Embraer gears up for Farnborough as shares soar on healthy demand

FILE PHOTO: An Embraer E195-E2 Profit Hunter aircraft is displayed at the 54th International Paris Air Show at Le Bourget Airport near Paris, France, June 20, 2023. REUTERS/Benoit Tessier/File Photo

By Gabriel Araujo

SAO JOSE DOS CAMPOS, Brazil (Reuters) - Embraer heads into the Farnborough Airshow next month riding tail winds that have lifted its shares to an all-time high, as recent orders show the Brazilian planemaker ready to fill a gap for airlines starved for new planes in coming years.

The news has boosted hopes for Embraer ahead of the major industry event on July 22 to 26, when planemakers often announce major orders. Last year, investors were disappointed by Embraer's weaker-than-expected numbers at the Paris Airshow.

Sao Paulo-traded shares of the company are up nearly 70% this year and hit a record high last week, by far the top gainer on the benchmark Bovespa stock index. Several analysts still see room to rise.

This month, Embraer bagged an order for 20 E2 jets from state-run Mexicana de Aviacion, opening a new market for its next-generation commercial jets and growing its backlog of firm orders from a seven-year high of $21.1 billion hit in March.

"We continue to see a healthy environment for new orders," XP Investimentos analysts told clients after the announcement.

Embraer last year revealed only 13 orders for commercial jets at the Paris Airshow, falling short of market estimates and previous years. But carriers are struggling increasingly with an aircraft shortage constraining their capacity, which has presented new opportunities for the Brazilian company.

Embraer has production slots available from 2026, meaning it can deliver on new jet sales before larger rivals Boeing and Airbus, the latter having sold out its production of single-aisle jets until the end of the decade.

Market watchers say Embraer's available slots may help it to serve short-term growth plans for carriers such as Mexicana. The Brazilian planemaker's traditional niche fits just below the Boeing and Airbus's best-selling 150-seat-plus market.

The Mexican order, JPMorgan said, "corroborates with our thesis that Embraer should continue to benefit from a lack of slots from peers to deliver aircraft in the mid-term."

Mexicana's deal with Embraer came after much-touted talks with Boeing, which analysts indicated may not have progressed because of the U.S. planemaker's extended delivery deadlines.

The move may also give the E2 family an extra push in North America. The smaller, first-generation E1 jets are the backbone of regional aviation in the U.S., but Embraer hopes to break into that key market with its E195-E2 "small narrowbody".

The E2s were initially slow-selling due to the COVID-19 pandemic, Pratt & Whitney's engine supply shortages and a mismatch between the weight of the aircraft and "scope clause" restrictions in U.S. pilot union agreements.

"We believe the successful entry of E2s in Mexico will subsequently help boost the aircraft's debut in the U.S. regional market once the scope clause regulations are updated," BTG Pactual analysts said.

The E2 flies in Canada with Porter Airlines, including some routes to the United States.

"Embraer's four divisions are all experiencing favorable industry landscapes," BTG said, also citing successful campaigns for sales of the flagship C-390 Millennium military aircraft to countries such as South Korea and Austria. "We're buyers (of Embraer's shares)."

(Reporting by Gabriel Araujo; Editing by Brad Haynes and Josie Kao)