Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's 4th Quarter 2020 and Full Year 2020 Results. Thank you for standing by. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions to participate will be given at the time. As a reminder, this conference is being recorded and webcasted atri.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, believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward looking statements. Embraer undertakes no obligations to update public life or revise any forward looking statement 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 actual results could differ substantially from those anticipated in the forward looking statements. Participants on today's conference call are Mr. Francisco Gomez Neto, President and CEO Mr. Antonio Carlos Garcia, ASEA, Chief Financial Officer and Percurement and Mr.
Eduardo Colto, Director of Investor Relations. I would like now to turn the conference over to Mr. Francisco Gomez Neto. Please go ahead, sir.
Good afternoon to all, and thank you for joining us in our Q4 fiscal year 2020 results presentation. I hope that all of you are well and safe. And I thank you for your interest in our company and most of all, in the confidence in our future. I will start with a short introduction about last year and afterwards our CFO, Antonio, We go into more details on the numbers for 2020 and the 4th quarter. I will return at the end of the presentation to speak a bit more about our main initiatives and my vision of the future.
Our challenges in 2020 were not just limited to the COVID-nineteen pandemic crisis. We also had to deal with the termination of the strategic partnership with Boeing in Commercial Aviation. These and other challenges negatively impacted our revenues and costs throughout 2020, directly affecting the results of the company. That said, we reacted quickly to adapt to the new reality in an integrated and structured way, prioritizing the health and safety of our employees, supporting our society with several initiatives to combat the pandemic and the also focused on cash preservation. Face it, this is new reality.
We adjusted our workforce to create a leaner and right sized organization. We are now more agile to progress with efficient gains, with sales campaigns and with strategic partnerships. During this process, we also recovered synergies with the reintegration of the commercial aviation business and its related services. Finally, we created a new business plan known as Embraer's Strategic Plan 2,125, which will be our guide for the next several years to return to grow in a profitable and sustainable way, resulting in Embraer becoming more profitable than it was in the past. Before I go into more details regarding the 2,000 1, 2025 initiatives, we will discuss the 2020 results.
I will now hand it over to Antonio, and I will return in the end. Thank you.
Thank you, Francisco. 2020 was my first year at Embraer and a very challenging and unprecedented year for the company. But I'm very happy with all achievements that we had, which I will show in more detail in the upcoming slides. The Embraer team is impressive, and I'm convinced that Embraer is on the right path. Now moving to the financial highlights on Slide 5.
The COVID pandemic impact was felt much more in Commercial Aviation. Our consolidated revenue declined around 30% in 2020. And commercial aviation and its related services responded for more than 8% of this decline. During the year, we made a great progress in integrating commercial aviation within Embraer. And all of our business units are now moving forward with a united focus on improving results as we gradually emerge from the pandemic.
We have a resilient backlog with strong customer and partners to build on. And we are proud to say that none of our commercial customer Cancel any of their orders during 2020. We, in fact, are cautiously optimistic and finally, the award in commercial aviation during 2021. The Executive Aviation and Defense Businesses showed encouraging performance during the year with a strong profitability improvement as we continue to work on this business to generate consistent margin going forward. The record margins and the executive jets proves that we are in the right way.
We changed the company mindset to implement actions to reduce cash outflows, expenses and optimize investment in SG and A in 2020 without compromising any of our ongoing progress or operating capabilities of the business. Besides that, the right size we announced in the Q3 has been implemented, and we expect a tailwind from that in 2021 results. We continue to work on reducing our working capital needs to unlock cash in our business, particularly with respect to inventories and accounts tables. As we highlighted in the Q2 and again reiterated in the Q3 of last year, We finished 2020 with a very strong cash generation, which was ahead of our expectation of a breakeven cash in the 2nd part of the year. We are also able to improve our liquidity during the less difficult time last year, security more than $1,000,000,000 in finance from different sources such as BNDES, U.
S. Exane, Private and Public Banks as well from the debt capital market with long term bonds finished the year with a very strong liquidity of $2,800,000,000 in cash. It's important to note that due to the uncertainties related to the pandemic and its impact on our business. We are not announcing financial guidance for 2021 this time. We will continue to evaluate the possibility of releasing 2021 guidance as the year progresses.
So moving to the highlights for our Commercial Aviation business on Slide 6. Deliveries recovered nicely and the Q4 with 28 jets delivered in the period and a total of 44 aircraft delivered during 2020. This also included the milestone of the Egypt number 1600 delivered to Helvet carriers. We also had deliveries to important and long time customers in 2020, including Aircat, Air France, America Airlines, Azul, United Airlines and others. We had 0 free market cancellations since the start of the pandemic, a fact that we are very proud of, which illustrates a less speculative nature of our backlog compared to peers.
Despite some new COVID outbreaks in several regions of the world and at the end of 2020 and early 2021 have delayed some sales company, but we are confident that we will announce important new orders in short term and throughout 2021. Our commercial aircraft continue to lead the recovery of domestic flights in several markets around the world, and airlines recognized the economics and the environmental value of our best in class jets in the 750 seats category. We see strong market demand for e Jets around the world. And last year, LeForest placed up to 90 e Jets in the market and we added 6 new e jet operators during the pandemic. Now shifting to Executive Aviation highlights On Slide 7.
Embraer delivered 43 executive jets in the 4th quarter, leading to a total of 86 jets delivered in 2020, with no white tail carryover into 2021. As far as profitability, 2020 was really a great year for Embraer's active jets as we presented strong margins of a high single digits and cash generation with a solid backlog and improving sales. In terms of client's recommendation, The Finno 300 was the best selling light jet again in 2020, the 9th consecutive year. And last year, the Phoenix 300 was not only the best selling light jets, but also the best selling twin engine jets in the entire executive aviation industry. We also reached an important milestone of the 1st Praetor 600 jets delivered to the fleet launch operator, FlexJets, in 2020, a very important customer that has chose Finos and Praetors to expand its business in a multiyear deal that was signed in 2019.
I would also like to highlight that the pandemic recovers on its way in the Executive Aviation has given us that operation are already back to over 90% of pre pandemic levels with a strong momentum in 2021 for Embraer. So on the Slide 8, we go into some highlights for our Defense and Security business. During the year, we signed a contract with the Brazilian Navy as part of a consortium with Thyssenkrupp to build 4 ships with deliveries expected to happen between 20252028. This underscores our positioning as the true defense halls of Brazil. We were also very happy to announce The sales of 2 C390,000,000 cargo transport and tanker aircraft to Hungary, currently our 2nd export customer of this aircraft at AirPortugal.
We also delivered 2 C390 aircraft to the Brazilian Air Force in 2020 and 16 A29 Super Tucano to the clients around the world during the period. We also continue to work in 2020 with Brazilian Air Force to study development of a new light cargo aircraft with short takeoff and landing capabilities. In terms of profitability, Defense and Security was our most resilient business during the pandemic as revenue grew and our operating margin moved from the negative in 2019 to a mid single digit positive in 2020. Slide number 9. With respect to our services and support business highlights, let me first say that The business was significantly impacted in the early days of the pandemic as most commercial and business that worldwide were stopped.
But since then, service and support has shown an impressive and consistent improvement during 2020. The business continued to perform despite the impact of the pandemic, completing 11 conversion of legacy 450s to new Praetor's 500 Jet during the year. Also, substance support helped and supported our commercial airline customers to adapt their realities imposed by the pandemic, working to get ejets modified and certified for a cargo transportation cabins. For the long term, we are proud that our AGMA and our business in Portugal was selected to become a new Pratt authorized maintenance center for GTF engines in Europe. After some initial investments in the business, We are excited for the growth opportunity for Ogema to potentially triple in size in the next several years.
Finally, we are optimistic for the future as we finish 2020 with service and support activities approaching pre pandemic levels. Now let's go into more details on the quarterly and yearly financial results. On the Slide 11, we show our year end backlog, which finished 2020 at $14,400,000,000 and declined mainly due to the impact of the Pazenco new orders, particularly in commercial aviation. Our total backlog fell around 15% in 2020, which compares favorably with our peers that face larger cancellations. It also highlights our high quality customer backlog with our very little speculative orders.
We are also cautiously optimistic regarding better order environment across all of our business in 2021. On Slide 12, we turn to aircraft deliveries, which showed a stronger recovery in the new normal levels in the 4th quarter. We delivered a total of 44 commercial aircrafts in the year with more than half coming in the 4th quarter and delivered a total of 86 executive jets in 2020, of which half came from the 4th quarter. The annual deliveries in commercial aviation were clearly impacted by the pandemic, while the executive aviation deliveries was less affected. So moving to net revenue on Slide 13.
Embraer reported just under $3,800,000,000 in revenue for 2020, which was a 30% decline compared to 2019. As mentioned previously, decline in commercial aviation and its related service were responsible for more than 80% of the reductions. Looking at the geographic split of our 2020 revenues, performance of North America and European markets has a direct impact in our business as just over 80% of our 2020 revenues came from this region. Continued improvement on COVID cases, vaccine rollouts and eventually improvements on passenger track give us optimism for the future. In Slide 14, Embraer presented a significant cost control during the year of 2020 as part of its cultural transformation as cleared shown in the Slide 14.
Our total SG and A declined almost 30% in 2020 as compared to 2019, excluding the bad debt provision of $62,000,000 in 20.20. This reduction is impressive and roughly in line with decline of sales for the year, despite a large portion of the CSG and A expenses being fixed cost in nature. So regarding adjusted EBIT on Slide 15. Embraer had a solid 4th quarter with one of the best levels of consolidated margin in recent years at 4.2% positive. This reflects not only the improvement in commercial and executive deliveries in the quarter, but also the improvements in defense and security and service and support top lines, as well the benefits of cost control and the initial positive impacts of our restructuring actions taken in September.
Adjusted EBIT in the 4th quarter It excludes a total of $27,000,000 of positive net impacts coming from restructuring expenses, impairments and bad debt provision. For the full year, we finished with adjusted EBIT of a loss of €100,000,000 representing an adjusted EBIT margin of minus 2.7%. This compares favorably with last year breakeven level despite a more than 30% decline in revenues caused largely by the COVID-nineteen pandemic. We expect higher profitability levels in the future years as we continue to recover top line growth and cost reduction initiatives are mostly permanent. For 2020, the adjusted BIT margin by segment was minus 7% at commercial, plus 8% as active, plus 6% of the sales and 4% service and support, removing items and one off impacts.
Slide 16 shows our adjusted EBITDA, which was positive $146,000,000 in the 4th quarter and also exclude the special items already mentioned in the previous slide. Adjusted EBITDA margin for the Q4 was 7.9%. For 2020, despite the significant impacts that the pandemic had in our business and with revenue dropping 30%, Embraer generated a positive adjusted EBITDA of $82,000,000 for the year with an adjusted EBITDA margin of 3.2%, which was very close to 2019 levels despite a meaningful decline in revenues. On Slide 17, we turn to the adjusted net income, which for the Q4 was a loss of BRL 30,000,000 and was better than the adjusted net loss of BRL 93,000,000 in the last year for the Q4 despite lower revenue in the period. For the full year, Embraer reported adjusted net loss of $464,000,000 which was higher than 2019, driven by the lower operating income as well higher financial expenses.
We believe that higher profitability in the coming years combined with lower financial expenses as we continue to recover the top line and improve our cash position will be important drivers for Embraer earnings rebound in the years ahead. Another lever we pulled during 2020 to reduce cash outflow was reduction of CapEx and development spending that we show in Slide 18. The total investment declined 60% to 203,000,000 Thought it's very important to note that none of our ongoing presence has been compromised in terms of timing. We are nearing the end of the development cycle for the C3 19 Millennium. The A175E2 development continues to progress as expected and we continue to invest in our Zixd variation segment to maintain the competitiveness with the state of the art projects.
As we look to the future, Investments are likely to increase a little bit from 2020 levels, but not in a significant way as our product portfolios deal and any large investments will require strategic partners. We are also highly focused on improving free cash flow generation in the coming years. So on Slide 19, we show the company's free cash flow in 2019 2020. We finished the year with a free cash flow usage of $990,000,000 but I'd like to highlight the strong cash generation in the Q4 of BRL725,000,000, which almost equalized the last year recorded free cash flow generation. Also, we promised to the market that the second half of the year would be breaking the free cash flow.
And we actually beat that by generating almost $160,000,000 of free cash flow in the second half. Cost control, improvements in deliveries and more efficient use of working capital are all helped in the cash flow increase for the Q4. We continue to work to deliver meaningful free cash flow improvements in 2021 versus 2020 as we gain further traction in our working capital initiatives as well additional cost efficient instant revenue gains. Finally, on the Slide 20, we show the company's strongly liquid position As Embraer finished the year with nearly $2,800,000,000 in cash, much improved from the previous quarter and similar to 2019 levels. We were successful in getting additional liquidity during 2020 via different finance sources.
We have less than 10% of our debts coming due in the next 12 months and the average maturity of our debt is above 4 years. With that, I will now turn the call over to Francis for his closing remarks. Thank you.
As you could see from Antonio's presentation, the pandemic has meaningfully impacted the results of our business, But the 4th quarter results are a clear example that we are making significant progress in our financial performance. The numbers reflect not only the actions implemented as a response to the crisis, but also the beginning of the execution of our strategic plan. 2021 will still be a challenging year as the crisis has not ended yet in this scenario remains uncertain and volatile. But despite all of the uncertainty, we are confident That this will be a year of recovery in our main markets to get back to stronger growth from 2022 onwards. With respect to our 2021, 2025 plan, I would like to highlight a few points.
Our strategy for the next 5 years has 2 main objectives, grow revenues and improve profitability. To do this, we must work as much on the top line to increase revenues As on the bottom line to reduce costs and improve margins, We will achieve these objectives focusing on the following fronts: revenue growth of our current portfolio of products in all business units, on projects to bring efficient gains and on initiatives for innovation, diversification and strategic partnerships. Some of the actions of the business plan are already progressing and have started to show results such as On the sales front, in commercial aviation, it is market consensus that the sector's recovery will begin first with Regional Aviation. In the E2 family of jets is the best solution for customers that need to make their fleets more flexible, economical and efficient. This is in addition to a strong and continued demand for E1 Jets, principally in the U.
S. Market. We have various Sales campaigns ongoing and advancing vaccinations in different regions of the world will be a crucial factor in closing these new opportunities. Executive Aviation in 2020 had its best performance ever with strong profitability and cash generation, despite the challenges of the pandemic and starts 2021 even better with strong sales. The defense business remains resilient with good growth prospects and improvement in profitability as we continue to ramp up the learning curve and maturity of our multi mission transport aircraft, the C319 Millennium and expanded the pipeline of sales campaigns for this aircraft and for the Super Tucano as well.
Overall, across our businesses, We have one of the newest portfolio of products in their respective industries with the Etus, The Pareos and the C3-nineteen. They are state of the art, technologically disruptive and highly capable products that are the result of the last several years of investments that we have made. These products should help us to grow much faster than overall market levels as we emerge from the pandemic. The services and support area is already approaching pre pandemic levels and continues a rapid recovery with good financial performance. The 25 year multibillion dollar contract signed between Ogma and Pratt Whitney for engine maintenance in Portugal will triple these subsidiaries' revenues in the next several years.
This translates to revenue and profitability growth for Embraer. On efficiency gains, already in the second half of twenty twenty, we started to see significant improvements in inventory levels, Reduction in the production cycles of our aircraft and components and cost reductions in general. In addition, we continue to focus on maintaining our innovation DNA. We announced the creation of EV, a business dedicated to the development of the advanced air mobility ecosystem and the EBITDA in electric vertical takeoff and landing aircraft, a segment with strong growth potential in the years to come. And we also remained focused on the discussion of strategic partnerships to open new markets among others for our commercial jets, our multi mission aircraft, the C-three ninety on development of the new turboprop project and on growth in our service and support business.
I know that many of you have invested in and have referred Embraer for a long time We know our company very well. For that reason, I think it's important that you leave this presentation with a clear understanding regarding 5 key points. 1st, This is a different company today. We are not the same business that we were years ago. And we are not yet the business that will become
in the
next few years. We are in a process of transformation And we are moving fast. 2nd, we are very confident in our strategy. And this confidence motivates us to accelerate and remain focused on execution with discipline. 3rd, be certain that we will direct our team, our assets and our skill sets to be a larger and more profitable company in the next few years.
We can see many opportunities ahead of us despite the short term challenges we are facing. 4th, we have today a very united leadership team, The company focused on the execution of our plan and a high level of alignment, motivation and energy in the entire organization, which has made a big difference in our process of recovery after the pandemic. And 5th, Embraer is a company that is concerned with the environment and one of the first in the industry to adopt advanced norms of environmental management and social responsibility in its region with high governance and ethical standards. We are committed to ESG and we'll progress even further on this agenda. Finally, Our founder, Jose Silva, the 1st Brazilian and one of the few known Americans to be recognized with the Daniel Guggenheim Medal, which is granted as one of the highest awards in aviation used to say, Embraer always challenged the impossible and is capable of getting where it wants.
Thanks to the passion and competency to always do the best. We preserve and incentivize this passion and the high competence of our engineering force in other areas. And now with more focus on results and simplicity of actions, we are sure that we are making a difference to be a bigger and more profitable organization for our shareholders. Thank you very much.
Thank you. We will now begin the question and answer session. Our first question comes from Myles Walton, UBS.
Hi, good afternoon. Thanks for taking the questions. I was hoping that you could perhaps touch on new products. And you mentioned, Francisco and Antonio, About revenue growth and partnerships that would be required for really investing on new products. And I wonder if you could comment around both the turboprop area as well as the Inital area, how much Embraer is willing to spend to create those markets versus what they need from partners and when those partnerships might materialize.
Thank you, Myles. Francisco speaking. Thanks for your question. Well, let's separate this answer in 2 parts. First, I mean, We do have a very new and competitive portfolio of products, Right?
That we have considered in our 5 year strategic plan. Now the E2 family That we're still working the E175 E2, the Finnals, the Stratos, the Vector's, the Active Aviation In the new C319 Millennium in the defense. For new products Like the turboprop, like the South, we are working in different partnerships strategic partnerships. For the South, for example, we are working we are close to get a contract from the Brazilian Air Force. For the physical product, we are working in this partnership front to find partners to help us to fund and accelerate the development of the product and to open new markets for the product as well.
So this is what we are doing. We are I'd say that we are in an advanced stage in such fronts, But we don't have anything concrete yet to share with you.
Okay. Very good. And one other one, if I could. The profitability that you think the company can get to in your Vision 21 to 25, should we think about The EBITDA margins of Embraer over the past in the mid teens, 14% to 15%, Is that where you're trying to get to? Or do you think you can have a pathway to get above those margins?
Thanks.
Thanks, Myles. Antony speaking here. I'm going to Tell you around the VAT margin. First, we do believe we are with everything we have in front of us be able to reach higher single digit VAT margins throughout this 5 years plan, which lead us automatically for the EBITDA that you just mentioned.
Thank you. Our next question comes from Robert Spingarn, Credit Suisse.
Hi, good afternoon. I got a couple of questions, but first just a follow-up to what Myles just asked you. On urban mobility, would you seek a strategic partner there, either for the aircraft side or for the air taxi side or might you access the public markets? And I'm specifically asking about Yves accessing the public markets as a separate company.
Thank you. Thank you, Rob, for the question. As I said in my introduction and my closing remarks, okay, We continue to invest in innovation programs and projects. And it is one of the most important ones that we are working on at this moment. We see a great potential in that market, no doubt, for the vehicle itself, the EV toll, But also for the urban air mobility traffic management as well.
And we continue we are working to exploring potential investors and also strategic opportunities. But we don't have also anything concrete to share with you at this point of time, But this is, in terms of optimization, one of our most important initiatives is Novak.
Okay. And then turning to the competitive environment. In the regional jet business, we've had a fairly significant change with Bombardier and Mitsubishi essentially dropping out of the new aircraft production market. So now really in RJs or at least up to 110 seats, it's only Embraer. To what extent does this change the market dynamics for you?
And are you seeing any evidence of traditional Bombardier operators now looking at Embraer E Jets for growth or replacement aircraft.
So, Rob, Zantal is
Go ahead, Zantal.
Zantal is speaking here. For sure, we do we I do believe in what's with the 2 competitors not putting aircraft to compete with us. Didn't change too much Because we were the market leader anyway, we do see a V shape recovered very strong in U. S. For the regional jets, where we are along with the 75E1.
I would say, we didn't change it too much because from the 20 From the 4 aircraft we delivered 2020, twothree was already for the regional jets in U. S. And we just continue to fulfill our customer demands. For the new operators or the new the other airlines to Take decision to right size their fleets. We do believe it's going to take more time to take a decision saying, okay, now we go To buy 175 E2, I want or even our issues.
We do believe this right size or change in the fleet profile is going to take 2 or 3 years in your opinion.
And if you allow me to compliment Antonio, the issue It's the most economical aircraft, one single aisle aircraft in the market, the most efficient one. It offers, I mean, a reduction of about 20% in the cost per feet comparing to our It is a big narrow body, the competition. So we are very well positioned either with the new ones, as Antonio said, or With the new E2s.
Do you see any chance to get the E2175 into the U. S. Market?
Rob, we do believe the scope cloud is still resisting to 285, 86. We are monitoring this, yes. And we are concluding the development certification of the aircraft in 20 23. And we do have other guys outside the U. S.
For this product or the customers. But until 2025, I will not make any forecast right now. That scope clause is not going to play a role in U. S.
Okay. And just a last question, a clarification with regard to the long term forecast on Slide 22. When you say recovery in 2021 and then growth beyond, is that specific? I mean, do you see 2019 type numbers In 2021, at least in any area regional jets, biz jets or cash flows or Is that really going to come after 2021?
Well, We see 2021 is still as a challenging year. And but I think we did our homework in 2020. We right sized the organization. We've taken place a lot of initiatives to improve our efficiency, to sell more. And we don't see A big growth in 2021 in terms of revenues, mainly because of the commercial aviation that are still strongly impacted By the COVID, our other business units, they are much more resilient, as we said before.
The Executive Aviation had its best year ever in 2020 despite of the COVID. We see a very good year for the Active Aviation in 2021 and the same for the Defense and Services. Under Commercial Aviation, we expect to see some growth from 2022 onwards. But to be back To free cash levels, we believe that this will be from 2023 and beyond.
And when in there would you expect cash flow breakeven?
Rob, I don't want to give you a guidance, but we are fighting for the best already in 2021, but we are evaluating here before I give a guidance to the mark. 2021 will be still a challenging year for us. For sure, free cash flow will be much better than 2020, no question mark, but we are still evaluating to give you guys a better guidance for this year.
Okay. Thank you both very much. Very helpful. Thank
you. You're very welcome.
Our next question comes from Mariana Perez Mora, Bank of America.
Good afternoon, everyone.
Hello. So
my first question is also a follow-up on this. Could you please give us some color on the strategic I mean, the strategy about spinning up It's last year. It's because of operations. It's because of like attracting investors. And If you can give any color,
if you
were to see that company come public, how can that be?
Yes. Hi, Marion. It's Eduardo here. I'll take that one. As we said, we created EVE at the end of last year.
As Francisco mentioned, we believe a lot on the urban air mobility market. It's exponential growth market, and we are really, I would say, excited about that opportunity. And that was the reason behind the heap creation itself. We're exploring potential investors and strategic opportunities, but we are not commenting at any specific alternative or any structure at this point. So that's pretty much what we can say.
Okay. And then the other one is on executive. If I'm not wrong, your margins this quarter were close to 13%, and it's the first time we have We've seen double digits since 2014. How sustainable is that kind of margin? How should we think about margins going forward?
So I do we do see the We are trying to follow a structure in the Executive Aviation, which is trying to build so many aircraft as we can sell, We can deliver. First one, we finished 2020 without any whitening in the inventory, First one. Second one, we are seeing a recovery. Even that last year, we delivered much less than 2019. In a sustainable way.
We do see the executiveizations always in the higher single digit DIP margin for the longer run. And for sure, We still have the issues to work in our product portfolio in order to improve market share and be more aggressive in some of the other initiatives in regards to products. But we are well placed. We are the live jets, the market leader, and we are proud of, I would say, sustainable, let's say, mid to higher single digit VIT margin from the land grant. And Mariano, it's important.
And when you mentioned about The VAT margin is without services. It's just pure aircraft. If you compare it to the peers, some peers they show the VAT margin with service. We have just talked about pure sales and deliveries of aircraft. And that shows that Embraer is not only commercial aviation, is also an active addition, which has a lot of value to deliver.
Perfect. And if I may, last one for me. On leverage, how should we think about the balance sheet structure and trends in the near term?
Yes, we had a very strong Q4, right, Mariano, in terms of cash generation. We generated north of $700,000,000 in cash. That was very important to deleverage the company. We ended the year with a very strong cash, dollars 2,800,000,000 in cash, net debt around 1.7. The company is highly focused, as Francisco mentioned many times And Antonio, to generate cash to continue to deleverage.
Also, any New or heavy investments will need to come with partnerships also to reduce the investment efforts from Embraer, which will also be important to generate cash. So we are confident that we are in the right path and we expect free cash flow to improve meaningfully this year already and for the years to follow so that we generate cash and can deleverage the company. So we are not comfortable with the leverage we are today, okay?
Thank you very much.
Welcome. Welcome.
Our next question comes from Marcelo Mora, JPMorgan.
Hi, everyone. Good afternoon. Two questions from my side as well. The first is regarding the sales campaign. Bryce, you personally commented in the presentation that you do expect to have some results in the short term.
So just wondering how much more can you mention about it. And also if you look at The backlog of
the company, I mean, do
you think it could go back to levels pre COVID? It's going to be a more For some type of backlog as companies are still working on the orders. So how can we think about those two lines? Thank you very much.
Thank you, Marcelo, for your questions. But I think I would answer in different ways, I would say. For commercial aviation, Yes. We have we are working a lot of campaign, I mean, for E1s, especially in the U. S.
And for E2s in different markets. But the reason to close those deals Really depending on the vaccination progress. Many companies, they are expecting Growth in the market airlines, but this COVID impact is still an issue for them. On the other side, I mean, exactly what we are doing, we are doing pretty well. We started very strongly this year with new orders, Much better than the past.
And in the sense, we are very stable this year as We were last year, so it's a very resilient business that we have. And the service area, this It's approaching the pre COVID levels. So again, I think that for executive defense and service, we are doing pretty well in terms of orders. But in the commercial, it really depends on the progress of the vaccination in the different parts of the world.
So in regards to Marcelo, it's Antonio speaking here. In regards to our backlog, we take a look backwards and Between €10,000,000,000 to €15,000,000,000,000,000 or €40,000,000,000 is, I would say, is not a risk for Embraer. We are, I would say, safe for The year beyond, there is cancellation. Having no cancellation is really key for us means we have our customers supporting us. And the reduction itself is clearly, we delivered a lot In 2020, we were not able to close too many deals.
And you know better, COVID-1, wave 1, wave To see what's happening in Brazil here, especially the airlines, they are reluctant to take such decision as long as there is no visibility for the impact of the COVID. But I would say, we should be able to be minimally stable this year with the new campaign that we are Discussing right now.
Perfect. Thank you very much.
Welcome.
Welcome.
Our next question comes from Noah Poponak, Goldman Sachs.
How are you seeing commercial production or unit deliveries For 2021 versus 2020?
Hello, Ngo, Antoni speaking. We see is slightly better than 2021, not a big spike, but slightly better with regards to units.
Okay. I guess, I respect that a lot of the companies in the industry are providing guidance and We're also working through a pandemic, so there's just general high levels of uncertainty. I guess I'm a little surprised you're not providing guidance because you if you're speaking to regional jet deliveries up a little bit, business jet It seems even a little firmer than that. You have the Phenom 300 as your highest unit airplane, which is a really well positioned airplane. And then defense was flat this year and it's a little more insulated.
And then margins and cash flow Are in your control beyond top line. Is there something else besides just the broader umbrella of uncertainty that I'm missing that that's holding you back from providing outlook for you?
No, it's a no one. Thanks for the question. It's really a great question.
But
from the operational side, we are really at crazy times in Brazil. We all know about this. We do not expect issuing our operations, but you never know what can happen, but it's one point. And the second point, we are Just evaluating our free cash flow in a better way in order to be more precise. The issue for those diseases is improving free cash flow, and We are reluctant to give guidance right now in order to we don't want to disappoint the market before we have clear idea what's going to happen.
This year, there are a lot of moving parts, especially the sales company that could change A lot of this number that we are going to provide to you. That's why we prefer to keep our horses here for More 1 or 2 quarters. Sorry for saying this, but it's the reality. No,
no. No, That's fair and sensible. I just wanted to yes, give us one of that. Last one, Your answer to Myles' question on future margins was a little surprising to me where he was Making the point that the company used to have a mid teens EBITDA margin and your answer to him was you were looking at and thinking about High single digit EBITDA margins in 2025. The company has had D and A That's pretty consistently been kind of 5% of revenue outside of 2020 where the revenues are depressed.
So that would mean that you're thinking EBIT margins sub-five percent. That's just surprisingly low compared to where you've been historically. What some of your targets have been over time? Yes, am I missing something there?
No, no, no. Just to correct, I was a comment in regards to DAB IT margin, not the BTDA. We do see higher single digit DAB IT margin for this period. And we are doing this. If you see exactly, we closed with 8% and defensive at 6 And now, sir,
which will be much better.
I was mentioning that the DIT might be. And for sure, the DTA might be double digit anyway.
Okay. I'm glad I asked for the clarification then. I heard the acronym you were all speaking to incorrectly. Okay. Understood.
And yes, thanks for the time.
Welcome, Bruno.
Thank you. This concludes today's question and answer session and also Embraer's audio conference for today. Thank you very much for your participation. Have a good day.