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International Business Embraer posts loss due to writedown in its underperforming executive jets unit

Embraer SA reported an unexpected loss on Thursday due to a writedown in its underperforming executive jets division, adding to concerns over its potential future earnings after it sells its profitable commercial jet unit to Boeing Co.

The Brazilian plane maker lost a net US$18.1-million in the fourth quarter owing to a US$61.3-million writedown for research and development spending on its “Legacy” line of business jets, which have not yielded expected returns.

Embraer’s fourth-quarter results missed a consensus estimate of an US$8.4-million profit in a Refinitiv poll of six analysts.

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The loss comes amid concerns over Embraer’s future earnings potential once it closes a transaction to sell 80 per cent of its profitable commercial plane division to Boeing, narrowing its focus to its money-losing executive jet and defence segments.

The defence unit posted an operational loss of US$183-million in 2018 and the executive jets division had an operational loss of US$39-million.

Shares fell more than 2 per cent in Sao Paulo trading, the biggest loss on the Bovespa stock index.

Embraer had told investors in January that it had missed its revenue estimates for 2018 and the company would see little to no profits in 2019 and 2020. Embraer restated those projections on Thursday.

Embraer’s stock has fallen 15 per cent this year, with almost all of the drop following its revised earnings projections.

The results show Embraer has become more financially dependent on its passenger jets even as it prepares to transfer that business into a joint venture with Boeing in return for US$4.2-billion.

The commercial jet operation, which will allow Boeing to compete directly with Airbus SE in a smaller passenger jet segment, accounted for 50 per cent of Embraer’s revenue in the fourth quarter, up from 38 per cent during the same period of 2017.

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The joint venture with Boeing, which Embraer now expects will close in the fourth quarter of 2019, will leave the Brazilian plane maker with a pile of cash but will not pay any potential dividends until five years after Boeing takes control.

Embraer lost US$178-million in all of 2018, compared with a profit of US$264-million in 2017.

On an earnings call, executives said they were not concerned about the loss last year and the company plans to deliver more executive jets in 2019.

Deliveries of Embraer’s turboprop defence plane, the Super Tucano, should also edge up to 10 in 2019, from nine last year, management said.

That plane could be included eventually in another joint venture with Boeing, they said. The companies are already collaborating on global sales and support of a military cargo jet developed by Embraer for the Brazilian Air Force.

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