Brazilian aircraft manufacturer
) clinched a major contract with the world's largest regional
) to sell as many as 200 aircrafts. This deal − valued up to $8.3
billion − would revive the Brazilian company's stressed
commercial aircraft unit.
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The latest contract is considered as one of the largest in
Embraer's history and involves an initial order of 40 E-175 jets
from Embraer, with deliveries set to begin in the second quarter
of 2014 and ending in mid 2015. SkyWest will fly the 40 E-175s
United Continental Holdings Inc.
) under a 12-year contract.
SkyWest also placed a provisional order to buy an additional 60
aircrafts, depending on securing contracts with other airlines
operators. Per the deal, SkyWest has the option to purchase 100
more aircrafts that would bring the total potential value of the
deal to $8.3 billion.
Upon exercising the order for 100 jets − with an estimated value
of $4.1 billion at current list prices − Embraer's backlog will
be boosted by 20% from its first quarter 2013 backlog of $13.3
billion. For now, the company is putting only the initial 40 jets
in its backlog.
The deal will be a shot in the arm for Embraer's commercial
aircraft division, which has struggled amid weak global demand.
The unit now accounts for only about half of the Brazilian
The company's first-quarter earnings also went down drastically
by more than 98% from the year-ago profit. The reported figure
also missed the Zacks Consensus Estimate by 60.5%. The lower
number was mainly due to the lower number of aircraft deliveries
and product mix.
However, a recovery in demand will help the beleaguered company
to boost its backlog to the levels seen in 2008 when it peaked at
In Apr 2013, Embraer received an order from United Airlines, a
subsidiary of United Continental for 30 E-175 jets, with
deliveries scheduled for the next year and the year after. The
order is worth a combined $2.9 billion at list prices and
includes options for 40 additional E-175 jets.
Although the company's earnings in the last reported quarter were
hurt by rising labor costs and a fall in commercial aircraft
deliveries, fresh contracts will likely provide Embraer the
impetus for future growth.
Embraer currently has a Zacks Rank #3 (Hold). We would advise
investors to accumulate its Zacks Rank #1 (Strong Buy) peer
Erickson Air-Crane Incorporated