Good morning, ladies and gentlemen, welcome to the audio conference call that will reveal Embraer's third quarter 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. If you should require assistance during the call, please press the star key followed by zero. As a reminder, this conference is being recorded and webcasted at ri.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, publicize, or revise any forward-looking statements 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's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO; Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement, and Mr. Eduardo Couto, Director of Investor Relations. I would like now to turn the conference over to Mr. Francisco Gomes Neto.
Please go ahead, sir.
Good morning, everyone. Thank you very much for participating in this conference call. I am Francisco Gomes Neto, President and CEO of Embraer. Before giving the floor to Antonio Garcia, our CFO, I would like to make some initial comments. With the recent growth in the number of COVID-19 cases in different parts of the world, notably in Europe and in the United States, we remain focused on the health and safety of our people, assessing the situation on a daily basis at each of our units around the globe. Regarding finance, our focus in the short term remains on preserving cash through the execution of a series of measures implemented over the past few months, which I have already discussed with you during our past earning calls. In parallel, we are preparing the ground for a much better financial performance in 2021 and growth in the following years.
Today, I'd like to take a few minutes to focus on some of our priorities, namely, a lean organization and recapture synergies and business plan update. Next slide, please. Regarding our lean organization and recapture synergies pillars, we have made every effort to maintain the know-how and competitive advantage brought by our remarkable people. In view of the new market reality, it has become essential to review our workforce, and in the last quarter, we made a significant adjustment to our structure. We analyzed the structures and teams of each area within the company with the goals of creating a leaner and more agile organization and eliminating the duplications generated by the commercial aviation carve-out.
We have already recovered synergies with the reintegration of commercial aviation and the associated services and support. At the same time, we have retained all the skills necessary to return to growth in the coming years. A simpler and leaner organization has been prepared for properly implementing our 2021-2025 strategic plan, a theme that I will address on the next slide. While we are dedicated to managing the impacts generated by the crisis in the short term over the past few months, we have also focused on updating our business and growth plan. We believe that the period between now and 2025 can be divided into three phases. This year is dedicated to crisis response. Starting next year, we expect that the market will start to recover, with variations depending on the specific business areas and markets.
From 2022 onwards, our projects will mature and allow us to grow profitably. Regarding the Embraer 2021-2025 strategic plan, we have reviewed the details over the past few months. In response to the new market scenario, including the impacts generated by the pandemic, the end of the agreement with Boeing, and the reintegration of commercial aviation. This was a collaborative effort involving dozens of company leaders. We focused on the plan's effectiveness, and we know it is realistic. The goals are challenging but doable, and we will execute with focus, governance, and discipline. The plan has two main objectives, to increase the revenue and to improve profitability. To achieve these two objectives, we defined three lines of action. Number one, initiatives aimed at efficiency gains. Number two, actions to increase the sales of our current product portfolio. Number three, a combination of business diversification projects, innovation, and strategic partnerships.
In total, the plan comprises 18 projects that will bring more agility and intelligence to the processes and reinforce alignment across the company. Just to give you a little more visibility, the first front, which is related to efficient gains, entails the creation of a world-class purchasing organization, reporting to the CFO and focusing in a very structured way on intelligent cost reduction. At the same time, we are incorporating more intelligence into the processes within the material planning and logistics area, focusing on increasing inventory return to reduce substantially working capital. In operations, the projects aim to reduce aircraft production cycles, which will allow us to have more competitive products and reduce working capital as well. Regarding the second front dedicated to the growth of portfolio sales, we will intensify the sales efforts of our products.
We benefit from new and competitive products in every segment in which we operate. Additionally, we will focus on adapting and converting aircraft for specific segments, such as converting E-Jets to carry cargo in the passenger cabin, or the recently launched Phenom 300MED, which was designed for medical evacuation. Finally, on the diversification, innovation, and partnerships front, we are going to expand our operations. This year, we have already announced investments in cybersecurity with the acquisition of Tempest, the Frigate project with the Brazilian Navy, and more recently, the creation of Eve, a company dedicated to the development of the urban air mobility ecosystem, and eVTOL, electric, vertical landing and takeoff aircraft. With this front, we are also developing project to expand our service offerings for aircraft from other manufacturers.
We are discussing potential strategic partnerships aimed at opening new markets and developing new products such as the turboprop. It's important to note that in addition to managing well-structured projects, the plan focused on the process of execution and on the constant monitoring of the evolution of all initiatives. We are aware of the challenge we have ahead, especially in commercial aviation in 2021. We are very confident in the future of Embraer. We know what must be done. We know how the plan should be carried out, and we have an immensely competent and aligned team that will develop the necessary initiatives to make the company grow profitably in the coming years. With that, I have concluded my comments, and I would like to give the floor to our CFO, Antonio Garcia. Over to you, Antonio. Thank you all.
Thanks, Francisco. Good morning, everyone. It's really a great pleasure to talk to all of you. Moving to the commercial aviation highlights on slide seven. During the third quarter, we delivered seven E-Jets, representing a sequential improvement compared to the first and second quarters that we will accelerate even more in the fourth quarter. Among our third quarter deliveries, we had five E175s for United Airlines, highlighting our continuous leadership in U.S. regional jet market. As another example of our continuous improvement, we have already delivered more planes in October than in the entire third quarter of 2020. As far as new operators, Alliance Airlines from Australia received 14 pre-owned E190s, and Bamboo Airways from Vietnam started operation with two E195s. We are still not in the point where we can give guidance on expected deliveries or financial performance due to the COVID-19 uncertainties.
We would like to point out that we remain cautiously optimistic for the future, as we have seen a gradual rebound in domestic flight activities in several markets around the world, including the United States . Looking commercial aviation 2021, the uncertainties around the COVID-19 pandemic are still our biggest concern for next year. The fleet of E175 in operations continue to improve, with 93% in service as of end of September, outpacing our competitors in the market. I'm also proud to say that we had zero cancellation of commercial jet orders since beginning of the COVID-19 pandemic. In executive jets, on slide eight, we had a strong delivery pickup during the third quarter with 21 deliveries. This brought a total executive jets delivery so far in 2020 to 43 aircrafts. We expect the fourth quarter to remain strong for Embraer, and deliveries should continue to increase compared to the previous quarter.
As a result of higher deliveries, improved mix, and measures taken to be more cost-efficient, the executive jet segment posted positive operating margins in the third quarter and year to date, marking the continuous turnaround of our profitability on this segment, despite the COVID-19 pandemic. As mentioned in the last call, we launched the Phenom 300MED during the third quarter, which is a unique Medevac solution that's also available for retrofit on existing Phenom 300s. In terms of new technology, Embraer continues to disrupt the midsize segment with Praetors, HEPA filters now being standard, while lavatory electrical doors and synthetic vision system were both certified during the quarter. Finally, we would like to highlight the continued recovery during the third quarter, in particular, with respect of the fractional and charter operations with smaller and medium jets.
Among fractional, small jet activity was down only 13% year-over-year, compared to the medium jets, down to 18%, and larger jets 33%. Among charters, small jet activity was almost flat versus last year, while the medium and larger jet class were down 5%-17%, respectively. As you can see, the markets where Embraer is positioned with the Phenoms and Praetors are recovering faster. Moving to slide nine. We show the highlights for defense and security. Regarding the C-390 Millennium program, there are currently six C-390 in various stage of production for future deliveries to Brazil and Portugal. We expect to deliver one more aircraft to the Brazilian Air Force still this year. The program also received the 2020 Grand Laureate Award for Defense from the Aviation Week, which selects the best aircraft programs across commercial, executive, defense around the world.
Another highlight during the quarter was the Super Tucano, as Embraer was able to deliver 10 planes to international customers. With the reopening of global borders, we were able to deliver Super Tucanos to Nigeria, Chile, and the Philippines. The first Gripen E arrived in Brazil to start its flight test campaign, which is a major milestone in the Brazilian jet fighter program with Saab. Embraer will also play a leading role in the execution of the program in Brazil, and will be responsible for the system's development, integration, flight testing, and final assembly, and delivery of the aircraft to the Brazilian Air Force. Turning to service and support on slide 10. We are proud to say that Embraer, once again, was ranked first in Pro Pilot's Corporate Aircraft Product Support Survey 2020, underlining our commitment to customers to provide the best after-sale support possible.
Our service and support team also completed the seventh conversion of a Legacy 450 to Praetor 500 since the service became available early this year. We were also able to get a certification in the third quarter of the first E-Jet modified for cargo transportation in cabins, offering our customer a solution to better utilize their fleets in the environment of lower passenger traffic caused by the COVID-19 pandemic. Further in service, we are pleased to see that the KC-390 Millennium has been showing excellent reliability in the humanitarian missions in Brazil and abroad. Moving on to our financial results on slide 12.
Our backlog finished third quarter at $15.1 billion, representing several years of revenue for Embraer. It is important to highlight again that despite some deferrals, we didn't have any cancellation in commercial aviation, and we expect some new sales to potentially lead for a backlog expansion in the upcoming quarters, depending on the impacts of a second COVID wave in certain regions. On slide 13, we show revenues and deliveries. We can clearly see an improvement in the third quarter relative to what we had in the first half of the year, and the impacts of COVID on the industry start to reduce, with higher commercial and executive jets delivered in the quarter. As I mentioned earlier, we expect an even better fourth quarter compared to the third quarter.
We also had a strong revenue improvement in defense and security following the reopening of international borders to allow for the deliveries of Super Tucanos. Our service and support business, despite a year-over-year decline due to the COVID-19, has also increased double- digits sequentially from the second quarter, with potential improved activities across the commercial, executive, and defense markets. Next on slide 14, Embraer highlights its continued cost control in selling and administrative expenses. The reduction of SG&A reflects our ongoing efficiency and structural actions, as I read earlier in this presentation, combined, of course, lower market expenses coming from the COVID-19 restriction. It is important to mention that said expenses includes higher bad debt provisions compared to last year, mostly related to our service and support receivables. Excluding the bad debt provision, SG&A expenses on a year-to-date basis in 2020 are 30% lower than the same period of 2019.
On slide 15, we show our operating results. Embraer reported Adjusted EBIT of a loss of $45 million in the third quarter, with a margin of -6%. The Adjusted EBIT in the third quarter excluded a positive impact of $7 million from special items, including $54 million in charges related to our restructuring announced in September, and $30 million in additional bad debt provision, offset by +$75 million in reverse of non-cash impairments, charges in executive and commercial aviation. Breaking our third quarter margin by business, executive jets was +2%, service and support +4%, defense and security breakeven, similar to previous quarter. Commercial aviation was responsible for the negative operating results due to the low deliveries and the COVID-19 impacts. Slide 16 shows our Adjusted EBITDA, which was a loss of $80 million and also excluded the special items already mentioned in the previous slide.
Adjusted EBIT margin was - 1%. The combination of better volumes and cost-cutting initiatives have already started to appear in the third quarter, and we expect this trend to accelerate in the fourth quarter of the year. Moving to next slide, 17, with earnings. Embraer adjusted net income reached a loss of $148 million in the third quarter. Our earnings have been negatively impacted by the lower operating results, as well as higher financial expenses and non-cash FX losses, similar to the operating numbers. Net income also reached a bottom in the second quarter and has started to rebound, and we expect better bottom-line performance in the fourth quarter of this year, driven by higher deliveries. Next slide 18. We show Embraer's total investment over the last few quarters. The company has launched several initiatives to cut investment, including CapEx, as well research and development.
These reflect our actions to preserve cash. It also highlights Embraer updated portfolio with state-of-art products in commercial aviation, executive jets, defense, and security. Embraer has invested a lot in the last five years, bringing new programs and products to the market, and now we expect the upcoming years to show lower investment. Total investment during the third quarter reached $45 million and $134 million year to date, which is less than 1/2 of our investment level of 2019. Moving to slide 19. Our free cash flow was a usage of $567 million in the third quarter. This free cash flow usage was negatively impacted by approximately $250 million, including three major items. First, one-off charge of around $70 million related to the restructuring and severance costs package of our headcount reduction in beginning of September.
Second, around $ 100 million in short-term customer finance that will be normalized now in the fourth quarter. Third, another $ 80 million related to three plans that skipped from the end of the third quarter to the fourth quarter. Excluding that, our cash consumption in the third quarter of this year will be very close to the third quarter of 2019. Given expectation for higher deliveries in the fourth quarter with a positive impact on our working capital as well as our cost reduction initiatives, we are confident that our free cash flow will be much better in the fourth quarter of the year, and we should be at least cash breakeven in the second half of 2020. Finally, on slide 20, we highlight our strong cash position.
Our liquidity increased during the third quarter with a total cash position of $2.2 billion, which is a similar cash level that we'd have prior to COVID pandemic. I'm also happy to announce that we complete a series of liability management initiatives, new loans with private and public banks, as well new bonds issuance of $750 million maturing in 2028 and as repurchase of $250 million of outstanding 2022 and 2023 bonds. It's important to highlight that our new 2028 bonds is unsecured and had a market demand above $3 billion, showing the confidence of the investor in long term of Embraer. With that, I conclude my presentation, we can open for questions. Thank you very much.
Thank you. We will now begin the question- and- answer session. If you have a question, please press star one. Our first question comes from Robert Spingarn, Credit Suisse.
Hi, good morning.
Hi, Rob.
Hi. Just a couple different things. First, what gives you confidence in the outlook at commercial and executive jets for you to reverse these impairments at this time? What improving trends are you seeing, and does that include increased interest in ordering aircraft?
Rob, it's Antonio speaking. Thank you. Good question. The reverse of impairments, assuming that we revise it in a quarterly basis, it was highly driven by the exchange rate. The valuation of the Brazilian real, we do have a lot of cost in Brazilian reals, which means we didn't change volumes. We just changed the exchange rate to improve the margins, which accounts for the impairment reversal. Just that. We didn't change the baseline.
I see. Are you seeing any evidence of something you've talked about in the past and that we saw after 9/11? Are you seeing actual down gauging at your customers from the commercial narrowbodies to the E-Jets? Is this a trend that is gaining some traction?
Rob, Francisco speaking. Thanks for the question. We believe the domestic and regional markets will rebound first as it happened in the past, as you mentioned. The airlines will look for more versatile, flexible, and more economical fleet. We do believe that our E-Jets are very well positioned in that direction. That's why we believe we'll have a good chance, as soon as the market pick up.
Okay. My last question is about your inventories, either in commercial, actually in any of the segments. Do you have white tails in inventory? If so, can you quantify?
In regards to today, current situation, we have really a few. We are sold out in the small jets, in the executive aviation. In the midsize jet, we still have three or four to be sold this quarter. Again, minimal. Also for the commercial aviation, we have no white tails for this time being. We do have only the carryover inventory that we are due to the postponement of deliveries to 2021, but it's not a big amount. What you do see in our inventory, we are going to run more or less 40% of our revenue in the first quarter, which means we are going to strongly go down with our inventory in Q4 due to the higher deliveries in Q4. Again, no big white tails on the inventory.
Thank you very much.
Just one comment, Antonio, to complement. It's Edu. As you said, we basically have no positions available. That's the reason we are so confident on the fourth quarter and on the recovery towards the year end.
Okay. Thank you all. Thank you.
Welcome.
Welcome.
Our next question comes from Myles Walton, UBS.
Thanks. Good morning. Maybe, Antonio, on the cash performance here in the third quarter, you laid out some of the one-time items, but I think the commentary last quarter was you could have been closer to break- even for free cash flow here in the third quarter. I'm just curious, what changed? What has pushed out to the right? I guess following on Rob's question, why couldn't those continue to push out to the right, realizing you haven't had any cancellations? I t seems like deferrals are more likely than not.
Myles, thanks for the question again. The previous calls we mentioned that we are seeing, and we see good chance to become, I would say free cash flow break-even the second semester or second half of the year. We are still continuing to believe. As you could see, we have a cash burn in Q3 from $567 million. We had skip of some aircraft delivery to Q4. We have also the severance payments that we are heavily impacting Q3, will be much less in Q4, and we have the huge amount of deliveries in Q4. We're still confident, and we are seeing progressing the improvement of free cash flow, and also cash collection plays a role and also the other measures that we are taking. Let's say we are still confident that we'll be closer to break-even in the second semester.
Again, if you ask about my expectation, the third quarter, we could have been better $ 250 million. Again, have these one-time effects, shifting this effect for Q4.
Okay.
Just one point, Myles. We had some planes that really skipped to the fourth quarter, but as Antonio highlighted in the call, we already delivered more planes in October than the whole third quarter. I think that shows that, we are very confident on to revert that now in the fourth quarter. I would say all the deliveries for fourth quarter are confirmed, so we are not seeing risks or delays as we had. We had some planes that moved from Q3 to Q4, but now they are all confirmed. Okay.
Maybe an additional information, Myles. The Super Tucanos we deliver in September, and we delivered, but we are going to book as a revenue and cash in now in Q4, which also helps in this equation around $ 80 million. That is not part of the Q3 results.
Okay.
Again, many issues happened in Q3, but we should see the rebound in Q4.
Okay. Francisco, maybe I can ask you, as you're repositioning the business and you want to get, obviously, the commercial business in particular to profit or cash break-even at worst, what's the deliveries, or the size of the commercial business that you're sizing the cost structure to and the workforce to?
Good question, Myles. We have been discussing this a lot in our plan for the following years. We still see 2021 as a very challenging year. I mean, we'd say it's not much higher than we see in this year. We are working in various fronts to adjust the cost structure of the company to deliver a much better performance in 2021, even we'd say is not much higher than 2020. The main reason for that is the commercial aviation. We see that the 2021 will be still a challenging year for commercial aviation. We are preparing for that scenario. We see an opportunity to grow from 2022 onwards.
Do you think 2021 could be break- even for commercial aviation?
No. Commercial aviation, we are still suffering 2021. The other units will have a much better performance next year.
As we are seeing this fiscal year. By the way, we are seeing this year. Myles, we are lucky to have a broader portfolio, and we are seeing a good performance in regards to margins for executives and defense and security and servicing, which is more or less try to compensate the drop in the commercial aviation regards to margins and results. You're going to see the same picture in 2021.
Okay. Thanks again.
Welcome.
You're welcome.
Our next question comes from Ron Epstein, Bank of America.
Good morning, everyone. This is Mariana Pérez Mora for Ron today.
Hi.
My first question will be, could you please give us some color on the short-term customer finance cash headwinds you have this quarter, and not only the color on the quarter, but also how and why are you confident that this is going to recover going into next quarter?
That was really a short-term timing delay. We don't do customer finance, and we had a very short-term finance that we are transferring to the final finance agent. There is no risk of not reverting that. We don't do customer finance.
Okay.
It's already confirmed because-
And then if you come-
It's already confirmed that-
Sorry, go ahead.
It's already confirmed for the ECA in Brazil. The takeoff is everything is set.
Okay. In general, because I understand for competitive reasons you cannot give particular details, but how is cash profitability compared to pre-pandemic cash profitability upon delivery?
Are you talking about commercial or the whole business?
Commercial, particularly.
We are improving. We suffer with the lower deliveries, especially in the first half. Third quarter already started to show improvement, but the big improvement will come now in the fourth quarter. As we mentioned, October already better than the whole third quarter. We're going to have much more deliveries, and that will drive a big improvement in cash profitability, coming from working capital reduction. Also the cost adjustments that we did that Francisco and Antonio highlighted.
Thank you. If I may, the last one, you highlighted improvement in bizjet operations. Have you seen some pickup in demand already?
Well, you mean demand for 2021 or for the following years?
How are your sales campaigns coming in? If you have seen any pickup for business jets demand, what's book-to-bill there?
Well, executive aviation is showing a good reaction. We are, for example, in our Phenom family, we are sold out for 2020. We are selling aircraft for 2021, the Phenoms. It's moving well. The defense and security, we are working in different campaigns as well. Also in the commercial aviation, we are working different campaigns. Hope, this second wave of COVID will not bring a negative impact. On the opposite, if they announce a new vaccine, this will help a lot. The rebound of the regional and domestic flights that will help us to boost our sales in the commercial aviation as well.
Okay. Thank you very much.
You're welcome.
Thank you.
Our next question comes from Cai von Rumohr, Cowen.
Thank you very much. Maybe you could comment on the mix of your bizjets. You've done very well with the Phenom 300 and the Phenom 100, and basically very poorly in terms of deliveries of the Legacy and the Praetor. Why you have that sort of extreme mix, and should we expect a big pickup in those larger planes, in the fourth quarter and going into next year?
Cai, thanks for the question. Let's see if I understand your question. T he Phenom 300 is our best seller. It's the most sold aircraft in its category for the past eight years, I would say. We are improving our sales for the Praetor. The Praetor 600, now also the Praetor 500. We have specific programs, specific initiatives in our 2021-2025 strategic plan to improve the competitiveness of the Phenom 100 and the Praetor 500. With those plans, we expect to capture additional market share in the following years for all the family, because we do believe we have a great family with the Phenom 100, Phenom 300, and the Praetor 500 and Praetor 600.
Just to add, Francisco, we had only two Praetors in the third quarter and 19 Phenoms. We expect a much better performance in terms of the Praetors now for the fourth quarter.
Correct. Thank you, Edu.
Got it. That was essentially the question. Going forward, because if we look at this year and last year, basically the third quarter, generally weak for the larger bizjets. Do you expect a more level, even spread of the large bizjets? The Phenom's clearly doing well, but the large ones, where the product looks attractive, doesn't seem to be doing quite as well.
Cai, it's a good question for sure. If you see the chart I showed, the midsize jets, they are not doing well compared with the small jets. That's why we are sold out in the Phenom 100 and Phenom 300. We still have some open positions for the last quarter. I would say we do have campaigns for all of them. If we are going to sell is another question, but I would say, we are talk about five to six aircrafts on the Praetor family. The others, we are sold out, and you saw the deliveries we have year to date, 43. We are seeing for the whole year mid-80s for the total 2020 regards to deliveries, which shows that last quarter will be hot anyway for us.
For sure, the midsize jets, they are suffering more and also the large jets compared with the small jets.
Great. The last question is, your gross margins have come down. What is the incremental gross margin we should think? Obviously, you have different businesses, overall, if commercial and bizjet get better, what kind of incremental margins should they yield? Thank you.
This is my point of view, normalized base, because we do not have the better mix until now for the fiscal year. I do see above 15% in the long run, 15%-16%, I would say, for the first year.
Also, Cai, we have a lot of initiatives to help us to reduce the cost of goods sold of the aircraft, as well to reduce the production cycles of the aircrafts. This will also help us, besides the mix, as Antonio mentioned, will also help us to increase the gross margin of our products.
One important point, we were impacted by the idleness this year in our gross margin, which with the adjustment we are doing in our workforce, is not going to happen next year. Even in Q4, if you ask me today, September was already positive EBITDA and cash flow, just in the month of September. The idleness is being reduced and should come to an end in Q4, which is highly impact our gross margin this fiscal year.
Very helpful. Thanks so much.
You're welcome, Cai.
Our next question comes from Noah Poponak, Goldman Sachs.
Hey, good morning, everyone.
Hello, Noah.
Hi, Noah.
In commercial aviation, you've mentioned that you haven't really had many cancellations, but there's clearly been a decent amount of deferral activity with the lower deliveries. Can you speak to where are your customers deferring to? It sounds like you're saying 2021 deliveries will be somewhere in the zone of similar to 2020. Are they deferring to 2022 or are they deferring even further? Are they giving you new plans that you feel are relatively firm, or are they just still kind of throwing their hands up in the air and are still very uncertain as to when they're going to want the airplanes?
Thanks for the question, Noah. The majority of the deferral was from 2022 onwards, especially the local airline in Brazil here, Azul, which is impacting us heavily here. We do see, as Francisco mentioned, 2021 more or less in the same level of this year and picking up starting 2022, to, I would say, mid-70s. Again, the highest amount of deferral is starting 2022, 2023, and 2024. Again, there is no additional postponements or deferrals. We may see, maybe that if the environment change, the second wave of COVID is not going to impact, we may see even customer ask to anticipate something. Today's flight stay, everything we discussed between March and April remains the same. Also, the deliveries of this year, everything we discussed, which was agreed between March and April, and since then, there is no change. Very stable.
If I may just add, Antonio. It's Edu here. Noah, it's important to say that the situation is very fluid, given everything that's going on with COVID-19. At a first moment, maybe some customers, they put a big deferral, but as the situation starts to get better, they start to operate again. We are the whole time talking to the customers and discussing when exactly they are going to take the plane. As Antonio mentioned, there could be anticipations right to the initial deferral that they put. The situation could really change depending on how COVID-19 goes, especially next year.
Once again, just to allow me to complete. We have set the company for this new normal, I would say, in a lower base in order that we are able to capture more when you get an improvement and a recovery in volumes. We are not running the company by hope. It is really feet on the ground and be conservative in the volumes for next year.
Noah, just also helping my colleagues here. This year, we had to face a combination of two bad things. We had the drop in our revenues because of the COVID impact, but combined with costs much higher than normal because of the carve-out of the commercial aviation. We have done our homework, we have adjusted the workforce, and we have put in place a lot of initiatives to reduce costs, to reduce the inventories, that will help us to deliver a much better financial performance in 2021, even we say is not much higher than 2020.
Okay, great. I appreciate all that detail on commercial. Maybe, kind of same question on executive. Obviously, it's fluid, it can change, but for now, would you speak to where you're planning production levels for total executive units 2021, 2022?
For the 2021, 2022, we are still evaluating the scenario. We even changed our S&OP process last month, and we do see something around 90 aircrafts. Again, still fluid, but we see more or less a good level of 90 aircrafts.
Okay. Just last one on defense. The quarterly revenues have been very volatile. I know you had the delivery restrictions, but it seems like it's been volatile even excluding that. When does the defense business, I guess, just get back onto a more smooth trajectory quarter-over-quarter? Maybe just walk us back through some of the bigger programmatic moving pieces that can drive growth or not in that segment on a multi-year basis.
Well, I mean— Go ahead, Antonio. Go ahead.
No. For sure, always the defense is hanging also in the budget of each government that's buying aircraft for others, the COVID-19, we do have some restriction. I would say, what we are seeing, defense, we are somewhere stable on the Super Tucano deliveries and the KC-390 volumes that we are operating for this year and also for next year. What we are still missing is additional sales for the C-390 Millennium that we are right now discussing some additional campaigns. If you ask me what could boost the situations, really additional sales campaign for the C-390.
Should we be thinking about defense revenues three to five years out as meaningfully higher or something relatively similar to the current level?
No, absolutely higher. We have a good perspective in defense for the following years. We are working campaigns for the C-390 Millennium, as Antonio mentioned. We also have business with the Brazilian Navy, Brazilian Army. We have announced an acquisition of a cybersecurity company, Tempest. We see opportunities in that field as well. We have a good perspective for the defense for the following five years.
Okay. Thanks so much.
You're welcome.
You're welcome.
Our next question comes from Augusto Ensiki, HSBC.
Hi, good morning. Just a quick question. I noticed in your financials that your financial expense increased sharply. Is that related to the pay-down of some of your debt as well as the issuance of the new debt? What would be a more normal level, if not the one this quarter? Thank you.
Thanks, Augusto. Yes, you're right, there are some additional costs related to the new debt that we raised in the third quarter. We also had some impacts from basically non-cash effects losses, which is non-cash. We also had an RVG provision, so that affected our financial expenses. I would say the normal level would be more something around $ 50 million per quarter. That would be our net financial expenses per quarter.
Including the new debt.
Thank you very much.
Okay.
Thank you.
Our next question comes from Paul Hanson, Loomis Sayles. Please proceed.
Hi, thanks for taking the call and taking the question. There's a loan maturity in the fourth quarter. I'm curious how you are planning on handling that.
Sorry, what was the question?
Is the loan maturity in the fourth quarter-
Okay.
I'm just curious, what are the plans to handle that?
As I mentioned, basically, now we had a very short-term customer finance that was already sold and transferred to the finance agent, so it's nothing material. It had an impact when you look the picture of the end of the quarter, but it was already sold.
There's no $ 600 million maturity in the fourth quarter?
No. We have in the fourth quarter, it's around $100 million-$ 150 million.
Got it. Thank you.
Thank you. This concludes today's question- and- answer session. That does conclude Embraer's audio conference for today. Thank you very much for your participation. Have a good day.