Embraer S.A. (EMBJ3) Earnings Call Transcript & Summary

My name is Gi Paiva, and I'm the Head of Investor Relations for Embraer. I want to welcome you to our second quarter of 2024 earnings conference call. The numbers in this presentation contain non-GAAP financial information to facilitate investors to reconcile Eve's financial information in GAAP standards to Embraer's, IFRS. We remind you that Eve's results were discussed at Eve's conference call last Tuesday, August 6. It is important to mention that all numbers are presented in U.S. dollars as it is our functional currency. This conference call may include statements about future events based on Embraer's expectations and financial market trends. Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with applicable rules, the company assumes no obligation to publicly update any forward-looking statements. For detailed financial information, the company encourages reviewing publications filed by the company with the Brazilian [Foreign Language] or CVM. At this time, all participants are in listen-only mode. We will give instructions later on for participation in the 2 question-and-answer sessions. As a reminder, this conference is being recorded. Participants on today's conference call are Francisco Gomes Neto, President and CEO of Embraer; Antonio Carlos Garcia, Chief Financial Officer; Luis Harrison, Corporate Communications Director, and myself. This conference call will have 3 parts. In the first part, top management will present the company's Q2 results. In the second part, we will host a Q&A session only for investors unless but definitely not least, we will host a Q&A session only for the press. It is my pleasure to now turn the conference call to our President and CEO, Francisco Gomes. Please go ahead, Francisco.

Thank you, Gi. Good morning, and good afternoon to all. Welcome to Embraer's Second Quarter 2024 Results Conference Call. Embraer revenues in Q2 increased more than 15% year-over-year. Mainly helped by defense and security, up more than 100%, but also by commercial aviation and service and support, up around 20%. The first half of 2024, overall company revenues increased 19% compared to the same period in 2023. The highlight was defense and security with an increase of about 50%, followed by executive aviation with 24%, servicing support with 16%, and commercial aviation with 12%. Our efforts to improve efficiency and profitability pad to a 1.6% gain grew 9.3% in our operating margin during Q2. The gain in the first half of the year was even bigger and totaled 2.7%. It is important to mention that we reiterate all lines of our 2024 operational and financial guidance after considering the opportunities and risks for the company in the second half of 2024. Our commercial activity in 2024 continues to be strong in all business units, and we see solid demand in the company's main markets. Our firm order backlog reached $21.1 billion, which is the highest level over the past 7 years. and supported by a solid year-to-date book-to-bill ratio in excess of 2.2:1. In Commercial Aviation, Mexicana de Aviación ordered 10 E190-E2s and 10 E195-E2s with deliveries scheduled to start in the second quarter 2025. This is another evidence of the strong ability of our E2-Jet family to operate in several markets and to provide their lines with a viable option to increase it layer capacity quickly. Defense, the recent signing of the contract for 6 millennial aircraft by the Netherlands and Austria at Farnborough coupled with the order for 6 Super Tucano aircraft by Paraguay underpins our positive perspective for the business units. In Executive Aviation, we continue to capitalize on the good sales momentum in both fleet and retail markets with solid demand across our product portfolio. In service and support, the division continued to be one of the main drivers of growth for the company with higher revenues and profitability through a combination of operational and financial excellence, customer experience, and innovative solutions. We continue to face supply chain challenges. This year, we reinforced our supply chain organization by localizing more people closer to our most critical suppliers. And we introduced digital tools and artificial intelligence to help us further improve the efficiency of our supply chain management. I will now move on to operational results by business units in the next few slides. Comic Aviation, the backlog in the first half '24 rose $ 3.3 billion or plus 40% year-over-year and reached $11.3 billion with a book-to-bill ratio above 4:1 during the period. Deliveries in revenues almost tripled sequentially in Q2 and reached 19 aircraft and 554 million. With year-on-year growth rates were also solid in double-digit territory. Adjusted EBIT margin for commercial in Q2 declined 1% year-on-year from 5.3% to 4.3%, mainly because of product mix. In Executive Aviation, we recorded the strongest first semester in terms of revenues and deliveries for the division over the past 10 and 8 years with 575 million and 45 aircraft. The backlog for the division registered an increase of $300 million in Q2, and ended the period at $4.6 billion or 8% higher year-over-year, supported by a strong 1.5:1 book-to-bill ratio in the first half of 2024. The adjusted EBIT margin for executive improved 2.5% from 8.8% in the second quarter '23 to 11.3% in the second quarter '24, helped by higher productivity and despite lower production volumes. In Defense & Security, revenues in Q2 increased 2.3x year-on-year or more than 100 million. The adjusted EBIT margin also improved to minus 0.5% in the second quarter '24 from minus 4.1% in the same period of 2023. The delivery of the second millennium to the Portuguese Air Force was an important highlight for the Defense & Security in the quarter. The first aircraft entered into service at Beja Air Base in October 2023. In services support, revenue grew 20% in Q2 compared to the same period of last year, with solid mid- to high-teens profitability and a gain of 1.3% in the adjusted EBIT margin. The business unit maintained its historical $3.1 billion record backlog reached in Q4 '23. Another important achievement for our Services & Support division was the first flight of the E190 freighter, a passenger to full cargo conversion, which received the certification by the National Civil Aviation Agency of Brazil, ANAC, in July 2024. Last but not least, our EBITDA business which had other important milestones in the second quarter '24. The company has now already selected and contracted most of the component suppliers, completed its first full-scale Eve prototype single celebrating its rollout in the Gavião Peixoto plant last month. It also completed a new equity financial round of $96 million from multiple investors. The monies will help support the continued development and manufacturing of its EBITDA. Embraer remains confident in Eve's business outlook as its majority and controlling shareholder with an 83% equity data. I will now hand it over to Antonio to give you further details about the financial results, and then I'll be back with closing remarks.

Thank you, Francisco. Good morning and good afternoon to everyone. I'd like to highlight; we had another solid quarter in Q2. Our financial results improved both quarter-over-quarter and year-over-year. For instance, revenues for the period were 16% higher than a year ago, and our EBIT margin was 160 basis points higher. Our focus in Q2 continued to be on business and financial efficiencies. We are fully committed to reach our full-year guidance despite all the ongoing supply chain constraints, we continue to deal with, which had also a negative impact on our year-to-date cash flow. It is important to mention, we still see double-digit growth for aircraft deliveries, revenue, and EBIT in 2024 and 2025, notwithstanding the operational channels. Slide 10 delivers -- commercial aviation delivered 90 aircraft in Q2 for an increase of 12% versus a year ago and almost 3x higher than in Q1. Meanwhile, Executive Aviation delivered 27 yachts in Q2 compared to 30 aircraft in the same quarter of 2023. However, if we look sequentially, the numbers of deliveries grew 50% from Q1 to Q2. In defense, we delivered 1 C-390 Millennium to the Portuguese Air Force in Q2 compared to 1 KC-392 Millenium Brazil Air Force 1 year ago. It is important to mention the aircraft is not included in our delivery guidance for 2024. We continue to work steadfastly to accomplish our production plan and to reach our 2024 guidance of between 125 and 135 executive jets and 7 280 commercial aircraft. We are also on track to deliver 4 C392 Millennium aircraft scheduled for the year. Slide 11, please. The company registered a 7-year high total backlog of BRL 21.1 billion in Q2, which was marginally higher quarter-over-quarter and 22% higher than a year ago. The backlog for commercial aviation continued to move higher. It totaled more than 380 aircraft in Q2, and it was valued at $11.3 billion or $200 million higher than last quarter and $3.3 billion above second quarter '23. Meanwhile, the backlog for executive aviation was a solid and resilient R4.66 billion during the period, flat quarter-on-quarter but up 300 million year-on-year. Last but not least, the backlog for service and support finished relatively stable at $3.1 billion in Q2. While for Defense & Security, it decreased marginally by 10% to $2.1 billion. Looking forward, our backlog for defense should increase by more than 50% in Q3 with the new contracts. If we factor in the export contracts recently announced for C-390 Millennium and Super Tucanos. Moving on to revenues. Our top line reached almost $1.5 billion in Q2 or $200 million higher year-over-year for 16% growth rate. If you look at the pie chart on the right, we can see a more balanced revenue mix. For instance, commercial aviation represented around 37% of total revenue, followed by service and support close to 27%, executive aviation with 23%, and defense at around 13%. For the first half of the year, we recorded $2.4 billion in revenue or almost 40% of the midpoint of the 2024 guidance. Next Slide 12, EBITDA. We generated $190 million in adjusted EBITDA in the second quarter '24, with a 12.7% margin compared to $149 million second quarter '23, driven by strong operating results when compared to the same period last year. On a related note, the Brazilian foreign exchange rate has been very volatile in the first half '24 and its reset depreciation should provide some tailwind in the second half of the year. We generated $237 million in adjusted EBITDA, with 9.9% margin in the first half of 2024 versus $159 million with a 7.9% margin in the prior year period, for a dollar amount almost 50% higher annually. Meanwhile, adjusted EBIT was $139 million with a 9.3% adjusted margin. However, there were one-time items in the quarter which propped up the adjusted EBIT margin by circa 250 basis points. Reported EBIT for the quarter was $128 million with an 8.6% margin. Both figures were materially better than their second quarter '23, comps supported by better efficiency, lower SG&A costs, especially in Executive Aviation and service support. Looking on the right chart, we can see executive aviation and servicing support generated more than 75% of the copaid debit during the quarter, while commercial aviation balanced 25% and defers practically broke even in accordance with the percentage of completion accounting methods. On the Slide 13, in Q2, if you exclude Eve, we had an adjusted free cash flow consumption of $250 million due to net working capital needs for higher aircraft delivered in the second half of the year. This cash should be recovered as much deliveries take place over the next cup of quarters. Moving to investments. Again, without Eve, we spent $29 million in research and development during the quarter, $47 million CapEx, and net $1 million in the pure for spare parts for a total of $107 million compared to $104 million a year ago. Our capital allocation continues to be focused on segments with high returns. We see projects such as expansion of our production capacity in executive aviation and service and support. To finalize, our adjusted net income was positively 80 million for the quarter, supported by a 5.4% adjusted margin or EUR 22 million higher than a year ago. Slide 14 going to our liability management plan. In second quarter '24, our gross debt without Eve was relatively stable at $2.6 billion during the period, but we still managed to reduce it by circa $880 million when compared to a year ago. Meanwhile, our net debt declined by $152 million year-on-year and reached $1.3 billion during the quarter. Our net debt-to-EBITDA leverage ratio increased 0.2x sequentially to 2x as shown in the top right corner. This measure increase is explained by the seasonality of the cash consumption, a preparation for higher deliveries in the second half of the year. We also announced earlier this week an extension for the next 5 years of our revolving credit facility and an increase of each size from $650 million to $1 billion, which will be reflected in our Q3 liquidity position. With that, I conclude my presentation and hand it back to Francisco for his final remarks. Thanks for your attention.

Thank you, Antonio. The progress recorded in Q2 '24 demonstrates we are on track to achieve all the results embedded in our 2024 guidance. More importantly, we will continue to work hard to deliver even better results in the coming quarters of the year, especially in Q3. Our company remains very well-positioned for the future with a 7-year high backlog of $21.1 billion, a strong 2.2:1 book-to-bill in the first half of the year, a steady progress in our operational and financial indicators, as well as a solid strategic plan. It's important to mention that we will include in our Q3 backlog of defense, the contracts for 9 C390 Millenium signed with the Netherlands and Austria, and 6 Super Tucanos ordered by Paraguay during the recent Farnborough Air Show in England. I would also like to give a special welcome to Mexicana de Aviación as a new operator of our E2 family, expanding the E2 presence in North America. We believe our recognized global judge family will help the airline generate great operational and financial results with a strong commitment to sustainability and aviation efficiency. And to finish, I'd like to thank you all again for your interest and confidence in our company. We see bright and clear skies ahead for our company, and we will continue to work hard and embrace the foundation of our culture that is safety first in quality orders. Let's now move to the Q&A session of the call.

We will now start the question-and answer-session. The first part of the Q&A session will be exclusively for equity research analysts and investors. The second part of the Q&A will be only for the press. [Operator Instructions] The first question comes from Kristine Liwag with Morgan Stanley.

I guess my question is on the supply chain. You maintained your 2024 full-year delivery guide for commercial aerospace. We're seeing some of the other manufacturers like Airbus lowered the outlook for the year because of supply chain. Can you give more color regarding your confidence that you're able to meet these deliveries, what you're seeing in the supply chain? And maybe a little more color also on your approach in providing guidance, like how conservative is the range that you gave for delivery for 2024?

Well, as I mentioned in the opening, we are this year, reinforcing our supply chain team. We are locating more people closer to the most critical suppliers to support them. We are having more senior management meetings with our suppliers, the critical ones, to make sure that we follow up the delivery of the parts we need for the year, we are implementing new digital tools and also artificial intelligence to help us to be ahead of the problems. We have been very proactive with our suppliers. We plan to be even closer to them to help them always in a very positive approach as Embraer tie, so again, we see challenges, but at this point of time, we are confident that we'll be able to deliver the guidance for the year.

The next question comes from Victor Mizusaki with Bradesco BB.

I have 2 questions here. The first one, why do we take a lot of EBITDA margin of like 12% in the second quarter? I mean, this was something that is on our margins was something that we were in for the second half. So, my first question here is, is there any chance that maybe Embraer revised guidance is upward in the second half? Or maybe we're talking about the high end of your guidance. And the second one, we have seen a lot of news flow in Brazil about maybe late go potentially place orders for the E jets. So, my question is, if you can you give any color on these negotiations, and what's your view for the regional vision markets?

[Interpreted] This is Antonio. Thank you for your comments and questions. I will address the first question and Francisco will take the second one. With regard to margins. About the EBITDA margin, for sure, the Q2. We have some tailwinds that's one-time effects. We are confident in our guidance, if it's in the mid or the high end of the guidance, we need more one quarter to be more precise, but everything that we are seeing right now shows that today, we are more-closer to the high end of the guidance than the lower end. That's from the EBITDA side, then I will hand over to Francisco for a lot more issues.

Thank you, Victor, for the questions. At this point, we are talking to a lot of customers about E2 opportunities. I don't have anything concrete about Brazilian customers to share with you. But what I can say is that we see a great opportunity to increase the E2s in Brazil as we are very confident that E-Jets are a perfect fit for the Brazilian market and can help the airlines, not only in Brazil but everywhere to add the capacity quickly to their fleets.

The next question comes from Marcelo Motta with JPMorgan.

I'll keep to just one question. I mean, can you comment a little bit about the defense revenue outlook for the second half? I know with Eve's percentage of completion, you still have [indiscernible] another 3 KCs to be delivered this year and the revenues have a very good increase, both on a quarter-over-quarter and year-over-year basis. So, can we expect the defense revenues to continue to accelerate throughout the second half? And I mean, could the driver be also the Super Tucanos order, which probably could be delivered in the short term since the production is a little bit more simple. And what are the other components of the defense revenue that could also increase and accelerate so the full-year revenues for Defense could be maybe closer to $600 million, $700 million?

Thanks, Marcelo. Antonio speaking here, and thanks for your question. We do see defense around EUR 600 million this year. With the deliveries for the C-390, we are confident to deliver for this year. I would say, next week, we are going to deliver the second one and I would say we are confident in that. And the order for the Super Tucanos is coming to the right time and the right point because a big portion of the aircraft are ready, no inventory means it's going to go on top for the second quarter, the supercenter Paraguay. Let's put all together, we do see defense here around $600 million for this year.

The next question comes from Lucas Barbosa with Santander.

Congratulations for the results. I just wanted to know if you can provide more color on the one-time items that affected the EBIT margin by around 250 basis points. So, if you can provide just some details if it's just one item. If it's more than one item. What's the nature of it? That would be very helpful.

Thanks for the question. There are a few items that impacted the quarter, but I would say by far, the biggest one was tax credits that helped us improve the margins by about 250 basis points. So, if you show that the margin will be closer to 7% or slightly million that.

The next question comes from Ron Epstein with Bank of America.

Maybe if you could circle back on -- we had a question about interest from airlines in Brazil, but maybe more broadly, after Farnborough, stepping away from that, can you maybe give more characterization a little color around what you're hearing from customers, how sales campaigns are going. To be honest, I was expecting to hear a little bit more in terms of orders for commercial airplanes at Farnborough. Where do we stand on that? And what's the outlook for maybe the rest of the year into next year?

Thank you, Ron. Francisco speaking. Thanks for the question. I mean, we had a good start to this year. If you look at the glass, we have a pool. We had a good start this year with orders in commercial aviation with American lines in Mexicana. And we are working in a lot of sales campaigns. I mean basically, all the regions in the world. So, we expect -- we are confident that we will bring good news soon about the new orders, and we have a good expectation for Q3 and the rest of the year as well. So again, we believe we have a very good chance to feel our production loss for the years ahead, in line with our strategic plan.

The next question comes from the Q&A chat, and it's from Stephen Trent with Citibank. Can you provide some color on what you're seeing in the competitive environment for business jets? Is it possible that lower interest rates could support small and mid-cabin sales? Thank you.

Thank you, Steve, for the question. Actually, we still see a strong interest in our business jet product portfolio. So, we are selling all the 4 models very well, in line with our expectations. And yes, we are now our challenges, to be honest with you, in the business genesis more to ramp up production levels and deliveries than the sales. I think the sales continue to be strong, as I said. We are very optimistic about the -- not only sales but the deliveries and the growth of our business jet business in the next years.

The next question comes from Noah Poponak with Goldman Sachs.

On the margins, the reiteration of the 6.5% to 7.5% for the full-year adjusted operating margin. I just want to clarify if that's including or excluding the items you listed as kind of one-time for 2Q. And maybe put a different way, I guess, to be at the midpoint or the high end of that for the full year, the margins would have to be down year-over-year in the back half. Do you expect margins down year-over-year in the back half?

Thanks, Noah, for the nice questions. Antonio speaking here, for sure. If you take the onetime and added on top of the guidance, for sure, we could be in a higher debt, assuming that we are in this volatile situation on supply chain, we prefer to not raise the guidance today. But today, we are at the high end, and we are not planning to reduce margins for the coming quarters and the opposite, but what we try to avoid with the math we did is that you've taken a 9% margin from Q3, Q2 and move forward for the next quarter. It's going to be a little bit higher, lower, but not in the magnitude of that we were to be even below previous year, means in a nutshell, yes, we are closer to the high end. And if you are able to get all aircraft out of the door probably have a chance for upside. Then we want to do this -- probably are going to review the guidance already in Q3. When we announce the quality for Q3. Well, let's see. It depends on several facts.

Okay. That makes sense. That's helpful. And Antonio, I guess, I feel like I have a sense for what the progression of the commercial margin could be from here. Executive has been kind of just solid for a while now, services reasonably straightforward. I guess the defense margin has been pretty volatile through the quarters. It used to be kind of high single digits on an annual basis. It's now mid-single digits. I guess, as you ramp KC-390 with different customers and the mix is changing. I guess how should we be -- well, what should we be expecting for the kind of medium-term progression in that defense margin?

Thanks for the question. We are -- I would say, in an inflection point right now and the defense margin means. The magnitude of the local contracts is being, I would say, well-filled right now with a new contract for export, and we do see this year something like mid-digit market for this year, but moving, I would say, very fast for higher even lower teens for the next year. That's more or less the production you see based on the new contracts that we are just signing right now. Today, if you see year-to-date, it has been very highly impacted by still the Brazilian contract here. With this move from local contracts to export, we do see this projection from mid-single-digit to higher single-digit or lower teens. That's more or less how do you see defense right now with -- on top of it with revenue growth, both together.

The next question comes from Gabriel Rezende with Itaú BBA.

Congrats on the results. I would like to make -- to judge on one point regarding the commercial division. And whether do you think that will be fair for us to assume that given the ongoing supply chain crisis across the globe in the industry, prices in this industry could benefit the commercial division? What should maybe translate into even higher margins for the commercial division in the future?

Gabriel, thank you. Francisco speaking. Thanks for the question. I mean our commercial division has been despite the lower volumes in the past year has been profitable. And you see that even the results of this Q2 was very positive for the commercial division. And we see opportunities to improve even further with the volumes growing, and we are also working internally in the other P&L drivers, like the prices, and especially in cost reduction programs. So again, we do believe that the margins of the commercial division will continue to be positive, right? And let's say, middle-single digits for this year and the next year as well.

The next question comes from Lucas Laghi with Sespe Investimentos.

My question is a follow-up on the commercial division profitability standpoint. But I mean we noted this slight decline year-over-year on margins due to the higher mix of H2. I mean, my question is, I mean, aside from the effects of operating leverage as deliveries should accelerate in these upcoming years. I mean, are we already seeing the orders that you added to your backlog in the past year implying room for gross margins to improve or a further contribution margin improvement should come as a result from incremental new orders in this next year? So basically, a matter of mix and how should we think of the E2 margins going forward, taking into consideration what you already have added to your backlog and what do you expect to add in these upcoming years.

Thanks, Lucas, for the nice question. The margin that we are generating today is based on the backlog that the first sales campaign for E2. If you take more or less the margin that we are delivering today, for sure, the future backlog is accretive for a mid-single digit at least today. And please do not forget to have also a boost in Q1 for the future. But we needed to exercise the new contracts. If you take the mix today, they are more or less the first contract for E2. That's why the margins are tough, more tight. But if you take Mexico is much better market than we are exercising with the customer this year. But we need to wait the coming years in order to, I would say, regain traction. Nevertheless, you follow our numbers, we are able to report a positive margin E2 with not the full capacity occupied. That's why with these between operational levers and new contracts, a good way to improve the margin, but not this year. This year is highly dependent on E2 with the main customer that has at least a lower margin. But we are confident for the future.

The next question comes from Alberto Valerio with UBS.

I have 2 here on our side. First one about pricing in the commercial aviation. And we heard from competitors that there is some low-price aircraft going out of the inventory. And sooner we should have a higher price aircraft going out from the inventory. I would like to see if we have the same situation. And secondly, on the executive aviation that margin come great year-over-year despite what we see as a worse mix with less breather on the delivery side, if you could provide more color on this one also, it would be very helpful, and congrats on the results.

I hope you revise your number because we do believe that we are not going too much this year, but I'm sure you are going to get. So in regards to the margin side. Again, it is a combination effect for commercial aviation, okay, I'd say, and the mix for executive aviation. Growing Prater brings a lot of dollars, but I'd say, incremental margin should lead this unit to be above a 2-digit BAT margin this year. We are already more or less close to that. I would say the plater brings much more dollars. That's why cremator margin should help sometimes the percentage wise is a little bit different. When you see females against rates, but dollar-wise, we do see a nice boost for the margin for this year, for the years to come.

The next question comes from the phone number ending 5135.

Louis Raffetto from Wolfe Research. Maybe just on services. You had a good quarter on the top line, a good quarter on margins. Just how should we think about that business sort of for the remainder of the year, growth stepped up pretty nicely in the quarter. Are we at sort of a sustainable level here around $400 million? And the same on the margins, 17%, should we think about that as sort of a run rate? Or did any one-time benefits help the quarter there?

Thanks for the nice questions. Antonio speaking here. I would say we are in the range of mid-teens margin for the service and support with expansion activities right now, I would say, I would continue to see for this year and the mid-teens because we are putting more revenue and margin for the engineering row in Portugal. That's why -- and the ramp-up of this production does not help or contribute too much for the margin. That's why I would say we are confident in the mid-teens and on-time effect to us for service, not a big contributor to be honest.

The next question comes from Noah Poponak with Goldman Sachs.

Antonio, can you just spend another minute on the cash flow? I know that your cash flow is always seasonally weighted to the back half, and you've had this -- you've had a working capital build in the first half before. It looks pretty sizable in the first half of '24, even though the deliveries are up a little bit year-over-year, revenues are up year-over-year. So maybe if you could just walk us through that, how confident are you in hitting the 220 for the year? And can you grow free cash flow next year versus this year?

Thanks for the nice question. By the way, cash is one thing that we discuss every single day in this company here, which is -- that's why we launched the production level in order to be more, I would say, not suffer too much from Q1 to Q3 during the year. It's going to, I would say, help more next year than this year. I'd say the trend for the cash flow, we are today confident in the 220 or better, but unfortunately, it's going to happen just in Q4. The discern between negative and 2 positive for several reasons, more or less 20% growth on top line this year and also for next year is more or less also double-digit growth that we are foreseeing. And if you go to our effective today, you see new people in parts for 220 fiber ends. We already produced 25 parties, several parts of our company. It's putting a lot of pressure on the cash flow and also the progress payment for the new contracts is going to happen, especially in the second half of the year, I would say, combined those effects lead us for a tight situation Q1, Q2 and Q3, and hopefully, to become positive as we did last year in Q4. However, we are not happy with this situation, and we are discussing this week, very strong how to, I would say, harmonize our cash generation and we've got to generate more cash next year. You know our type year minimum turn EBITDA 50% into cash, I would say. We are a little bit behind this year because of the higher growth that you continue to face for the company which is nice, but puts a lot of pressure on the cash flow, I'd say. In a nutshell, we are still confident with the cash this year, and for sure, a lot of chances to improve cash next year. If you are able to level in the production, then it's going to be even better, and you guys are not getting care to see negative cash consumption, 3 quarters, and a very strong positive in Q4. We hope that's more or less what we are looking for.

Thank you all very much. This concludes the question-and-answer session for equity research analysts and investors. Now we will start the Q&A session dedicated to the press. First, we will answer questions in English, and then we'll answer questions in Portuguese. We will also answer questions sent via the platform chat. [Operator Instructions]. The first question is from the view Q&A chat and is from Johanna Beily. Do you expect the C-390 program to be profitable by the end of 2024? And how have you managed to increase the EBITDA so much on Executive?

Johanna, thanks for the question. I think the penises, for our differencing security to be profitable this year already, and including the C-390 in other products and the executive. I mean, we are seeing a very good performance in terms of margin and results, and this should continue with the sales, and production deliveries growing in the next years.

And for active aviation, we do have a nice mix of products, I would say, Fino operators, where we were able to keep the price discipline with this showing also in the financial results. That's more or less without services, by the way, that's the combination effects we do see in activation.

The next question is written as well from the Q&A chat and is from Richard Schurman. I have already asked many questions in Farnborough, but I have one follow-up from that. You announced the E2 FT or E2 FT, enhanced take-off system. It isn't clear if this system has already been certified. If not, when do you expect this to be available?

Richard, that's a very good question, and thank you for your interest. And about this feature, the certification is expected to happen by Q4 next year 2025.

The next question is written as well from Woodrow Bellamy. One of the technologies that Airbus, Boeing, and other OEMs highlighted at Farnborough was their use of new digital design tools to improve the time to market for new aircraft technologies and components. Is Embraer using any new digital design tools to improve its manufacturing and production efficiency? And could you give some examples?

We have been we had been using the -- one example I can give it to you is the MES, the manufacturing excellence system that we use in our manufacturing process that is a digital 3D tool, and that helps us a lot. I mean, to improve our efficiency, productivity, and quality in our manufacturing process. And we are developing other systems as well as we expect to be implemented in the next years.

This concludes the question-and-answer session in English for the press. [Operator Instructions]. First question is from Christian Favreau.

[Interpreted] I don't have a question, but let me give you a follow-up here, and let me see if I got it right. You said that the perspective is the 15% backlog on the Q3, just to make sure that I got the percentage right 15%. And I wanted to ask about LatAm. Yesterday, Johan Cartier confirmed the LatAm conference call that they are considering lower aircraft. And they said that Embraer is competing with the A-2020. So, they are probably considering the middle cabin. So, I'd like to know about what your perspective is with the 18 to 20 with a good competitive edge. And how does the conversation evolve as there is some time that mentions Francisco LatAm Goal has engaged in conversations to procure with you, but do you have any good perspectives with regards to that?

[Interpreted] I can take the first question. Actually, a 50% increase in Q3. That's for the defense backlog. You will see agreements from the Netherlands, Austria from C-390 and then Paraguay with Super Tucano aircraft, that accounts for more than 50% increase in the defense backlog. And for LATAM, I'll hand it over to Francisco to answer that.

[Interpreted] Thank you, Christian, for your question. Like I said before, we've been in conversation with different customers about business opportunities for E2. And of course, there's competition in the market with A-2020. But for us, we think E2 is more of an efficient aircraft with lower operational costs and lower maintenance costs. E2 is a perfect fit. It's tailor-made markets such as the Brazilian market -- if you look at the operations of Azul Airlines, KLM in Europe. So, we do think E2 is quite a competitive product. And again, it is tailor-made to better connect cities, medium- to small-sized cities, which is what Brazil needs, and other countries also do, but more specifically Brazil. So, we're excited about these opportunities. We got no concrete news to share with you, but let's wait and see how this process has evolved.

[Interpreted] Next question from Justin Asiento from Portal Vale 36 News.

[Interpreted] Congratulations on the results. We're located at the ValedoParaiba region, and we're following up closely on Embraer's numbers. The question goes to Antonio. And then another question to you, Mr. Francisco. As we looked at the numbers yesterday, we saw that Embraer stocks reached 38.13. Others were different in late July. And in October -- on October 30, 2020, stocks were worth 6.03 BRL considering the results that are now sharing with us. How much can we expect stocks to go up the market value since the pandemic, how much will that increase? And then the question to Francisco is the following. According to news portals, specializing aviation in the U.K. trade show, they mentioned that Embraer is negotiating to sell 300 commercial aircraft. How is that going? Can that happen by the end of this year? Thank you for your question.

[Interpreted] No, I remember. 2020 Embraer stocks. Well, Embraer as a company was worth BRL 3 billion, and it's worth now BRL 30 billion roughly. So, we're talking about a 10x increase. On Friday and Monday, Embraer was quite hard, but we were in touch with many banks already. There were many investors who are feeling certain about it. We think these numbers should get back on track in the following weeks or so. So, what's been going on with the company's valuation is reflected again in the gain, in trust in our sustainable growth as a company. I still believe there is a lot of room for growth. I think we grew by 10x since early 2023 to date, our stocks have grown more than 60%, which makes us really happy. But I think we got a long way to go and grow based on what we're doing in terms of trust, foreseeability, and in terms of delivering what we promise, always, of course, focusing on safety and security. So, we're very excited about growth, but we consider how ambitious we are. There is a lot that will still happen.

[Interpreted] I can add to that. If you think of the company's valuation during the pandemic, that's a very low bar. But what makes us excited is that even if we consider stock prices before the pandemic in mid-2019 and compare that to now, we can safely say that we are 100% above that. So that's a good way to compare stock prices. And then the second question. It's true. We've got 300 aircraft sold. This is route number but we expect these campaign provide results in the short term, meaning 2024 and 2025.

[Interpreted] Question by Leda Alvin from Bloomberg News.

[Interpreted] Congratulations on the results. I wanted to ask you about a specific point that you mentioned during the Media Day a few months ago about the defense sector. It was mentioned that Embraer is working to penetrate the U.S. market with their defense aircraft exploring even opportunities of mergers and acquisitions. I wanted to learn from you. Has there been any update on that note, any initiative for the U.S. market, especially in the defense sector? How do you see these opportunities for mergers and acquisitions?

[Interpreted] This is Francisco. It's great to hear from you again. Thank you for your question. C-390 is doing well in different regions of the world. We talked about new agreements with the Netherlands and Austria. We are now at an advanced stage in negotiations with JAC, and we expect this to come to fruition later this year. We are also in touch with South Korea. In Asia, we're also making great strides with our program. And of course, the American market is the largest defense market in the globe. So, they are a target market for us. And we believe that our aircraft C-390 would be a suitable product and important to help the U.S. Air Force increase their productivity in this multi-mission military aircraft sector. So, at this point, we're just doing our research in the U.S., we're strengthening our team in the market so that we can define what the next steps will be hoping to fast-track our penetration in the market. That's where we stand as of now.

[Interpreted] Thank you very much. This concludes our Q&A session. This concludes Embraer's earnings call. Thank you very much for attending the session, and have a great day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]