Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's First Quarter 2019 Results. Thank you for standing by. As a reminder, this conference is being recorded and webcasted atri.engraer.com.br. This conference call includes forward looking statements or statements about events or circumstances, which have not occurred. Andrea 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 publicly 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 in 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. Nelson Salgado, Executive Vice President, Finance and Investor Relations and Mr. Eduardo Colto, Director of Investor Relations. I would now like to turn the conference over to Mr. Nelson Salgado.
Please go ahead, sir.
Good morning, everyone. We start our presentation at Slide 4, talking about the business unit highlights. 1st, on Commercial Aviation. We delivered 11 e Jets in the first quarter 2019, including the first delivery of 175 jets in Africa to Mauritania Airlines. In terms of new, new 175 sales, the American Airlines SkyWest signed an additional firm order for 9 E175 Jets, reaching an impressive mark of 158 orders since 2013.
From this, 147 aircraft have already been delivered to SkyWest. As far as the EQ program, we had a very important result in the Q1, Similar to what happened last year with the UN90E2, the UN95E2 was granted triple certification by AMAC, FAA and IARO, the authority from Brazil, U. S. And Europe. With the first delivery of the E195 E2 to Azure lines is expected to happen in the Q1 of 2019.
And finally, regarding E2 new sales, the Nigerian carrier Air Peace placed an order for up to 30 E195 E2 Jets, and this was our first E2 order in Africa. Moving to Slide 5, highlights of Executive Aviation. We have delivered 11 executive jets in the Q1. And important to say, we sold more than $300,000,000 in new jets during this period. This is our best first quarter results in terms of sales in the last 3 years.
Embraer was also very proud to deliver the 600th Phenom 200 aircraft, The only business jet achieved this milestone in the last 10 years. This is a real proof of the huge success of the Filan program and its ability to deliver superior performance technology and comfort to our customers. Finally, talking about our most recent launch. We announced in the Q1 that the PLATO 600 was granted its type certificate by ANAC, the certification authority from the agreement. And that became the only superheated business yet to be certified since 2014.
Very important to say, but with this certification and the last flight test, we are very happy to announce that the Phenom, the Praetor 600 surpassed all main design goals and including a range that goes beyond 4,000 multiple miles, being able to make non stop flights between London and New York, Sao Paulo and Miami, Dubai and London. Customers have already noticed the superior performance of the Phenom 600 the Praetor 600. And we're happy to announce that the program sold out until May 2020, with first deliveries happening now in the Q2 of 2018. Next slide, Slide 6, we move to Defense and Security. The KC-three ninety program continued its preparation for entry into service with the Brazilian Air Force in 2019.
Flight test campaign exceeded 2,005 hours with focus now on the military missions. The aircraft has successfully accomplished 2 important air drop target series of tests in Brazil and in the U. S. As far as new programs, the consortium Agua Azuis, formed by Thyssenkrupp, Embraer and Atech was chosen as the preferred supplier to build 4 new ships to the Brazilian Navy. And finally, 2 A29 Super Tucano aircraft were delivered to the Light Air Support Program, LAF, of the U.
S. Air Force in the Q1 of 2019. Moving to Slide 7 with highlights of Services and Support. We continue to expand the Services and Support business with revenue and profitability growth. In the Q1 of 2019, we added to our 2 program new customers, new E-one operators, including WBL Aviation, Mauritania Airlines and Air Botswana.
We have also added new E2 operators to our services and support base, such as Era Stona from Kazakhstan and Brinta, Canarias from Spain. Moving now to financial results. We start in Slide 9 with field order backlog that reached $16,000,000,000 at the end of the Q1. This is slightly down the value at the end of 2018, but significantly above the value that we registered in the Q1 of 2018, which was 13,600,000,000. We reaffirm here the trend of recovering in our backlog.
As far as deliveries in Slide 10. In Commercial Aviation, we had a 4th quarter with 11 deliveries versus 14 mid same period last year. This does not impact our guidance for the year, which remain 85 to 95 deliveries in 2019. Just as an additional information, in April alone, we delivered 9 additional jets. On Executive Jets, we had 11 planes delivered in the Q1, same number of last year with 8 small jets and 3 larger jets.
Important to say, we anticipate a stronger big jet deliveries in the rest of the year, especially with the entry into service of the Praetor 600 that will happen now in June. Here also, we reiterate our guidance of 90 to 110 deliveries of the active jets in 20 11. Moving now to Slide 11, we show our revenues in the period. Consolidated revenues declined to $823,000,000 in the Q1 of 2019, relatively to Q1 2018. This reduction was mostly driven by lower commercial jet deliveries.
And this is broken by 2.81 $1,000,000 in Commercial Aviation, dollars 117,000,000 in Executive, dollars 179,000,000 in Defense and Security and 244 in Services and Support. In Slide 12, we present our SG and A expenses, which are very much stable compared to Q1 2018. We had $116,000,000 in expenses, broken by $46,000,000 in G and A $70,000,000 in selling expenses. Moving to Slide 13, represents our adjusted EBIT. We reported a negative EBIT of $50,000,000 implying a negative 1.8 EBIT margin.
This EBIT margin includes the addition of separation costs for the carve out and preparation of the conclusion of the transaction with Boeing by the end of the year. Important to remember that in this first quarter, the results were negatively impacted by lower commercial aviation deliveries that we expect to recover in the next quarter. As I already mentioned, in April alone, we delivered 9 additional jets. We maintain our guidance of breakeven EBIT for the company in 2019, remembering again that this includes the separation costs associated with the carve out of our commercial aviation. Moving to Slide 14.
We reported EBITDA of $31,000,000 with 3.8 percent EBITDA margin, driven by the similar reason we already explained in the operating results. Next slide, Slide 15, we show net income. We reported an adjusted net income excluding the impact of deferred income tax of minus $62,000,000 affected by the weak operating results that are normal in the Q1. Slide 16 represents our investments, which amounted to $102,000,000 broken by 9 in research, 65 in development and 28 in CapEx. Different from last year, in this quarter, we did not receive any contribution from risk sharing part.
Next slide, Slide 17, represents our free cash flow. Embraer had a free cash flow consumption of $665,000,000 in the Q1 of 2019, With 558 net debt coming from operations, 43 additional to power property and equipment and 65 additional to intangibles. Our free cash flow consumption is generally negative in the Q1. Compared to Q1 last year, we had $435,000,000 negative in spite of around $67,000,000 of contribution for restructuring partners. In this quarter, the main reasons for the growth of the consumption are first, the higher inventories that again are normal in the Q1 as we prepare for higher delivery rates in the rest of the year, especially here in Commercial Aviation.
And second, by lower payments from the Brazilian government in some of our defense quarters during the conflict. This amounts to around $100,000,000 which we did not receive. Moving to Slide 18. We highlight our indebtedness profile. Again, 92% of our total debt remains in the long term with an average maturity of 5.3 years.
We closed the Q1 with a total cash of $2,480,000,000 and a total debt of $3,590,000,000 implying a net debt of $1,100,000,000 We announced a guidance for the year that with the closing of the transaction, we intend to pay $1,600,000,000 in extraordinary dividends to our shareholders and start life with New Embraer with a $1,000,000,000 net cash position after close. These results, they are obviously and we will keep you posted on this as next results come. And finally, moving to Slide 19, our final considerations and closing remarks, I would just like to mention that Embraer has announced Francisco de Lisnetu, the former President of Marco Polo, as our new CEO and President. That was effective now in May. Francisco brings a long experience from the automotive sector, leading an important turnaround at Marco Polo in the last 3 years.
Francisco is now investing in his integration at Embraer, visiting our main facilities, clients and suppliers and will join us in our next conference call. 2nd, just a brief update on the Embraer Boeing strategic partnership. We currently have ongoing interaction with several antitrust authorities in different jurisdictions throughout the world. And we keep working hard on the carve out projects so that we can separate the commercial aviation business. We expect the transaction to close by the end of 2019.
Obviously, that depends on our approval being obtained on time. With that, we conclude our presentation and would like to open for questions.
Our first question comes from Ronald Epstein, Bank of America Merrill Lynch.
This is Caitlin Delanti on for Ron Epstein. With respect to the recent 7 37 MAX issues, has there been change in Boeing's commitment to the Embraer partnership? Do you see this affecting the timing of the deal close?
No. There is no relation between this and the strategic partnership between Guaimo and Rhea at all.
Okay. Thank you. And one more if I could. Volume was a little light in the quarter, but gross margin was solid. What's driving the better gross margins at these low volumes?
I did not understand the question, please.
Revenues were a little light in the quarter, but gross margin was solid and strong in the quarter. Can you talk a little bit about what's driving the better gross margins?
That was driven by services and defense that had a good gross margin in the period.
Okay. Thank you.
The next question comes from Cai von Hoemann, Cowen and Company.
Yes. Thank you very much. So Nelson, you had very good book to bill in your bizjet business. Can you first give us a little bit of color of what products, what geographies are particularly strong? And secondly, given the very strong orders you have, how come the deliveries were as weak as they were?
Thank you, Cai. The market in the U. S. Remains the most important market for business jet deliveries. We had these deliveries, which are normal for the quarter.
We're still not delivering the freight. Yes. And the sales are driven mainly by the operator 600, which will only start to be delivered in the after June, that's when we are the first. Obviously, the C300 remains a strong player, right? And we remain stable for the next month.
But I'd say that the waiters are the big driver for the additional sales. And delivering, we only start by midyear. If I may add, Nelson, it's a good year, Kai. It's important to say that we are better sold this year on business jets than we were last year at the same time. So we are confident in our guidance of 90 to 110 deliveries, and that is reflected in our amount of sales.
Thank you very much. And the last question, commercial aircraft orders, what impact has the expected Boeing JV venture had on demand for the product? Have you seen greater interest as a result of that or maybe a delay until people see that the deal actually goes through? What impact has that had on your commercial orders?
Look, I think the last part of last year, right, we saw since the air flow, we announced many new orders. And with these new orders converted into contracts have slowed down a little bit. But the interest in the market is very high. There are lots of campaigns going on. We cannot say for sure how much of this is really influenced by the announcement of the deal or it's just market dynamics.
But we can confirm that there are lots of companies going on and a lot of interest in the product.
Thank you very much.
Our next question comes from Augusto Esquito, HSBC.
Hi, thanks for taking my questions. Firstly, you mentioned that the Praetor 600 through May 2020. Could you tell us how many units approximately that represents? And secondly, and sorry, this is already discussed during the call. The one time item is regarding impairments in the quarter as well as the JV costs, would you just want to quantify how much those were?
Thank you.
The PACE600 in this year, I think we have around 15 deliveries, right? And the rate will increase as we move to the next years, right? As we said, the first open position for delivery is around May next year. Ara, can you repeat the second part of the question, please?
Sure. Thank you for that. The second question was regarding the impairments on the used jet portfolio and the separation costs that you have in the quarter. Obviously, you can give us exactly or break out how much each of those were separately?
Yes. We had some regular impairments in the commercial aviation aircraft, but nothing different from what we generally register every year. In Executive Aviation, there is nothing. In terms of the separation and also costs? Our separation costs, we had around $12,000,000 recorded in separation costs during this quarter.
Thank you. And so
I just want
to follow-up on the separation costs. I think you previously mentioned, you've guided about 1,200,000,000 dollars separation costs, including taxes. Is that estimate still a whole? Or you said that there might be additional savings on that figure, if you can update? Thank you.
We estimate a few holes, but we're obviously working very hard to bring that number down, right?
Our next question comes from Victor Mizusaki, Bradesco BBA.
Hi. Hello. Two questions here. The first one, I don't know if it's possible, but can you give the breakdown for total margins per business unit in the Q1? And the second one, if you want to take a look at the inventories on quarterly basis, we can see an increase.
So I'd like to understand how much it came from commercial and how much came from executive division?
Regarding the first part of the question, we are not disclosing EBIT by business. But what we can tell you is that when we look at the results for the business that is being separated with commercial and Quest and related services, that margin was approximately 0. And the margin for executive defense and related services is around 3 point 5 negative. Can you repeat the second part of the question?
With regards to inventories, I mean, we can see an increase in the Q1 if you compare with Q4. So I'd like to have a better sense how much is related to commercial aviation and how much is related to an active aviation?
You're asking about the increase in inventory during the Q1. Is that your question, Victor? Yes, yes. Yes. I would say that around 70% of that is associated to commercial aviation, that's in the left to more executives, which again is normal at this point of the year, right?
The next question comes from Turan Quettawala, Colchabank.
Yes, hi, good morning and thank you for taking my question. I guess I was wondering, you mentioned that the youth jet sales were lower in the quarter over last year. Can you just give us some reason as to why that happened this year?
Sales in commercial, I think, were lower than the last part of last year, right? We announced contracts for many fields that we had previously announced at the Air Show, right? And there were not as many announcements during this Q1 in Commercial Aviation. Although, as I mentioned, we have lots of campaigns going on. But in the Executive Aviation, on the other hand, I think we have our best first quarter in sales for the last 3 years, which is really an effect of the Praetor 605100 coming to the market later this year.
Now I was talking about the used jet sales that you said were lower in the quarter, revenue from used jet sales and executive AV? Yes.
We mentioned that in the press release, but it was a small amount. So we didn't have that many deliveries in the Q1. So we also didn't sell that many user jets, but it's really not important. The important number is the new sales of business jets that was very solid in the Q1, as we mentioned, above $300,000,000 in new sales.
Okay, fair enough. And I guess just last question here from me. I was a little surprised to see that the SkyWest order, you have deliveries that are going this year. Can you give us a sense of how many open spots you have on commercial aviation for the year?
No, for the year, all the positions are from we have not opened this class.
Our next question comes from George Ferguson, Bloomberg.
Yes, thank you. Can you speak to how much the U. S. Scope clause negotiations could be slowing down orders for commercial jets? I know United is underway right now with pilot negotiations, and they're trying to change some of that scope clause.
And I'm wondering if that is having an effect on commercial jet sales.
Well, we have a strong demand for our current 2025. So we are not seeing a lot of movement in terms of scope negotiation. But we think this is something positive for us because we have a very dominant product in the segment that has conquered more than 80% of market share in the segment. So we're not seeing really a lot of movement, but I think this is positive for us.
Thank you.
The next question comes from Kazely Konno, Aegon.
Hi, and thank you for the call.
I was just wondering if
you could clarify how much debt you plan to transfer to the JV and if that includes the existing bonds?
Yes, that includes all the bonds basically. We will transfer all the bonds and then equivalent amount in cash. Okay. Thank you.
The next question comes from Gabriel Cavalcanti, CTM INVESTMENTOS.
Good morning, guys. Thank you for taking my question. I was just wondering if you guys could clarify a little bit more about the matter of the new KC-three ninety being produced in the United States? Thank you.
Well, I think the important point here is the partnership with Boeing for the KC-three ninety, which is part of the strategic partnership that we hope to close by the end of the year. The JV main objective is to open up new markets for the KC-three ninety. The industrial footprint of the KC-three ninety will depend on the customers that acquire the aircraft that will be sold through the JV. We have a final assembly here in Brazil. If it is not necessary, the aircraft will be delivered regularly from this final assembly.
So the main objective of the partnership is not to offend the aircraft outside of Brazil, is to sell more aircraft to markets in which we could not pay. Have. If at any point, these new sales demand that we have some industrial activity in the U. S, then we will consider in the JV, we will consider how to do that. But again, it's not the main objective of the partnership.
Okay. Thank you.
This concludes today's question and answer session. I would like to turn the conference over to Mr. Nelson Salgado for his final remarks.
Thank you very much for your participation in our conference and the questions. Thank you.