Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's Fourth Quarter 2019 results. Thank you for standing by. [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 on 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. Francisco Gomes Neto, President and CEO; Mr.

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

Good morning, everyone. And thank you for all joining the call today. My name is Antonio Garcia. I am a brand new CFO and I will present the earnings results of Q4 and 2019 for the first time. I joined the company in January 2020. And my background comes primarily from the automotive sector working for German operating in Brazil went abroad.

I'd like to say a few words before we start the presentation. First, I'd like to thank Nelson Salgado, our previous CFO for a nice transition phase. And Nelson returning to operation is going to lead our team has our Chief Operation Officer.

Second, I decided to change my career in my personal life, coming back to Brazil, with my family after years of living abroad, because I truly believe in Embraer values in division for the future. I'm really impressed with what I have seen so far at Embraer. Embraer is a great company with a lot of opportunities, hard work and passionate employees.

My mission at Embraer is to help the company to extract its full potential with increased financial discipline and focus on cost. My pillars are found in people, cash discipline, and shareholder value. I have no doubts that together with our team, we are prepared to face any challenge ahead. Moving on to Slide number 4.

We found ourselves in a very uncertain times with the COVID-19 outbreak and its impact involving everyday risk to the global economy that continues to grow.

That's why it's important to say that the Embraer liquidity position is very strong, with a total cash of $2.8 billion at the end of the year, hence, an additional liquidity of $600 million raised now in March. We have less than 15% of our total debt coming due in the next 24 months. We have no mention of that principle payments until 2022, 2023.

And most of our debts has maturity that stretch out to 2025 and 2027. It's also important to mention that our average debt to maturity is almost five years.

Despite that, we are taking additional measures to preserve our liquidity, to preserve our cash, which includes [EBITDA] [ph] in production adjustment, extension of payment cycles, CapEx and expense reduction.

And we are all committed with the business continuity with the health of our employees, with our partners, customers, suppliers and in principle also protect the shareholder value.

Regarding Embraer and Boeing partnership, Embraer finished the carveout of commercial aviation business at the end of January successfully and we continue to work on satisfying the closing conditions for this transaction. European Commission has recently stopped the clock again after previously updated their deadline for June 23.

So we now expect their analysis to go past that date. To Slide number 5, with respect to the COVID-19 outbreak, we have a crisis committee at Embraer monitoring the development of the situation.

We have implemented contagious plans to act as quick as necessary as this pandemic continues if the measures being taken around the world into a slowdown the COVID-19 becomes persistent, this could be negative impact to their global economy and also our business.

Governments have already imposed measures like quarantine, flight and travel restriction and the restriction of movement between countries, all of which we expect to direct both the supply chain and demand side of our business. Embraer has already announced some measures such as a temporary shutdown of operating facility in Brazil.

They put the majority of its workforce in paid leave or working remotely. That said, given the level of uncertainty related to the spread of COVID-19, we are sustained our guidance for 2020 results. As soon as we have better visibility into the impact of the virus on the company business, we will issue an updated guidance to remark.

So let's talk some highlights of our business starting from the commercial aviation. Page number 6, for the commercial aviation, Embraer delivered on its guidance for the year with the total of 89 E-Jets delivered in 2019, which includes 14 jets from the E2 family delivered.

During the year, we booked a total of 69 [indiscernible] orders for American Airlines, Virgin, Skywest, United, Fuji Dream Beater and KLM and others. Our E-Jets E2 backlog ended the year with a total of 153 firm orders and more than 1570 commitments.

In 2019, we were proud that they the E195-E2 received a triple certification by ANAC, the FAA and EASA leading to the first delivery of this aircraft type to air cap in Azul airlines in September 2018. Finally, the smallest and newest member of the E-Jet family issue E2, the E175-E2 made it finally successful first flight. Page number 7.

Let's talk about executive aviation. So some highlights about executive activation. Executive aviation, we met also the guidance for 2019, we delivered 109 jets off which 62 were lighter jet and 47 larger jets. Important to say that we delivered all aircraft produced in 2019 and that's the year with zero [indiscernible] in our inventory.

During the year, we delivered the Phenom 300 number and 500 in its history. And we were pleased to have this model of jet leading the lighter jet category in deliveries for eight years consecutive. It's really amazing achievement. 2019 market a very good year for the executive jets business.

In terms of sales activity which was the highest in the past five years. We increased our margins for a strong price discipline. Our sales also includes a Phenom order contract with Flexjet worth $1.4 billion for a combination of Phenom 300, Praetor 500 and Praetor 600 jets.

During the year, our new Praetor 500 and Praetor 600 jets received certification for ANAC, FAA and EASA outperforming on several key performance methods further making the case that jets are the most capable technology developed is jets in their respective classes.

Also, we recently announced further upgrades, traditional 300 jet, including [indiscernible] second on enhancement as well as performance again to allow it becomes the first single pilot business jet ever to reach Mach clock 0.8. Slide number 8, Let's talk about the defense business.

The defense and security business which continue to transition from KC-390 product development phase to service production, which the highlights of the entry into service with the Brazilian Air Force with two aircraft delivered during 2019.

We were also pleased to welcome Portugal as the first export customer for these three C-390 Millenium version of this aircraft which were still in the order of 4, 5 medium lift cargo, transport planes and related services. This contract was included in our backlog in the fourth quarter of 2019 further diversify our business.

Thyssenkrupp [indiscernible] Embraer signed up a contract to The Brazilian Navy new commander air class warships.

We also signed a memorandum of understanding to start the initial study, which the Brazilian air force for joint development of a new allied military transport aircraft, illustrating that Embraer continues to consolidate its position of the defense for the Brazilian government.

We have expanded our work with the Brazilian Navy with some other air contract, adding to our existing strong position with the Brazilian Air Force and growing exposure to the Brazilian army. Slide number 9, highlights about our service and support business unit. We continue to grow the service and support business during 2019.

Signing new maintenance contract to support leasing companies commercial aviation and include increasing our MRO footprint for executive jets. We've recently announced expansion of our executive jet services Centre in Fort Lauderdale, Hollywood international airports.

Embraer services and support also expanded its training capacity for commercial and as it gets. As far as service and support says, we have the record sales for the defensive security, each of those in IT. In terms of fleet coverage, we had an important achievement with 100% of E2 toolkit in services covered by our total support program.

Primarily our [indiscernible] 2019 with increased services in the engine overall business. Talking and moving to the innovation technology Slide number 10. Embraer reached a significant milestone by availing its new flying vehicle concept. For the future urbans air mobility and tested a scale model mock up of the vehicle as well.

In addition, Embraer launches, a business partner for maintenance services, the aviation name is Beacon, with several customers started to join. [Indiscernible] also signed a cooperation agreement to work in electrical propulsion aircraft and Embraer's Crop Duster Ipanema. With that, the new technology during 2020.

Finally, Embraer and L3 Harris are studying a platform for a new air traffic control to support urban air mobility. So now it's back to the commercial results. We are starting with the corporate firm order backlog on Slide 12. Our backlog reaches $16.8 billion at the end of the year, which is roughly 500 million higher than we had at the end of 2018.

Strong year of sales in the executive jets, as well as a key contract sign up, the defense and security such as the contract is good to go for the C-390 night aircraft, leading to the increase in 2019 numbers. As we usually do with our fourth quarter results, we are showing the break out of our backlog.

With commercial aviation remains the largest contributor to our backlog, in value terms represented a 53% of the total, executive jets represents around 10%, defense is [5%] [ph], services and support 13%. Next is Slide 13. We presented the aircraft delivers starting commercial aviation.

As measured early, we met our 2019 guidance with a total of 89 commercial jets delivered and also meet our executive jet to deliver guidance with a total of 109 deliveries. To point out in the executive jets business, 2019 markets have solid growth in total delivery compared with 2018.

And our mix of delivery was also more favorable we delivered 47 large jets in the year. This is driven by the introduction of the Praetor 500 and Praetor 600 jet during the year. And we are also excited about the future for this best in class aircraft.

Moving to the next revenue, at July 14, 2019 revenue of $5.4 billion was lost within our previous disclosure guidance range and represented a growth compared to 2018 of almost 22%. Higher deliveries in the executive jet segment and better performance in defense and security were the main drivers. They grow in the year.

By segment, commercial aviation represented 41% of their revenue followed by the executive jets at 26%, service and support 19%, defense and security at 13% of revenue. Next slide. On Slide number 15, we presented SG&A expenses for Embraer.

Our continued effort to becoming more efficient have helped us to reduce our SG&A expenses in which of the six years some on the slide. Selling expenses in 2019 was $286 million, while general administrative expenses were $190 million in the year and we are continuing for efficient program to continue to reduce this number.

Moving to the operating result in Slide number 16, Embraer 2019 adjusted EBIT was negative $5 million was in line for guidance of approximately breakeven. These results do not include around 71 million impairment charge related to phase out of our legacy family, executive jets that was recognized in the fourth quarter.

But this number includes separation costs related to the carveout of the conversion of aviation business in preparation for the strategic partnership with Boeing of $120 million. If we adjust this separation cost, 2019, [indiscernible] would have been 115 million positive representing our margin is slightly above 2% for the year.

Our operating margin by business segment, exclude the impairment charge, the separation costs were positive 1.2 for the commercial aviation, positive 1.6 for executive jets, defense and security was negative 6%, services and support was positive 13.2%.

We're moving to adjusted EBITDA on Slide 17, Embraer 2019 adjusted EBITDA was also impacted by the separation cost, adjusted EBITDA reached $182 million, or a margin of 3.3% for the year. If you take away the impact of the separation costs, adjusted EBITDA would have been $303 million with a margin of 5.5%.

So, on Slide number 18, we present the net income. Embraer reported an adjusted net loss of $218 million in 2019, imply a negative net margin of 12% for the year. Our earnings has been negatively impacted by the combination of the separation costs similar to the impacts already shown in the [indiscernible] and the higher financial expense.

They backed our financial leverage should go away as we closed the transaction with Boeing as we will transition to the majority of our debt to the joint venture. On the Slide 19, we presented our investments. In 2019, our CapEx was $158 million and our R&D was $328 million, leading to a total loss for investment was 486 million.

Major investments this year were related to the continued development of the two family objects as well as expanded to relate to the separation of assets and liability to the commercial aviation business and related services. So moving to the Slide 20, we talk about cash flow.

As a consequence of the higher number of commercial and executive jets delivery in the fourth quarter, Embraer finished the year with one of the highest quarterly positive free cash flow figures in the history. Generation of 739 million in free cash flow, we are proud of it.

We finished the year with our free cash flow users of 182 million, which was within previously announced range of free cash flow users between 100 million to 300 million. We also reached this guidance. As a result of our positive free cash flow generation in the fourth quarter, on the Slide 21, we show our indebtedness.

Net debt position includes from 1.3 billion at the end of the third quarter to $612 million in net debt at the end of the year. As mentioned earlier, our liquid position was strong with almost 2.8 billion in cash and equivalents not including the 600 million we recently raised two weeks ago.

Our debt is mostly long-term and has an average maturity of almost five years, with no major principle due until 22 and the year 23.

As we contribute to monitor the potential effects of COVID-19, I remain confident in our strong liquidity position at Embraer ability to weather the next few months and again, just to reconfirm, our ability to continue the business and continue to support our partners and our shareholders in the first place is health of our employees.

I will now turn the call over to our President and CEO, Francisco Gomes now for closing remarks prior to the Q&A session. Thank you..

Good morning to all the analysts and investors connected to our call today. I am Francisco Gomes Neto, President and CEO of Embraer. The coronavirus pandemic is affecting the whole world and our lives.

We're still not able to quantify the impact that the recent measures of social business in terms of restriction will have not only on our business, but on many others around the globe. Our customers, especially in commercial aviation are sharply reducing capacity for the message in international flights.

And we have started to see increasingly risks to our deliveries for the upcoming month. We are taking important measures and have launched a crisis committee formed by all our senior leadership to monitor the situation daily. We had already closed our main facilities in Brazil and put our workforce at home.

Nothing is more important to Embraer than the safety and health of our employees, customers and associates. We are also implementing measures to preserve our liquidity and maintain our solid financials during this turbulent times. But we also have good news and I would like to mention some important achievements of Embraer during 2019.

We had record cash generation in the last quarter of the year of almost $800 million. We had record sales in the executive jet business keeping price discipline and the successful launch of the Praetor family.

Embraer delivered the first to KC-390s to the Virgin Air Force and completed the first international sale of our new military air lifter to Portugal in the defense and security business.

We signed several contracts with Brazilian government, including the Navy, Army and Air Force, enforcing our position as Brazil's defense house and also very important because of that the commercial aviation business and its related services is a separate business as we continue to move forward in the partnership with Boeing.

Regarding the partnership with Boeing, we still need anti-trust approval in Europe and we continue to work together with Boeing team to get it. We believe this is an important strategic partnership and we'll make a priority for Embraer. Finally, I'd like to reinforce that Embraer has already tested different crises in the past.

And we are confident that this time won't be different. And together with all our employees, customers and partners we will come out of this virus outbreak even stronger. We will keep the market updated as the conditions continue to evolve in the upcoming months. Thank you..

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ron Epstein of Bank of America..

There you go. Good morning, guys. Just broader questions.

How are conversations going with your customers on the -- in the commercial business? What are they coming to you? What are they saying? And how should we think about what the next 3, 6, 9 months could look like in the commercial airplane business?.

Hi, Ron. Good morning. In terms of that I'm probably speaking here. Ron, [indiscernible] we are focused all of our investment to the product information and that Embraer have not yet any constellation of orders that's important for us.

And we are discussing about some deferrals of deliveries from 2020 to 2021, is more or less in a nutshell the discussion we are having..

Okay, okay.

And then, when we look at the Jet business, what have you seen there? I mean, has there been an impact yet on customers decision-making and how's that?.

I would say that what we are seeing right now, we have got impact on the executive jets/ We have let's say, more requests for deferral but to just quiet otherwise and we had no consolation event. Let's say pretty stable for the time being..

If I may add on, said earlier around, on executive jets we continue to deliver planes. We had a few deliveries this week. And we also continue with our sales activity. We had a couple sales being confirmed this week as well. So we are feeling good. On the executive jet side despite all the uncertainties on the COVID-19..

Okay. Okay, great. And then, maybe just one last question, if I may.

On the KC-390, when we think about the delivery profile of those aircraft this year into next, how many aircraft do you expect to deliver this year, I guess they were due to the Brazilian Air Force, right?.

We have two aircrafts to be delivered this year.

[Technical Difficulty] right now is the supply chain because we are talking for our customer, now we are aligned with our suppliers in regards to the parts because as everybody knows you have this threat, the restrictions and what we're doing right now is just to make sure that you have the parts to produce and deliver the requests, but we haven't joined the program..

Thank you very much guys..

The next question comes from Robert Spingarn with Credit Suisse..

On the Boeing deal, what is it that you think the European Commission is focused on at this point that pushes it to the right.

Any color on that?.

Well, I mean, we and Boeing continue to work together to establish these important strategic partnerships. As I say we still need the antitrust approval in Europe, but we continue to work with Boeing to get it, so provided the documents they ask and try to do this as quick as we can..

Okay. And then is there any -- what is the latest in terms of your expectations for proceeds from the Boeing deal.

Just given the COVID-19 situation, does this change anything with regard to the payment of the special dividend?.

We are now focusing on to get this approval of the antitrust authorities in Europe and we'll work together and how to overcome the situation of the COVID-19 to make this deal happen..

Okay. And then, just going back to the aftermath of 911, at a point where the 50-seat market was very active, there was an unexpected mix shift or demand shift toward the 50 seater away from the narrow body because of the slow recovery expected, and the idea that you could fill a 50 seater more easily than a 737 or an A320.

Do you expect some kind of mix shift in demand away from the Boeing and Airbus narrow bodies and perhaps the A220 toward the E-Jet for the next few years to accommodate the lower demand?.

The commission and marketing people, they are analyzing all the possible effects, but I'd say that it's just only for us to come with a good prognosis on this..

Our next question comes from Cai von Rumohr from Cowen..

Yes. Thank you very much. So in the U.S.

as you know, they just passed $2 trillion support package? Does Brazil have a support package that gives you support? And if not, what sort of numbers based on the closures that you currently expect? What sort of numbers might this be and just in terms of incremental cost?.

We are getting work to get additional sources of liquidity. I would say -- too early to say what you are getting here, but for the time being, we are having some support from U.S. and because of tax deferral and more or less what we had today..

Okay. And then, you have this very good fourth quarter cash flow.

Could you update us on what was the status of payments on the KC-390 and have you early in the year seeing any resistance by commercial customer or biz jet customers to make the due diligence?.

As far as payments from the government and free cash flow overall, we have a very stronger fourth quarter as you mentioned. We generated almost $800 million in cash. So, we had a lot of the levers on both commercial and business jets, and also payments from the government.

So we were able to reduce the level of receivables from the government during the quarter. And it was very important for us to generate the cash that we did during the first quarter..

Got it. And I think at one point, you talked about the incremental cost of keeping a commercial and biz jet defense business, is something like 10 million to 15 million in OpEx spend, some 10 million to 15 million in interest expense per month.

Are those numbers still valid?.

Sorry, Cai.

You're talking about the additional costs from the delay on the deal?.

Well, the incremental cost of sort of running two separate businesses..

Yes. We have a special cost. The main cost we have is the additional financial expenses, around 10 million to 15 million per month. And also you're totally right, we have additional costs of running two businesses, another 10 million to 15 million per month..

Our next question comes from Josh Milberg from Morgan Stanley..

You guys have covered a lot of ground already but I wanted to just revisit the commercial profitability outlook. We saw that in the quarter, even adjusting for separation costs for your commercial profitability was below past fourth quarters. And I know that you've had the issue of the 175 SC, and also E2 ramp up.

And I just wanted to ask assuming that you didn't have further separation costs and also assuming that COVID wasn't an issue. Can you just talk a little bit about how profitability for commercial might have evolved this year? And also just remind us what was the sort of rough mix of E2s and E1s you were anticipating for 2020? Thank you..

A lot of uncertainties right now with the COVID-19. But going to your question, the main facts on the commercial side as far as profitability, or the mix, right, we had more delivers in the U.S., those orders as you know, they are bigger. So given the bigger orders, they tend to have a slightly lower margin.

The second point that affected commercial was the E2 ramp up. We continue to run past the [indiscernible] last year we had around 15 delivers, this is starting to help, but we need to continue to move through the learning curve of the E2 and that will -- as we continue to move on that that will positively affect margin going forward.

So overall, those were the impact for this year, they said we still need to assess the impact of the COVID-19 to have a better visibility in terms of margins for this year for commercial..

And if you didn't -- if we didn't have this COVID effect, what might have been a reasonable expectation for a mix of deliveries? What percentage of the volume could be E2 this year?.

Excluding the COVID-19 effect, I think this year in terms of deliveries and even mix, should not be too different from what we had in the last two years around 90 to 100 points..

The next question comes from Noah Poponak Goldman Sachs..

I'd love to attempt to get a little bit more precise on the degree of movement your airline customers and commercial are asking for, if we're looking at a production skyline that had roughly 90 units in it for several years, are we talking, five to 10 airlines that want to differ? Are we talking, 80 units that want to differ? And are we talking differing quarters or differing years?.

In general, as I mentioned before, we know our airlines have got capacity sharply, if you needed to bet on recent impact but at least they're requesting most of them should differ from 2020 to 2021, and again, this question right now is very dynamic and we have changed everyday and but more between 2020 to 2021 versus deferrals and local solutions.

That's important information. A very important information as Bernard, you said, No, we didn't have any cancellation so far. So, all the discussions are really regarding the [indiscernible], but no cancellation..

And is it the majority of your previously scheduled 2020 deliveries that are discussing deferrals or is it something well under half?.

As I said situation is really changing. We need to know for how long the capacity reduction will last, right? It will depend. It will depend how long the COVID-19 moving back the capacity to have an assessment of, we're talking about part of the delivers or what percentage of the delivery, we can't answer that right now..

Understood on that, given how dynamic it is.

But I'm actually just curious what percentage of those deliveries are even asking the question or even having the conversation? I mean, it's literally every airline that's supposed to take a delivery in 2020 having that conversation with you, or is it, some minority of them that's having that conversation with you?.

It depends a lot on the region right now. And also how the COVID-19 is evolving each one of the regions. We have seen some airlines in Asia read are returning operation. In the U.S., the situation is changing a lot. So there was a shut down, but a lot of conversation regarding returning operations. It's very difficult to know the impact at this point.

Unfortunately as soon as we have more visibility, we're going to restate our guidance and give the market more clarity on that.

Okay?.

Okay. And then just on the planned special dividend.

Are you today reiterating that? Or is that under review along with the rest of 2020 guidance being under review?.

I guess it's important to clarify. We need for this time decent prudence with our investor and with you guys. And then we suspended the guidance. It's much more related to the operational guidance like say 2018 free cash flow and the structure of the news continued to hire them for this perspective.

It's hard to say that right now that we are changing also the dividend. We continue to work on it. And again, the strategic partnerships we have agreed to close it. In fact to say right now that we have changed any guidance with regard to investment, but we prefer to sustained all of them and reevaluate the whole scenario..

[Operator Instructions] The next question comes from Cai von Rumohr from Cowen..

Yes. Thank you. I think you had planned to sort of report as NewCo without the commercial business, but clearly that's not going to happen.

You're basically going to -- basically have commercial biz jet, the same businesses that you had Are you going to report in the same format for the first two quarters because it doesn't sound like the JV is going to get approved before them?.

Sorry, its Francisco. Just going to mention that, since we signed it -- we got the approval from the shareholders for the deal last year in February, we have been reporting the commercial aviation business as a separate business right as a discontinued operation.

And we're going to continue to report commercial as a discontinued operation until closing. So, Antonio, go ahead and just….

Just to say that compliment what to do just said we have implemented the internal governance that we are going to manage the commercial aviation as a separate unit, but we think in Embraer organization with all the process in places and all the reports and so on..

Thank you..

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