Executive Jets, we had 11 planes delivered in the first quarter, same number of last year with eight small jets and three larger jets. Important to say, we anticipate a stronger these jets deliveries in the rest of the year, especially with the entering to service of the Praetor 600 that will happen now in June.

Here also we reiterate our guidance of 90 to 110 deliveries of Executive Jets in 2011. Moving now to Slide 11, which shows our revenues in the period. Consolidated revenues declined to $822 million in the first quarter of 2019, relatively to first quarter 2018. And this reduction was mostly driven by lower commercial jet deliveries.

And this is broken by $281 million in Commercial Aviation; $117 million in Executive; $179 million in Defense & Security and $244 million in Services & Support. In the Slide 12 we present our SG&A expenses, which are very much stable compared to first quarter 2018.

We had $116 million in expansion broken by $46 million in G&A and $72 million in salary expenses. Moving to Slide 13, we present our adjusted EBIT. We reported a negative EBIT of $15 million, implying a negative 1.8% EBIT margin.

This EBIT margin includes the additional separation costs for the carve-out and preparation of continuation of the transaction with voluntary by the end of the year. Important to remember that in the first quarter the results were negatively impact by lower Commercial Aviation delivers that we expect to recover in the next quarter.

As I already mentioned, in April alone we delivered nine additional jets. We maintain our guidance of breakeven a bit for the company in 2019, remembering again the business lead to separation costs associated with the carve-out of our Commercial Aviation group.

Moving to Slide 14, we reported EBITDA of $31 million with 3.8 EBITDA margin, driven by the similar reasons we already explained in the operating results. Next, Slide 15, we show net income.

We reported an adjusted net income, excluding the impact of deferred income tax of minus $62 million, affected by the weak operating results that are normal in the first quarter. Slide 16 represent our investments, which amounted to $102 million broken by $9 million in research, $65 million in development and $28 million in CapEx.

Different from last year, in this quarter, we did not receive any contribution from mix share impact. Next slide is Slide 17, represents our free cash flow.

Embraer had a free cash flow consumption of $665 million in the first quarter of 2019 with $558 million negative coming from operations, $43 million addition to power property and equipment and $65 million addition to intangibles. Our free cash flow consumption is generally negative in the first quarter compared to first quarter last year.

We had $445 million negative in-spite of around $367 million of the contribution for these sharing partners.

In this quarter, the main reason for the growth of the consumption are first the higher inventories that again are normal in the first quarter as we prepare for higher delivery rates in the rest of the year, especially here in Commercial Aviation.

And second, by lower payments from the Brazilian Government in some of our defense quarters during the conference. This amounts to around $100 million, which we did not receive. Moving to Slide 18, we highlight our indebtedness profile. Again 92% of our total debt remains in the long-term with an average maturity of 5.3 years.

We closed the first quarter with total cash of $2.48 billion and the total debt of $3.59 billion, implying a net debt of US$1.1 billion. We announced guidance for the year that with the closing of the transaction, we intent to pay $1.6 billion in extraordinary dividends to our shareholders.

And stack life with new Embraer with the $1 billion net cash position after close. This result there arguably subjected to result that we will have throughout the year, but we feel confident that we will get there. And we will keep you posted on this as next results come.

And finally, moving to Slide 19, our final configurations and further remarks, I would just like to mention that Embraer had announced Francisco Gomes Neto, the former President of Marcopolo as our new CEO and President. And that was effective now in May.

Francisco brings a long experience from the automotive sector leading an important turnaround at market fall in the last two years. Francisco now investing in his integration at Embraer relating our main facilities, clients and suppliers, and he will join us in our next conference call.

Second, just a brief update on the Embraer-Boeing strategic partnership. We currently have ongoing interaction with several antitrust authorities in different predictions throughout the work and we keep working hard on the carve-out project so that we can separate the Commercial Aviation business.

We expect the transition to close by the end of 2019, obviously, that depends on our approval being obtainment on time. With that, we conclude our presentation. And we would like to open for questions..

[Operator instructions] [Foreign Language] Our first question comes from Ronald Epstein of Bank of America Merrill Lynch..

This is [indiscernible] on for Ron Epstein.

With respect to the recent 737 MAX issues, has there been a change in Boeing's commitment to the Embraer partnership? Do you see this effecting the timing of the deal close?.

No. There is no relation between this and the strategic partnership between Boeing and Embraer at all..

And one more if I could. Volume was a little light in the quarter, but gross margin was solid.

What's driving the better gross margins at these low volumes?.

I did not understand the question please..

Revenues were little light in the quarter, but gross margin was solid and strong in the quarter.

Can you talk a little bit about what's driving the better gross margin?.

That was driven why Services and Defense that’s have the good growth margin in the period..

The next question comes from Cai von Rumohr, Cowen and Company..

So Nelson, you had very good book-to-bill in your biz Jet business.

Can you first give us a little bit of color of what product, what geographies are particularly strong? And secondly, given the very strong orders you had, how come the deliveries were as weak as they were?.

So thank you Cai. The market in the U.S. remains the most important market for the new job deliveries. We have these 11 deliveries, which are normal for the quarter..

We’re still not delivering the greater..

And the sales, I believe, were mainly by the Praetor 600, which we only start to be delivered in the -- after June, but one that the first delivery, obviously, the Phenom 300 remains a strong player, right. And we remain focused by the next month.

But I would say that the breakers are the big driver for the additional sales and delivering the longest stack by the end of the year..

If I may add Nelson, it's so do hear Cai, it's important to say that we're better sold this year on business jets than we were last year at the same time. So we are confident in our guidance of 90 to 110 deliveries and that is reflected in our amount of sales..

And last question, Commercial aircraft orders, what impact has expected Boeing JV venture had on demand for the product? Have you seen greater interest as result of that or maybe a delay until people see that the deal actually goes through? What impact has that had on you commercial orders?.

I think the last part of last year, right, we saw since the air show, we announced mainly new orders. And with these new orders converted into contracts has the slow down a little bit that the interest in the market is very high. There are lots of companies going on.

We cannot say for sure how much of this is really influenced by the announcement of the deal. But it is just market dynamics. But we can confirm that there are lots of companies going on, lot of interest in the product..

Our next question comes from Augusto Ensiki, HSBC..

Firstly, you mentioned about the Praetor 600 [Technical Difficulty] after May 2020. Could you tell us how many units approximately that represents? And secondly, and sorry if this is already discussed during the call, the onetime item regarding impairments in the quarter as well as the JV costs, transfer the quantify how much those were? Thank you..

At the Praetor 600 delivery has included have around 15 deliveries, right, and this lead to increase as we move to the next year. As we said, the first open position for deliveries around May next year.

Can you repeat the second part of the question please?.

Sure. Thank you for that.

The second question was regarding the imperilments on the E-Jet portfolio? And the separation costs that you have in the quarter, obviously, can give us exactly breakout how much each of those were separately?.

Yes. We have some regular imperilments in the Commercial Aviation aircraft but nothing different from what we generally register at the end of the year. In the Aviation, [indiscernible] there is none..

In terms of the separation announcing costs?.

On separation costs, we had around $12 million required integration costs during this quarter.

Just one follow-up on the separation costs. I think you've previously mentioned -- you'd guided about $1.2 billion separation costs, including taxes. Is that estimate still hold? Or you said that there might be additional savings on that figure? Just give us an update..

We estimate two goals, but we're already working very hard to getting that number down..

Our next question comes from [indiscernible], I’m sorry [indiscernible]..

Two questions here. The first one, I don’t know if it's possible, but I categorized [indiscernible] margins per division in the first quarter. And the second one, I just wanted to take a look into [indiscernible] on quarterly basis. We can see an increase.

So I would like to understand how much it came from Commercial and how much came from Executive Aviation?.

Regarding the first part of the question, we're not disclosing EBIT by business. But what we can tell you is that when we look at the results for the business that is being separated, be it Commercial Aviation and related services, that margin was approximately low, and the margin for Executive, Defense and related services was around 2.5 negative.

Can you repeat the second part of your question..

With regards to inventories, I mean, you can see an increase in the first quarter if you compare with Q4. So I would like to have a better sense, how much it related to Commercial Aviation and how much related to transact innovation..

You are asking about the increase in inventories during the first quarter? Is that your question?.

Yes..

Yes.

I will say that 70% of stats is associated to Commercial Aviation to under less exact [indiscernible] which again normal at this point of two year, right?.

The next question comes from Turan Quettawala, Scotiabank..

I guess, I was wondering you mentioned that the used Jet sales were lower in the quarter over last.

So can you just give us some reasons as to why that happened this year?.

No. Sales in Commercial, I think were lower than the last part of last year like we announced contracts for many things that we had previously announced that the actual, right. And there were not as many announcements during this first quarter in Commercial Aviation although as I mentioned, we have lots of campaigns going on.

But in Executive Aviation on the other hand, I think we had our best first quarter in sales for the last two years, which is mainly an impact of Praetor 600 and 500 coming to the market later this year..

Now talking about the used jet sales that you said were lower in the quarter, revenue from used jet sales and Executive Aviation?.

We mentioned that in the press release, but it’s a small amount. So we didn’t have that mainly deliveries in the first quarter. So we also even fell that many used jets, but it's within our important. Important number is the new sale about business jet that was very solid in the first quarter as we mentioned about $300 million in these sales..

And I guess just last question here from me. I was little surprised to see the deal the SkyWest order, you have deliveries that are going this year.

Can you give us a sense of how many open spots you have on Commercial Aviation for the year?.

No. For the year all the positions are from -- I'm not open ….

Our next question comes from George Ferguson from Bloomberg..

Can you speak to how much the U.S scope clause negotiations could be slowing down orders for commercial jets? I know, it is underway right now with pilot negotiations and they're trying to take some of that scope clause. And I’m wondering if that is having effect on commercial jet sales..

We have a strong demand for our current season 25 [ph]. We're not seeing our business in terms of scope negotiation. But we think this is something positive for us because we have a very dominant product in the segment that has conquered more than 80% of market share in this segment.

So we're not feeling really a lot of movement, but we think this is positive for us..

The next question comes from [indiscernible].

I was just wondering if you could clarify how much that you plan to transfer to the JV, and if that include the existing bond?.

Yes. That includes all the bonds basically when we transfer all the bonds and increase a little amount in cash..

Our next question comes from Gabriel [indiscernible], CPN Investments..

I was just wondering if you guys could clarify a little bit more about the matter of the new KC-390 being produced in the United States?.

I think the important point here is the partnership with Boeing for the KC-390, which is part of the strategic partnership that we hope to close by November of this year. The JV main objective is to open up new markets for the KC-390.

The industrial footprint of the KC-390 will depend on the customers that acquire the aircraft that will be flown through the JV. We have a finance friendly here in Brazil, which if it is not necessarily the aircraft will be delivered regularly from the [indiscernible].

So the main objective, the partnership is not to send their aircraft outside of Brazil, is to sell more aircraft to markets in which we could not bet.

This atomic point as these new sales demand that we have some industrial activity in the U.S., then we will consider and the JV will consider how to do that, but again it's not the main objective of the partnership..

[Operator Instructions] This concludes today's question-and-answer session. I would like to turn the conference over to Mr. Nelson Salgado for his final remarks..

Thank you very much for your participation in our conference and the questions. Thank you..

That does conclude Embraer's audio conference for today. Thank you very much for your participation. Have a good day..