Okay. Good afternoon, everyone, and welcome to the Embraer Day 2018 in Brazil. We start the conference call and we'll review the Embraer's 4th quarter 2017 results. This conference call is being held during the IMBA Day with the presence of investors and market analysts. At this time, the conference will the company will present its Q4 2017 results and financial outlook for 2018.
Afterwards, we will conduct a question and answer session and instructions to participate will be given at that time. As a reminder, this conference call is being recorded and webcasted atri.embraer.com.br. Before we start, I will go through our usual disclaimers. 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 and political and business conditions in Brazil and in other markets where the companies present. The words believe, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward looking statements. Embraer undertakes no obligation 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 on this conference call might not occur. The company actual results could differ substantially from those anticipated in the forward looking statements.
Participants today on the conference call are Mr. Paulo Seza de Solzhen Silva, President and CEO Mr. Jose Filippo, Chief Financial Officer and IRO and myself, Eduardo Pouto, Director of Investor Relations. Now I would like to turn the conference over to Filippo. Please go ahead, Filippo.
Thank you, Eduardo. Welcome everybody to our conference of financial results for 2017 estimates for 2018. As usual, we're going to do the presentation and then we'll be ready for the Q and A. So starting in with the highlights of financial results 2017, we delivered 101 E Jets. This is Page 4.
Okay, we delivered 101 ejets and 109 executive jets, delivering reaching our delivery guidance. Net revenues in 2017 were $5,800,000,000 also in the guidance range. Regarding EBIT, we reported adjusted EBIT of $397,000,000 with 6.8 percent margin. EBIT was $50,000,000 below guidance due to additional costs in our defense programs. We will detail that later in the presentation.
Adjusted EBITDA was CAD713 1,000,000 with 12.2 percent margin, below the guidance for the same reason already mentioned. In terms of free cash flow, we generated $405,000,000 driven by working capital gains and lower investments. The total investments in 2017 were $610,000,000 Next page. For the highlights of the business units, let's start with Commercial Aviation. We delivered 101 EGS in 2017 and achieved a to bill of 0.92 close to our onetime target.
The EGF program reached an important milestone with the delivery number of 1400, which was delivered of E175 to American Airlines. Our backlog reached 280 firm orders with a total of 715 commitments. We recently received the unique triple certification from ANAC, FAA and ESA for the E190 E2. In terms of delivery schedule, we confirmed that the first E Jet E2 delivered for April 2018 to withdraw from Norway. Continuing the E2 program development in 2017 will successfully rollout and had the first flight of the E195 E2 prototype.
And finalizing the highlights for commercial aviation, the information that the E Jet family reached the milestone of 1,000,000,000 passengers transported since entering to service. So moving next page, the highlights for Executive Jets. We delivered 109 Executive Jets in 2017, broken by 72 Light Jets and 32 Large Jets. Including the delivery of the 1100 executive jet in 2017. We also had the delivery of the 1st Leggett 500 assembly in Florida and the Pheno 300 was the most delivered live chat for the 6th consecutive year.
In terms of product update, we launched the new Phenom 300E with new interior, increasing its competitive position. As far as customer satisfaction, we are ranked number 1 in customer support for the 2nd consecutive year by AIN. In next page, highlights of defense and security. Starting with the KC-two ninety program, we achieved the initial certification with more than 1600 hours of flight test. In terms of commercial activities, we delivered 4 Pheno-one hundred to the UK Ministry of Defense to be used as flight training.
And also we sold 18 Super Tucano in this year and that aircraft was selected by the U. S. Force Light Attack Experiment to do further demonstrations. In 2017, we successfully launched the Brazilian satellite in May. And finalizing the highlights of defense and security, we have the first flight of the new generation Gripen.
Moving to next page. As far as corporate highlights in 2017, we launched the Passion for Excellence program to gain efficiency and reduce costs. Also, we continue our compliance program improvements in 2017 for the 1st year of monitorship. And we had a new business and launched a new business, which was dedicated to service and support. Regarding this as innovation, we inaugurated outpost in Silicon Valley in Boston and launched our international venture fund to explore possibilities in this area.
Okay. With that, we close the highlights and we start the financial results. Page 10, backlog, we reached a total of $18,300,000,000 in the end of 2017, broken by 73% of commercial, 23% defense and 4% is active. Next page, net revenues, we had a total of $5,800,000,000 in 20.17 meeting the guidance. We had a reduction when compared to 2016, mainly due to the lower deliveries as already expected.
Next page, in terms of deliveries. Starting on Commercial Aviation on the left, we delivered 101 new jets in 2017 within the guidance range. On the right side is active jets. We delivered 109 effective jets being 72 light and 37 large also within the guidance range. Next page, revenues by segment and geography.
In the left side, revenues by segment, Commercial Aviation accounted for 58% of the revenues in 2017, as equity was 26% and defense 16%. Regarding the breakdown by region, North America remains our major market followed by Europe, Brazil and Asia with similar contribution. Next page, revenue by business units. And by quarter, Commercial Aviation reported total of $3,300,000,000 within the guidance as active jets were slightly below the guidance range as a consequence of an unfavorable delivery mix. Defense returned slightly above the guidance range, reflecting weaker dollar against the real.
Next page, SG and A expenses. We reported a total of $486,000,000 of sales, general and administrative expenses in 2017, equivalent to 8% of the revenues from 9% in 2016. The G and A expenses were slightly above the previous year, primarily due to the weaker dollar against the real as those expenses are mainly in Brazilian local currency. Regarding selling expenses, we had a reduction when compared to the previous year coming mainly from Executive Jet Business. Next page, as far as EBIT.
The adjusted EBIT was $397,000,000 in 20.17 with 6.8 percent margin. These numbers below estimates reflect the negative impact of $50,000,000 in the program development of the KC-three ninety. Excluding that impact, the EBIT margin for 2017 would have been 7.7%, close to the lower end of the guidance as we previously indicated. Back to reported margin of 6.8% in 2017, the breakdown by business was Commercial Aviation 13.5 percent, Executive Jets breakeven and defense negative 4.7%. Actually, the 4.7% negative would return on a positive 0.5% if we exclude that effect of the cost of the PICC-three ninety.
Next page, adjusted EBITDA. The total adjusted EBITDA for 2017 was $713,000,000 with 12.2 percent margin. The numbers were affected by the same negative impact as the cost increase of the Quesito Nari development program. Next page, adjusted net income was $280,000,000 in 2017 with net margin of 4.8%. In terms of adjusted earnings per ADR and payout, the adjusted earnings per ADR was $1.52 and the payout ratio was 26%.
In the next page regarding investments, we had a total of $610,000,000 of investments in 2017, broken by $434,000,000 in R and D and $176,000,000 in capital expenditures. In more detail, research was $49,000,000 development was $385,000,000 and capital expenditures was $176,000,000 Most of these investments were related to the development of the A2 program. Next page, Page 21, adjusted free cash flow. We reported a free cash flow generation of 100 and $5,000,000 in 2017 $407,000,000 in the Q4 of 2017. This number was above our initial expectations and positively impacted by the improved working capital with an inventory reduction of approximately $300,000,000 mostly in executive jets, lower investments about $50,000,000 and sale of used aircraft owned by our leasing company.
Next page, capital expenditures. Our net debt as of the end of 2017 was $4,200,000,000 and our cash position, BRL3.89 billion, dollars returning to a net debt of $311,000,000 better than the previous year. Regarding our debt, its average terms was 6 years, very adapting and ready in terms of our product cycle. Okay, next page. Now we finish the financial results, and we would like to present our financial outlook.
We should do this in the beginning of the year. This information updates the preliminary guidance that was released together with the 2017 Q3 financial results in the end of October and on the fair much of those, we'll present more details. So in next page, starting with net revenues and deliveries for 2018, we are estimating the total revenues for 2018 in the range from $5,400,000,000 to $5,900,000,000 revenues estimate by business units now including service and support business are $1,350,000,000 to $1,500,000,000 to Executive Jet, dollars 800,000 to $900,000,000 to Defense and Security and dollars 900,000 to $1,000,000 for Service and Support. In terms of deliveries, for commercial aviation, the range between 85,000,000 and 95,000,000 deliveries and for executive jets, 105 to 125 broke up by 7 to 80 light jets and 35 to 45 large jets. In next page, for results and cash, we expect EBIT to be in the range of $270,000,000 to $355,000,000 with margin range from 5% to 6%, EBITDA on the range of $540,000,000 to $650,000,000 with margins between 10% 11%.
Free cash flow is expected to be a consumption of $100,000,000 of data and investments are expected to be $550,000,000 broken by $50,000,000 for research, dollars 300,000,000 for development and $200,000,000 for capital expenditures. Next page, we consolidate and present our 2018 outlook. So with that, we conclude the presentation and we'll now move to the Q and A section. Thank you.
Okay. Thank you, Filippo. Now we're going to start the Q and A section. If you are over the phone, you need to press star 1 in your phone to ask a question. But first, we start with the audience here.
If you have a question, just raise your hand. We have mics on the room. We'll start the questions from the audience. Thank you.
Should I do it in English or in Portuguese, sorry? Sorry. So the language in the English will be. The leverage in 2019. We're actually not just 2019, but beyond 2018 for which should be lower deliveries here as per the guidance provided by the company.
My question is actually, well, how fast should we expect these deliveries to return to regular levels or closer to 100 units on the commercial division? Thank you very much.
Thanks for the question. I think we already indicated that before when we said that there's going to be a transition period between the phase in and phase out of the E1, E2. So we still expect 2018 and 2019 to be weaker here in terms of deliveries, but we expect in mid term this would recover. That's typical when we have 2 models at the same time. To bring some inefficiency.
Also the learning curve of a new model takes a little bit longer than another mature one. So we expect to be in mid term something better maybe 2, 3 years. That's what we said will be recovering to normal levels. Normal levels will be historical couple of years.
We'll take another one from the audience, Turan.
Turan Mathawalla from Scotiabank. My question was on your 2018 margin guidance. If you look at the margin when you guided for 2018 back in October, you had provided the same guidance of about 5% to 6% EBIT margin. But at that point, you were expecting a higher margin in 2017. So your margin in 2017 is about 100 basis points lower than what you were expecting it to be in 2020 back in October.
So my question is, how comfortable are you with that 5% to 6% EBIT margin guidance for 2018? And why is is there any risk to that? And what are you doing to make sure that whatever pricing, I guess, has been maybe a bit more negative? Is that coming back to give you confidence on that 2018 margin target? Thank you.
Okay. Thank you, Flora. I'd say that what happened in 2017 was this cost of recognition that we have to make in the end of the year in the case of generic problem. If we add that back, we're going to go to the 7.7% margin in 2017, which will be very close to the lower end of the guidance, which you already indicated that time that we expected to have. And by the way, it's good to recall now that this $50,000,000 this was not something that was already cashed out.
This is a recognition on the program. This has to be achieved or incurred going forward. It's already included in the calculation for the future 2018. So we still maintain the 8.5.6. So we think that excluding that effect, we will basically where we expect it to be in 2017.
So we're still maintaining that for 2018. That's what we expect. By the way, let me add an information to you. In terms of how we build up the 5% to 6%, normally we give some information on this. In terms of commercial aviation, we think about something about high single digit.
In terms of active jet, low single digit. For Defense and Security, low single digit as well and service and support, low double digit. That combination will lead us to the 5% to 6%. We don't send our guidance specific for margins to the business.
Okay. Now we're going to take a question from the phone. Operator, I think we have Pete Skibits from Drexel Hamilton. Can you open his line, please?
Good morning. Can you hear
me? Yes.
Yes, we can.
Okay, great. Paul, good morning. Is there anything you can add to the statement in the release regarding a potential tie up with Boeing in terms of maybe how it might be structured and if you think the Brazilian government would approve such a deal?
Hi, Pete. Hello, everybody. Good afternoon. Well, we continue to work with the government. So there is a working group that was appointed by the government.
So we are engaged with them in order to find a structure that can work for all the stakeholders. So we have, of course, our shareholders, we have the government, we have the buyer, we have Embraer. So we have to make sure that we have a structure that can be acceptable by the parties. So that's what we are doing now. There is a very good engagement.
So that's all I can say. So I can say more than that.
Okay, understood. And if I could, I'd like to ask a follow-up on KC-three ninety. I'm wondering when you expect to firm up the order from SkyTech for the LOA for 6 KC-390s and when first delivery might be?
Well, we are working on that. This LOI was announced, if I'm not mistaken, the Singapore Airflow. So it's a good sign. So we are very optimistic that we can sign and engage in a firm of contracts throughout this year. So it's a good addition to it would be a very good addition for our KC-two thousand and ninety program.
And hopefully, so we can move forward with that until end of this year.
Okay. We're going to take another question from the phone. The next question will come from Kai from Cowen. Kai, the line is open. You can ask the question.
Yes. Thank you very much, guys. So your Executive Jet book to bill looked particularly low in the Q4. Can you comment on that and give us color on demand in the injective jet sector?
Yes. So thanks for the question. So the business jets business, so it's improving gradually, right? So I think until last year, we also saw
very
challenging markets.
If not mistaken, the industry altogether delivered last year 6 41 units in 2017. 2016 was just 1 unit right below that 640. So the mines still last year was under huge pressure. However, we are seeing signs of smooth recovery is not an aggressive one. However, so good signs on the used inventory.
So the price are not falling any further, They used aircraft prices and the market is becoming too clear on the older jets, used jets. So that's a very positive sign because the next step now definitely will be like people and companies looking to buy new jets, brand new jets. So the tax reform by Trump in the United States is a big driver for the business jet business. Together with that, the growing the GDP in the United States going forward will be also big driver. So don't forget that 60% of the business jet market is within the United States.
So we are more bullish this year that the business jet units will have more opportunities.
Thank you very much.
Okay. Now we're going to get back to the audience. So if you have a question, please,
on the left.
Hello. My name is Ricardo from BMDS. I would like to ask a question about the KC program. When the plane is in line to production, do you expect the gross margin to be similar as the commercial
aviation or not? Yes. We have this study that the process of manufacturing now. First delivery will be in the second half of this year. And of course, it depends on the type of water because this product is a type of customers not typical like the commercial.
So each plane tends to be more customized or includes other than the plane itself. However, we believe that they can be the level of the commercial that you mentioned or something like 2 digit, something in mid single, mid 2 digit margin could be reasonable to see on top of half margin.
Anyone else from the audience? On the right.
Maria Perez Mora from Bank of America Merrill Lynch. Could you please drive us through the puts and takes on the free cash flow, from a positive $400,000,000 free cash flow this year to a negative $100,000,000 next
year? Yes, I think we had Mariana, thanks for the question. We had situation in 2017, which were first like I mentioned adjustments in the working capital, we saw reduction in inventory, especially in finished crude oil. And the management the way we manage the production is that it delivers. So we end up with lower inventory at the end of 2017.
So that is something that we should not expect going forward. This was adjustment part of focus on the margins and the price rather than the reimbursed itself. I think it was a major impact for 2017 that we don't expect to see the same magnitude to 2018. Another thing was the reduction or the lower investments that we have $50,000,000 we guided $650,000,000 and we end up $610,000,000 or $40,000,000 that also helped. We're thinking of the $254,000,000 we're taking confidence with that.
And an opportunity of selling some used aircraft that we had in 2017.
We had a window of opportunity
in some business markets, especially in Africa, smaller areas that we took that opportunity. So it's more like a one time thing that we don't count on that to happen again. So that's basically how we bridge what drove us to the improvement in 20 17, 2018. Of course, there's a commitment for us to be disciplined in terms of generating cash and to take those opportunities again. So as we can definitely want to be looking for opportunities to improve the cash generation.
But at this point, our best expectation for 2018 would be the negative €1100,000,000 which is a little bit better than what we initially expected for 2017.
Thank you.
Thank you very much. Ricardo Alves, Morgan Stanley. Just a follow-up on this question, actually clarification. On the one of the reasons for the lower free cash flow generation, I think you mentioned the lower investments. So just to clarify, if
I remember
correctly, we're talking about something like $430,000,000 around $430,000,000 in terms of R and D over the past 2 years. And I thought that that number was coming down in a major way to 3 50 or so next year. So just a clarification on that point, when you mentioned that investments were a
little bit lower than last year?
Thank you very much.
Okay. Thanks, Ricardo. I would say that, of course, we still in the process of developing the E2, which was our major problem that still, as you know, entry to service of 190 will be next this year, in April the first delivery, 195 next year and the 175 we rescheduled that for 2021. So that brings us still to the development phase of this program. Of course, as we get to this point of that we have today, we start to think about starting to decrease, but not the major decrease.
So I think that the extension of the 135 already bring us to more of investment in a couple of years. But we don't see that in 2018 will be that drop. I understand that you're referring to in normal levels, like if you take out some major investment in a new product or in a product, that will lead us in the level that we have in terms of depreciation, assuming that we're going to be reinvesting depreciation, talking about the level of 300,000,000 that's basically, I think, what we probably have in reference that we mentioned some time before.
Okay. Let's take another one from the phone. Next question will come from Noah Poponak, Goldman Sachs. Noah, your line is open.
Hi, everyone.
Hi, Noah.
I wanted to ask, if you look at the last few years on average, what has been the average rough order of magnitude change in pricing annually across the business? I know it's different by segment, but if you could give us any indication of that. And then separately, what has labor cost inflation been on average over the last few years? And then what are you expecting for those two items going forward?
Noah, in terms of price, we saw, of course, remember that we had the larger campaigns in the U. S, we are delivering most of them these days. That's why we already showed that our delivery piece is larger in the North American market. Those campaigns as we have larger amount, they were price pressure. We already indicated that.
However, because of that, we were able to reduce cost as well. The standard type of plan helped us to do this. Our focus on cost reduction already get some good results. So price was reducing. I wouldn't say that this dramatic reduction.
It depends, of course, like you said, in the size of the campaign, the size of the order, on the conditions itself and the competitive situation. But I think that the price reduction was not major, but it was followed by the improvement in efficiency in terms of keeping the margins. You follow that, that's what we said. This is more commercial, but again, it depends more on the specific campaign in the deal. In terms of Executive Jets, we don't see a major reduction now.
And by the way, as you know, we have been focusing on the quality of the sale, so not bringing necessarily the volumes, but getting price. And we still saw this year the 1st quarters of the year already indicated that now we're confirming that the price was a little bit above the average that we had before. So of course, we should not deliver the same number of aircraft on that, a little bit less. But keeping a certain level, we don't see that major reduction. Was there a question
1? In terms of labor cost. Labor cost.
As you know, inflation in Brazil has been low and labor cost tend to follow that. We had in 2015, 2016 something around 5% to 6%. Last year, 2017 was 2% labor adjustment in average to give you an idea on that. And we still see inflation under control in Brazil and not increasing. So we tend to see the labor cost should follow inflation rate, which is very low at this point.
So we don't expect that to be a major concern going forward.
Great. And then if I could ask one more. In some of your more recent communications with the market, your New York City event and some others, I thought you sounded fairly bullish on the degree of regional jet campaigns and the potential for new orders there. Obviously, I'm looking at a relatively small sample size of time, but there hasn't been anything announced since then. Maybe just update us on that.
Are you still seeing as many opportunities? Have some of them come and gone? Or any explanation you can give as to why they're being stretched out if they are even being stretched out?
Thank you, Nate. So I think last year we had almost 1 to 1 book to bill, was a relatively good year, right? So when you look to the other guys, I believe we were the best in terms of taking new orders. That was very positive. Going forward now, so and John will talk more about that when he makes his presentation.
But with the certification of the 192, which occurred this month and the first delivery next month in April, of course, the dynamic will be different. So we have an aircraft that is delivering more than we had promised when we launched this program. Is much better, range is better. So the performance of the aircraft, overall speaking, is such that the market will appreciate as it enters into service. Having said that, we are engaged in many campaigns, not only in the United States, which is our largest market now, if you see the last year, but very good campaigns all over.
So we are quite bullish going forward.
Next question from the audience here.
Talking about defense and security, what do you expect for growth opportunities in other revenues like railcars, satellites, maintenance, like Ogma? And what about the expectations for margins in these other revenues?
Well, overall speaking, I think the defense business is has a very good future. When we look at the KC-three ninety, the opportunity that we may have in the whole world, So it's going to be great. So we are on time with the development. So the first delivery is going to be this year. In defense, you have to deliver the aircraft to your airports in order to have a market recognition that we have gotten there.
So the KC-three ninety is a very complex aircraft. And I'm sure that as we start delivering to the Brazilian Air Force this year, the interest will be even greater. So there are 2,700 C-130s in operation, 34 years old in average. So it's a huge potential for the KC-three ninety. So I'm not saying that we will get all these replacements, but if we get a portion of that, let's say 1 third of that, right, so it's going to be great.
It's going to be really something that will boost a lot of the defense business. And we have the opportunity to grab these sales going forward. So the interest in the aircraft is absolutely fantastic. So we are seeing a lot of governments, countries more and more interested in seeing this aircraft. These recent LOIs for SkyTech, I think was I'm sure that is a tremendous opportunity to showcase also the KC-three ninety to other countries since this SkyTech is not a leasing company, but they are an operator of this type of aircraft for special missions.
So it's going to be very important. So the Super Tucano is an amazing aircraft. So it's tested, it's in operation, it's doing absolutely fantastic for the countries that have bought it. So look at the United States Air Force, they have bought for the Afghanistan operation and they are very much involved in other projects and the one that, of course, everybody is looking for, especially us is for the replacement of the A-ten in the United States. There are an opportunity here for maybe 300 aircraft and the U.
S. Air Force likes the Super Tucano a lot. So I'm not saying that we will win, but we have definitely a great opportunity to make this happen. So we are quite bullish on that. On the other areas that you mentioned, I think we have to be very realistic here, right.
So the other areas are more linked to the Brazilian budget side. So we have to see this in a way that we don't expect that there will be a big boost since we need the budget, we need the budget from the government and other to enter into these new programs. Having said that, I think there are some priorities that the government will have to make, like for instance, the second satellite, as we did see since the first one was launched this year and there is a huge need for this kind of right investment, right? So because Brazil does need additional Internet band, right, for that. So I believe this will come.
So let's hope that this year until end of this year, so the Brazilian government will take a decision on that. So regardless, the new President, so this is an area that Brazil will have to invest. And the fees for our own project will continue, maybe not in the same speed that we would like, but right to come. And for the and for Ogma, I believe Ogma is set for growth because it's we are investing in Ogma. So we are giving AGMASS the opportunity to have more business.
So we are integrating AGMASS more into the other business units. So Ogema is set for growth. So it's already like a profitable business, but now we have to grow. So we are very optimistic overall speak on the sense. I will stop here because otherwise Jackson will not have other talks to present to you.
Okay. On the right side, next question from the audience.
Good afternoon, everyone. Josh Schmelberg from Morgan Stanley. I just wanted to go back quickly to the question of pricing. I think that you had suggested in the recent past that perhaps one source of pressure there, not just on pricing but also on profitability in 2018, could be a special configuration of your E175 aircraft. And I was just hoping you could kind of update us on what the situation is with that configuration, if you've already started delivering that aircraft?
And maybe what the magnitude of the impact could be in terms of margins?
Well, there are big opportunities right in the U. S. From 50 to up to 100 and 60, right. So depending on the airline, so they can go not exactly to the 70 6 seats, but they can go up to 70 seats. So offering the 76 seater in a configuration that has less seats, it's a good opportunity for the airlines to upgrade from 50 seats or replace the old CRJ700 or EGS 170, right, to more by the brand new aircraft.
So we believe that this trend may continue. Of course, it depends also whether or not there will be more scope relief for the airlines to go straight to the 76s. But we see as of today, we see a very good opportunity to increase the number of the 175 in the United States. So a big opportunity. Did I
answer your question? Yes, I think so. Maybe if you could just touch on the question of pricing because our understanding has been that the 70 seater configuration does have a lower selling price and that, that in turn might explain some of the downside to profitability in 2018. And I was also just wondering if that had been a variable in behind your margin performance in the 4th quarter itself already?
No, no, not at all. And for 2018, so our margins in commercialization will be a little bit lower. Why? Because we are in a transition period, right? So we are moving from E1 to E2 gradually, right?
And we have the ramp up costs. So we have the introduction costs of the right of the E2. But as far as the 175 is concerned, so margins are good.
Okay. I just understand that in addition to the ramp up of the E2 that this configuration could also be a variable. But you're saying that it's not that relevant? No, that's it. Okay.
Thank you.
Okay.
Another one on the left side.
This is Lucas from Bank of Sarta.
A more broad question on my side. Have you guys perceived any change in the commercial behavior of Bombardier after the deal with Airbus and is this positively affecting commercial aircraft prices already?
Well, the announcement by Airbus and Bombardier at that moment was very important, right? Because first of all, it validated the segment between $100,000,000 $156,000,000 So definitely was a big validation by Airbus that it's an important segment and that Airbus should be there, right. So this, of course, is bringing more interest from the markets in general. That's why I mentioned before here that we are seeing more activity. We are engaged in very good conversations globally.
We can't see yet any change because Airbus cannot work with Bombardier now. So they have to wait until all the authorities in many countries clear the deal, right? So they are anti first authorities. So I think so far only Germany has cleared. So it's still missing many others and of course other steps as well going forward.
So I believe only on the Q3 or so this year that Airbus and Bombardier will do a joint effort, right? So, so far, this is as usual, more interest from the market. The 195 E2, especially the 195 E2 is being perceived a very efficient aircraft. And so we are very bullish on the segment. And John will elaborate more on that.
Okay. Now we'll take our final question from the phone. The final question comes from Victor Mizusaki Bradesco. Victor, your line is
open. I have two questions here. The first one is a follow-up on the sales campaign. Can we assume that the negotiations with Boeing will likely delay any big announcement in the short term? And the second question, with regards to your the impairment of $64,000,000 in Executive Aviation, I don't know if you can give any color on these and what would be your operating margin in Executive Aviation in Q4 if we exclude this impairment?
For your first question, no, it's not we can't say. So it's we don't know, So we don't know. So we are I think what's important is that all the parties are working very hard to have an outcome, right, an outcome as soon as possible. So all the parts involved, so they understand the need to have an outcome as fast as possible. From our side here, we don't want to go too long on that.
We do recognize that a solution for that or an outcome, so because we don't know if it's going to be happen or not. So it's not possible to say this at this stage. But we are working hard to have, as I said, an outcome very soon.
And regarding the margin on the executive that you asked, we this margin with breakeven that we set for 2017 was already not impacted by the impairment. For 2018, like said, we're expecting the low single digit for Executive Jet and have to take into account that we are not considering the service revenues on the executives for 2018. Now we separate that. So only the activity itself is low single that we expect for 2018. There's still work being done.
As you know, we have a new leadership in Executivejet since the Q1 of 2017. So adjustments are being made. And as I already pointed out about the reduction in selling expenses, which is not prioritizing what to do, focusing more how you spend in terms of commercial sorry, selling expenses and marketing activities. So we believe that's going to be an improvement if we compare that also with the past and adding that we expect the market to start to be better going forward. That's basically the points for the margin.
Okay. But Filippo, in this specific case about the impairment, this is something related to the intangible of, I mean, is active aviation or let's say this write off of inventory?
No, that was related to assets associated to the legacy 50 that in terms of how we see the projection of sales and fashion of that aircraft, we had to do the calculations and we returned to a negative net benefit of value. So we had to write off, it's an impairment, it's the same as the write off of the assets associated to specific program. That's what happened. Okay.
Thank you.
Okay. I think that concludes For those in the audience, we are going to follow with the individual presentations after a short break. Filippo, do
you want to have any comments?
No, thanks again for everybody that joined us in the call and we continue here with the others. Thank you.
Okay. Now short break, 10 minute break and we'll start the presentations right after that. Thank you.