Okay. Good afternoon, everyone, welcome to the Embraer Day 2018 Brazil. We start the conference call, we'll review the Embraer's fourth quarter 2017 results. This conference call is being held during the Embraer Day with the presence of investors and market analysts. At this time, the company will present its fourth quarter 2017 results and financial outlook for 2018. Afterwards, we will conduct a question and answer session, instructions to participate will be given at that time. If you should require any assistance during the call, please press the star key followed by one. As a reminder, this conference call is being recorded and webcasted at ri.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 company is present. The words believe, may, will, estimates, continues, anticipates, intends, expect, 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 Cesar de Souza e Silva, President and CEO, Mr. Jose Filippo, Chief Financial Officer and IRO, and myself, Eduardo Couto, Director of Investor Relations. I would like to turn the conference over to Filippo. Please go ahead, Filippo.
Okay. Thank you, Eduardo, welcome everybody to our conference of financial results 2017, estimates for 2018. As usual, we're going to do the presentation, we'll be ready for the Q&A. Starting with the highlights of financial results 2017, we delivered 101 E-Jets. This is page four. Okay. We delivered 101 E-Jets and 109 Executive Jets, reaching our delivery guidance. Net revenues in 2017 were $5.8 billion, also in the guidance range. Regarding EBIT, we report adjusted EBIT of BRL 397 million with 6.8% margin. EBIT was BRL 50 million below guidance due to additional costs in our defense programs. We'll detail that later in the presentation. Adjusted EBITDA was BRL 713 million with 12.2% margin, below the guidance for the same reason already mentioned. In terms of free cash flow, we generated BRL 405 million, driven by working capital gains and lower investment.
The total investments in 2017 were $610 million. Next page. For the highlights of the business units, starting with commercial aviation. We delivered 101 E-Jets in 2017 and achieved a book-to-bill of 0.92, close to our one-time target. The E-Jet program reached an important milestone with the delivery number of 1,400, which was delivery 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 EASA for the E190-E2. In terms of delivery schedule, we confirmed that the first E-Jet E2 delivery for April 2018 to Widerøe from Norway. Continuing the E2 program development in 2017, we successfully roll out and had the first flight of the E195-E2 prototype.
Finalizing the highlights for commercial aviation, the information that the E-Jet family reached the milestone of 1 billion passengers transported since entering to service. 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 1,100 executive jet in 2017. We also had the delivery of the first Legacy 500 assembled in Florida, and the Phenom 300 was the most delivered light jet for the sixth 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 one in customer support for the second consecutive year by AIN. Next page, highlights of defense and security.
Starting with the KC-390 program, we achieved the initial certification with more than 1,600 hours of flight tests. In terms of commercial activities, we delivered four Phenom 100 to the U.K. Ministry of Defence to be used as flight training. Also we sold 18 Super Tucanos in this year, and that aircraft was selected by the U.S. Air Force Light Attack Experiment to do further demonstrations. In 2017, we successfully launched the Brazilian satellite in May. Finalizing the highlights of defense and security, we had 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. We continue our compliance program improvements in 2017 for the first year of monitoring. We launched a new business, which was dedicated to service and support.
Regarding business innovation, we inaugurated outposts in Silicon Valley and Boston, launched our international venture fund to explore possibilities in this area. With that, we close the highlights, we start the financial results. Page 10. Backlog. We reached the total of $18.3 billion in the end of 2017, broken by 73% of commercial, 23% defense, and 4% executive. Next page, net revenues. We had the total of $5.8 billion in 2017, 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 E-Jets in 2017 within the guidance range. On the right side, executive jets, we delivered 109 executive jets, being 72 light and 37 large, also within the guidance range. Next page, revenues by segment and geography.
On the left side, revenues by segment. Commercial Aviation accounted for 58% of the revenues in 2017. Executive was 26% and Defense 16%. Regarding the breakdown by region, North America remains our major market, followed by Europe, Brazil, and Asia, with similar contributions. Next page, revenue by business units and by quarter. Commercial Aviation reported total of $3.3 billion within the guidance. Executive Jets was 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&A expenses. We reported a total of $486 million of sales, general and administrative expenses in 2017, equivalent to 8% of the revenues from 9% in 2016. The G&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 Jets business. Next page, as far as EBIT. The adjusted EBIT was $397 million in 2017, with 6.8% margin. These numbers below estimates reflect the negative impact of $50 million in the program development of the KC-390. 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 the reported margin of 6.8% in 2017. The breakdown by business was Commercial Aviation 13.5%, 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 KC-390. Next page, adjusted EBITDA. The total adjusted EBITDA for 2017 was $713 million with 12.2% margin.
The numbers were affected by the same negative impact as the cost increase of the KC-390 development program. Next page. Adjusted net income was $280 million 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 million of investments in 2017, broken by $434 million in R&D and $176 million in capital expenditures. In more detail, research was $49 million, development was $385 million, and capital expenditures was $176 million. Most of these investments were related to the development of the H2 program. Next page 21, adjusted free cash flow. We reported a free cash flow generation of $105 million in 2017 and $407 million in the fourth quarter of 2017.
This number was above our initial expectations and positively impacted by the improved working capital with an inventory reduction of approximately $300 million, mostly in Executive Jets, lower investments, about $50 million, and sale of used aircraft owned by our leasing company. Next page, capital expenditures. Our net debt as of the end of 2017 was $4.2 billion, and our cash position, $3.89 billion, returning to a net debt of $311 million, better than the previous year. Regarding our debt, its average terms was six years, very adapted and ready in terms of our product cycle. The next page. Now we've finished the financial results, and we would like to present our financial outlook. We usually do this in the beginning of the year.
This information updates the preliminary guidance that was released together with the 2017 third quarter financial results in the end of October, do not differ much of those, but present more details. Next page, starting with net revenues and deliveries for 2018. We are estimating the total revenues for 2018 in the range from $5.4 billion-$5.9 billion. Revenues estimated by business units, now including Service and Support business, are $1.35 billion-$1.5 billion to Executive Jets, $0.8 billion-$0.9 billion to Defense and Security, and $0.9 billion-$1 billion for Service and Support. In terms of deliveries, for Commercial Aviation, the range between 85-95 deliveries, and for Executive Jets, 105-135, broken by 70-80 light jets and 35-45 large jets. The next page, for results and cash.
We expect EBIT to be in the range of $270 million-$355 million, with margin range from 5%-6%, EBITDA on the range of $540 million-$650 million, with margins between 10%-11%. Free cash flow is expected to be a consumption of $100 million or better. Investments are expected to be $550 million, broken by $50 million for research, $300 million for development, and $200 million for capital expenditures. Next page, we consolidate and present our 2018 outlook. With that, we conclude the presentation. We're now moving to the Q&A section. Thank you.
Okay. Thank you, Filippo. Now we're going to start the Q&A section. If you are over the phone, you need to press star one on your phone to ask a question. First, we start with the audience here. If you have a question, just raise your hand. We have mics on the room. We start the questions from the audience. Thank you.
Good afternoon. Thank you for the question. Pedro Bruno from Santander. My question is regarding deliveries.
Should I do it in English or in Portuguese? Sorry.
Sorry. The deliveries in 2019, actually not just 2019, but beyond 2018, for which should be lower deliveries year as per the guidance provided by the company. My question is actually, 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.
Thank you 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 to E2. We still expect 2018 and 2019 to be weaker years in terms of deliveries. What we expect in mid-term, this would recover. That's typical when we have two models at the same time. It brings some inefficiency. Also, the learning curve of a new model takes a little bit longer than another mature one. We expect to be mid-term, something better, maybe two, three years. That's what we said. We'll be recovering to normal levels. Normal levels will mean historical couple of years.
We'll take another one from the audience. Turan?
Turan Quettawala 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%-6% EBIT margin. At that point, you were expecting a higher margin in 2017. Your margin in 2017 is about 100 basis points lower than what you were expecting it to be back in October. My question is, how comfortable are you with that 5%-6% EBIT margin guidance for 2018, and is there any risk to that? What are you doing to make sure that whatever pricing, I guess, that's been maybe a bit more negative, is that coming back to give you confidence on that 2018 margin target? Thank you.
Okay. Thank you, Turan. I'd say that what happened 2017 was this cost recognition that we had to make in the end of the year in the KC-390 program. If we add that back, we're going to go to the 7.7% margin 2017, which will be very close to the lower end of the guidance, which we already indicated that time that we expected to have. By the way, it's good to recall now that this $50 million, 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. We still maintain the 5.6%. We think that excluding that effect, we're basically where we expected to be in 2017. 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%-6%, normally we give some information on this. In terms of commercial aviation, we think about something about high single digits. In terms of executive jet, low single digits. For defense and security, low single digits as well, and Service and Support, low double digits. That combination will lead us to the 5%-6%. We don't send out guidance specific for margins to the business. Thank you.
Okay, now we're going to take a question from the phone. Operator, I think we have Pete Skibitski from Drexel Hamilton. Can you open his line, please?
Good morning. Can you hear me?
Yes.
Yes, we can, Pete.
Okay, great. Paulo, 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. There is a working group that was appointed by the government. We are engaged with them, in order to find a structure that can work for all the stakeholders. We have, of course, our shareholders, we have the government, we have the buyer, we have Embraer. We have to make sure that we have a structure that can be acceptable by the parties. That's what we are doing now. There is a very good engagement. That's all I can say, I can't say more than that.
Okay. Understood. If I could, I'd like to ask a follow-up on KC-390. I'm wondering when you expect to firm up the order from SkyTech for the LOI for six 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 Airshow. It's a good sign. We are very optimistic that we can sign and engage in a firm contract throughout this year. It would be a very good addition for our KC-390 program. Hopefully, so we can move forward with that until end of this year.
Great. Thanks very much, guys.
Thank you.
We're going to take another question from the phone. The next question will come from Cai from Cowen. Cai, the line is open. You can ask the question.
Thank you very much, guys. Your executive jet book-to-bill looked particularly low in the fourth quarter. Can you comment on that and give us color on demand in the executive jet sector?
Thank you for the question. The business jets business is improving gradually, right? I think until last year, we saw very challenging markets. If not mistaken, the industry altogether delivered last year, 641 units in 2017. 2016 was just one unit right below that, 640. The market still last year was under huge pressure. We are seeing signs of smooth recovery. It's not an aggressive one. Good signs on the used inventory. The price are not falling any further. The used aircraft prices and the market is becoming to clear on the older jets, used jets. That's a very positive sign because the next step now definitely will be by people and companies looking to buy new jets, brand-new jets. The tax reform by Trump in the U.S. is a big driver for the business jet business.
Together with that, the growing GDP in the U.S. going forward will be also a big driver. Don't forget that 60% of the business jet market is within the U.S. We are more bullish this year that the business jet unit will have more opportunities.
Thank you very much.
Okay, now we are going to get back to the audience. If you have a question, please, on the left.
Hello. My name is Ricardo from BNDES. 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 starting of the process of manufacturing now. First delivery will be in the second half of this year. Of course, it depends on the type of order because this product is a type of customer. It is not typical like the commercial. 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 a two-digit, something between mid-single, mid two-digit, margin could be reasonable to see. I am talking about margin. Anyone else from the audience? On the right.
Mariana 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 million free cash flow this year to a negative $100 million next year?
Yes. Mariana, thanks for the question. We had a situation in 2017, which were, first, like I mentioned, adjustment in the working capital. We saw a reduction in inventory, especially in finished goods. The way we manage the production is the deliveries. We end up with lower inventory in the end of 2017. That is something that we should not expect going forward, this sort of adjustment. Part of a focus on the margins and the price rather than deliveries itself, I think, 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 investment that we had, $50 million. We guided $650 million, and we end up with $610 million or $40 million. That also helped. We're thinking of the $550 million for 2018. We think we're confident with that.
An opportunity of selling some used aircraft that we had in 2017. We had a window of opportunity to some used market, especially in Africa, smaller aircraft, that we took that opportunity. It's more like a one-time thing that we don't count on that to happen again. That's basically how we bridge what drove us to the improvement in 2017, 2018. Of course, there's a commitment for us to be disciplined in terms of generating cash and to take those opportunities again. As we can, definitely we want to be looking for opportunities to improve the cash generation. At this point, our best expectation for 2018 would be the negative $100 million, which is a little bit better than what we initially expected for 2017.
Thank you.
Thank you. Thank you very much. Ricardo Alves, Morgan Stanley. Just a follow-up on this question. Actually, clarification. One of the reasons for the lower free cash flow generation, I think you mentioned the lower investments. Just to clarify, if I remember correctly, we're talking about something like around $430 million in terms of R&D over the past two years. I thought that that number was coming down in a major way to $350 million or so, next year. 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're still in the process of developing the E2, which was our major program. That's still, as you know, entry to service of 190 will be this year. In April, the first delivery. 195 next year, and the 175, we scheduled that for 2021. 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 the starting to decrease, but not the major decrease. I think that the extension of the 175 already brings us to more of investment in a couple of years. We don't see that in 2018 will be that drop.
I understand that you're referring to, in normal levels, 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, sub-$250. 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 looked 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. Separately, what has labor cost inflation been on average over the last few years? 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 West. 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 had larger amounts, they were price pressure. We already indicated that. However, because of that, we were able to reduce cost as well. The standard type of plane helped us to do this. Our focus on cost reduction already got some good results. Price was reducing. I wouldn't say that it's dramatic reduction. It depends, of course, like you said, on the size of the campaign, the size of the order, on the conditions itself, on the competitive situation.
I think that the price reduction was not major. It was followed by the improvement in efficiency in terms of keeping the margins, as if you follow, that's what we said. This is more commercial. Again, it depends more on the specific campaign and the deal. In terms of executive jets, we don't see a major reduction now. 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. We still saw this year, the first 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. 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.
What was the other question, Noah?
In terms of labor cost.
Oh, labor cost.
Yeah.
Labor cost. As you know, inflation in Brazil has been low, and labor costs tend to follow that. We had, in 2016, something around 5%-6%. Last year, 2017, was 2% labor adjustment in average, to give you an idea on that. We still see inflation under control in Brazil and not increasing. We tend to see that labor costs should follow inflation rate, which is very low at this point. We don't expect that to be a major concern going forward.
Great. 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, Noah. I think last year, we had almost a one-to-one book-to-bill. It was a relatively good year. 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, John will talk more about that when he'll make his presentation. With the certification of the E190-E2, which occurred this month, and the first delivery next month, in April, of course, the dynamic will be different. We have an aircraft that is delivering more than we had promised when we launched this program. Fuel burn is much better, range is better. 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 U.S., which is our largest market now, if you see the last years, but very good campaigns all over. We are quite bullish going forward.
Okay. Great. Thank you.
Okay, next question from the audience here.
Talking about defense and security. What do you expect for growth opportunities in other revenues, like radars, satellites, maintenance, like OGMA, and what about the expectations for margins in these other residual revenues?
Overall speaking, I think the defense business has a very good future. When you look at the KC-390, the opportunity that we may have in the whole world, it's going to be great. We are on time with the development. The first delivery is going to be this year. In defense, you have to deliver the aircraft to your Air Force in order to have a market recognition that you have gotten there. The KC-390 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. There are 2,700 C-130s in operation, 34 years old, in average. It's a huge potential for the KC-390.
I'm not saying that we will get all these replacements, but if we get a portion of that, let's say one third of that, it's going to be great. It's going to be really something that will boost a lot, the defense business. We have the opportunity to grab the sales going forward. The interest in the aircraft is absolutely fantastic. We are seeing a lot of governments, countries, more and more interested in seeing these aircraft. This recent LOI for SkyTech, I'm sure that was a tremendous opportunity to showcase also the KC-390 to other countries, since SkyTech is not a leasing company, but they are an operator of this type of aircraft for special missions. It's going to be very important. The Super Tucano is an amazing aircraft. It's tested, it's in operation.
It's doing absolutely fantastic for the countries that have bought it. Look at the U.S. Air Force. They have bought for the Afghanistan operation, and they are very much involved in other projects. The one that, of course, everybody's looking for, especially us, is for the replacement of the A-10 in the U.S. There are an opportunity here, for maybe 300 aircraft, and the U.S. Air Force likes the Super Tucano a lot. I'm not saying that we will win, but we have definitely a great opportunity to make this happen. We are quite bullish on that. On the other areas that you mentioned, I think, we have to be very realistic here. The other areas are more linked to the Brazilian budget.
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 in order 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, SGDC, since the first one was launched this year, and there is a huge need for this kind of investment. Because Brazil does need additional internet banks for that. I believe this will come. Let's hope that until end of this year, the Brazilian government will take a decision on that. Regardless the new president, this is an area that Brazil will have to invest.
The SISFRON project will continue, maybe not in the same speed that we would like, but it will come. For OGMA, I believe OGMA is set for growth because we are investing in OGMA, we are giving OGMA the opportunity to have more business. We are integrating OGMA more into the other business units. OGMA is set for growth. It's already a profitable business, but now we have to grow. We are very optimistic overall speak on defense. I will stop here because otherwise Jackson will not have other talks to present to you. Okay?
Okay. On the right side, next question from the audience.
Good afternoon, everyone. Josh Milberg 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 that a special configuration of your E175 aircraft. I was just hoping you could 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 in the U.S., from 50 up to 100 seats. Depending on the airline, they can go not exactly to the 76 seats, but they can go up to 70 seats. 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 E-Jets 170. To more brand new aircraft. 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 76 seats. As of today, we see a very good opportunity to increase the number of the E175 in the United States. A big opportunity. Did I answer your question?
Yeah, I think so. Maybe if you could just touch on the question of pricing, because our understanding had been that the 70-seater configuration does have a lower selling price and that in turn might explain some of the downside to profitability in 2018. I was also just wondering if that had been a variable behind your margin performance in the fourth quarter itself already.
No, not at all. In the fourth 2018, our margins in commercial aviation will be a little bit lower. Why? We are in a transition period. We are moving from E1 to E2 gradually. We have the ramp-up cost. We have the introduction cost of the E2. As far as the 175 is concerned, 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. You're saying that it's not the case.
Not at all.
Okay. Thank you.
Yes.
Okay. Another one on the left side.
Hello, guys. This is Lucas from Banco Safra. A more broad question on my side. Have you guys perceived any change in the commercial behavior of Bombardier after the deal with Airbus? Is this positively affecting commercial aircraft prices already?
Well, the announcement by Airbus and Bombardier at that moment was very important. First of all, it validated the segment between 100 and 150 seats. Definitely was a big validation by Airbus that it's important segment and that Airbus should be there. This, of course, is bringing more interest from the market 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. They have to wait until all the authorities in many countries clear the deal. The antitrust authorities. I think so far only Germany has cleared. It's still missing many others, and of course, other steps as well going forward.
I believe only on the third quarter or so this year that Airbus and Bombardier will do a joint effort. Far, business as usual, more interest from the markets. The 195 E2, especially the 195 E2, is being perceived a very efficient aircraft. We are very bullish on the segment. 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.
Thank you. 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? The second question, with regards to the impairment of BRL 64 million in executive aviation. I don't know if you can give any color on this, and what would be your operating margin in executive aviation in Q4 if we exclude this impairment?
Okay. For your first question, no. We can't say. We don't know, right? We don't know. I think what's important is that all the parties are working very hard to have an outcome as soon as possible. All the parties involved, 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, because we don't know if it's going to be happen or not, it's not possible to say this at this stage. We are working hard to have, as I said, an outcome very soon.
Victor, regarding the margin on executive that you asked, this margin with breakeven that we set for 2017 was already not impacted by the impairment. For 2018, like we said, we are expecting the low single digits for executive jet. We have to take into account that we are not considering the service revenues on the executives for 2018. As now we separate that, only the executive itself is low single that we expect for 2018. There is still work being done. As you know, we have a new leadership in executive jet since the first quarter of 2017, adjustments are being made. 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.
We believe there's going to be an improvement if we compare that also with the past. Adding that we expect the market to start to be better going forward. That's basically the points for the margin.
Okay. Filippo, in this specific case about the impairment, this is something related to the intangible of, I mean, executive aviation or, let's say, this write-off of inventory?
No, that was related to assets associated to the Legacy 650, that in terms of how we see the projection of sales and manufacturing of that aircraft. We had to do the calculations, we returned to a negative net present value, we had to write off. It is an impairment. It's the same as the write-off of the assets associated to a specific program. That's what happened.
Okay. Thank you.
Okay. I think that concludes our fourth quarter 2017 earnings call. I want to thank you all over the phone. 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. We continue here with the audience. Thank you.
Okay. Now short break, 10-minute break. We'll start the presentations right after that. Thank you.