Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Andrea's Second Quarter 2016 Results. Thank you for standing by. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions to participate will be given at that time. As a reminder, this conference is being recorded and webcasted atri.embryar.com.br.
This conference call includes forward looking statements or statements about events or circumstances which have not occurred. Embraya 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 on this conference call may 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. Carlos Cesar de Soza y Silva, President and CEO Mr. Jose Filippo, Chief Financial Officer and RIO and Mr.
Eduardo Corto, Director of Investor Relations. I would now like to hand the conference over to Mr. Jose Filippo. Please go ahead, sir.
Okay. Thank you, and good morning, everybody, and thanks for joining our conference of the Q2 financial results. I'm going to go, as usual, through the presentation, Then I'll pass to Paulo Seza for his remarks. And after that, we'll be ready for the questions. So starting the presentation in Page 3 with the corporate highlights.
Early this month, we participated in the 2016 Favon Air Show, where we had a chance to debut the our E190, E2 and the KC290 in the international market. Together with that, we were able to have the first time display of the Lagos 500 Super Tucano and defense systems in the same trade air show. In terms of commercial activity, we were able to announce the commitment for 25 ejets, the current generation and the E2 version. Next page, Page 4, regarding highlights for Commercial Aviation. We delivered 20 60 jets in the Q2 of 2016.
Regarding new operators, TAP from Portugal became a new e jet operator. As far as orders activity, we had several recent announcements: Japan Airlines order for an additional E-one hundred and ninety Nordic Aviation Capital order for 4 E190 Calsstar Aviation from Indonesia order for up to 10 E190 E2 and the Arkea from Israel, letter of intent for up to 10 E195 E2. In relation to the E2 development of the program, we have this had the 2nd prototype join the flight test campaign, and now we have over 50 hours of flight tests. Next page, Page 5, moving into the Executive Jets highlights. We had the delivery of 26 jets in the Q2, broken by 23 light jets and 3 large jets, which included the delivery of the 1st phenol 100 to Etihad Bright College.
In terms of commercial activity, we announced that across from Mexico had an order for 33 jets, being 8 Leggos 500, 8 Finland 300 and 7 Finland 100. Also, as Sprint, order for up to 12 legacy 450. And are hampered the purchase agreement for an additional Legacy 650. Regarding production activity, we started in our Melbourne facility the first assembly line of the Lagos for 5,500. Next page, Page 6, highlights of Defense and Security Business.
Starting with the KC-two ninety program, two important information. First that the flight campaign reached over 400 hours with now 2 prototypes. Also that the KC TriNet were able to do a demo tour in Europe and Middle East after the Fargo show. And very important to the commercial phase of the program, Embraer and Boeing signed an agreement of on global marketing and support for that project. An update on the LAS program for the U.
S. Air Force. We delivered the aircraft number 19 out of 20. And finalizing the highlights of defense in relation to other Embraer Defense programs, Vizona advanced with the satellite test for the Brazilian client. Okay, next page and finalizing the highlights.
But before entering in the financial results, 2 important information. First, the update on the SEC and DOJ investigation. And in Page 8, we have been reporting this letter since 2011. And in May 2015, we informed that we started negotiations with the authorities for a potential settlement. Now we are announcing that the negotiations have $200,000,000 It's important to say that the final settlement is likely to include a deferred prosecution agreement and imposition of independent monitor.
It's also worth to mention that negotiations with the U. S. Authorities are ongoing and subject to change. Next page, the second important update before the financial results is the 2016 outlook revision. Page 10.
And due to more difficult conditions in the business jet industry this year, we are reducing expected deliveries by 10 aircraft for 2016. We now expect the range of 105 to 135 deliveries in Executive Jets, broken by 70 to 80 light jets and 35 to 45 large jets, resulting in lower revenues to the range of $1,600,000,000 to $1,750,000,000 from $1,750,000,000 to 1.9 $1,000,000,000 We are also reducing the other revenues by $50,000,000 In this page, we show the changes in our estimates, but it's also important to highlight that the reduction on the margins, EBIT and EBITDA and the lower free cash flow generation driven by higher inventory levels and lower profitability. We had the revision on the free cash flow generation for the year from negative EUR 100,000,000 to negative EUR 400,000,000. In next page, we will detail our new guidance. So now in Page 11, we now expect total revenues in the range of $5,800,000,000 to $6,200,000,000 when we break this by business unit in commercial aviation, there was no change.
Delivers in the range of 105,000,000 to 110 E Jets and revenues from $3,450,000,000 to $3,650,000,000 This represents 59% of the revenues consolidated of Embraer 2016. In terms of Executive Jets, as already adjusted, delivers from 70 to 80 light jets, 35 to 45 large jets and net revenues in the range of $1,600,000,000 to $1,750,000,000 which would represent 28% of the revenues of the company. In terms of Defense and Security, net revenues, unchanged in the range of $700,000,000 to $750,000,000 To sum up the total revenues, other revenues of $50,000,000 representing 1% of the total revenues. Continuing next page, Page 12, in terms of EBIT and EBITDA. The EBIT range from 100 $1,000,000 to $500,000,000 the margin from 7% to 8% and EBITDA from the range of 735 dollars to $840,000,000 with margin from 12.7% to 13.5%.
In terms of free cash flow, as already anticipated, the expected of reuse of less than $400,000,000 And finalizing the outlook for 2016, we are maintaining our total expected investments of $650,000,000 broken by $50,000,000 in research, dollars 325,000,000 in development and $275,000,000 in CapEx. Now we move to the financial results for the Q2 2016 year. And starting with Page 14, our firm backlog. It was unchanged compared to the end of March in the total of $21,900,000 On Page 15, as far as aircraft deliveries. From the left, we delivered 36 aircraft in commercial aviation to the total of 47 to date.
June actually, in the end of the Q2, June 2016. In the right side of the left, the sheet, we have the delivery of 26 effective jets in the 2nd quarter, broken by 23 light jets and 3 large jets and accumulated of 35 light jets and 14 large jets in the year. In the bottom of the page, our outlook for 2016 already adjusted, effective jets from 35 to 45 large and 7 to 8 light jets and maintaining the ejets commercial from 105 to 110 deliveries. Moving to next page, Page 16. We reported net revenues of $1,360,000,000 in the second quarter with accumulated of BRL 2,670,000,000 in 2016.
Next slide, Slide 17, breaking revenues by segment. The top right, Commercial Aviation, reported $857,000,000 in the 2nd quarter, accumulated of 1.57 $1,000,000,000 in the year. Going down right now, in terms of defense, the total of $210,000,000 in the 2nd quarter, accumulated of $400,000,000 in the year. And moving down left, bottom left, the Executive Jets reported revenues of $293,000,000 in the 2nd quarter and accumulated in the semester of 0 0.69 $1,000,000,000 Next page, on Page 18, regarding SG and A expenses. We had a total of $147,000,000 in the 2nd quarter, similar to the same period figures in the Q2 of 2015, accumulated $287,000,000 in the year.
Next page, Page 19. As far as operating results, we reported negative operating result of $137,000,000 dollars in the Q2. But excluding the $200,000,000 provision, the operating results would be positive in 73,000,000 dollars The recurring EBIT margin was 5.3% in the 2nd quarter, broken by EBIT margin by business of 10.7% in Commercial Aviation, 2.4% in Defense and negative 8.5% in Business Jet. Accumulated total EBIT margin was 5.9% in 2016. In Page 20, regarding EBITDA, we had the recurring EBITDA of 100 and $2,000,000 in the 2nd quarter with EBIT margin of 11% in the quarter.
In 2016, EBIT reached $320,000,000 with a 12% margin without external charges of 200,000,000 dollars Page 21. We reported net loss of $99,000,000 in the 2nd quarter, which would be a positive $101,000,000 excluding the $200,000,000 provision. Accumulated in the year, we have the recurring $205,000,000 And with the charges, the reported $1,000,000 of $4,000,000 as of June 2016. In Page 22, in terms of investment, we had the total of $245,000,000 in the year, broken by $17,000,000 research, dollars 139,000 in development and $89,000,000 in CapEx. We are maintaining our estimate of $650,000,000 for the full year investments.
In Page 23, as far as free cash flow, we reported a negative free cash flow of BRL439,000,000 in the Q2 and accumulated consumption of EUR 655 in 2016. The use of $200,000,000 in operating activities was due mainly to higher inventories. As we already indicated, we are now estimating the consumption of no more than $400,000,000 in 2016. The next page, in finalizing the presentation, our capital structure. The total debt of $3,700,000,000 with an average maturity of 5.7 years.
And as a consequence of the accumulated negative cash generation in the first half of the year, we reported a net debt of $613,000,000 in June 30. So with that, we finalize the presentation. And before we start the Q and A section, I would like to turn to Paulo Seza for his remarks.
Thank you. Thanks, Filippo. So good morning. So thank you for joining us in this call. So this is my first call as CEO of Embraer.
And for me, it's an honor to take the leadership of this company. And I'm very glad to assume this leadership in a moment that the company has a huge legacy coming from Federico Corrado, the former CEO who took over in 2007 and started to make important investments in new products, setting the tone for the future. So for those that who attended the final this year, so you could see the materialization of what I'm saying. So for the first time, Embraer brought all the 3 business units with updated products. So we had the KC-three ninety, the 190 E2 and the legacy 500.
So all brand new aircraft, brand new programs, representing total investment of about $5,500,000,000 in the last years. So we believe that I believe that we are in a good position, an excellent position to move forward and to maintain our position in the market. When we look at the performance of this, especially the KC-three ninety and the E2, I will start by the KC-three ninety, only around 100 hours after the flight test, like campaign started. So these aircraft flew to Farnborough and has shown a very high level of maturity in these flights. After Farnborough, the KC-three ninety went to visit few countries, and it was also a spectacular ride performance.
So the same for the E2. So 50 hours after the first flight, we brought the E2 to Farnborough. And also with the excellent flight. So showing that both aircraft have a very level of maturity. So we are set to go to the market and be successful with these new programs.
So the legacy 500 also is being showing a lot of interest and is being considered already the best aircraft right in the category. And the E2 family had the most efficient aircraft in the segment from 70 to 130 seats. So the E2 also family, so we have launched this program a little bit over 3 years. And we have accumulated so far almost 300 firm orders and more than 670 orders when we add also options in LOI. So this is already a huge success in the market.
So I'm sure that Embraer is set for a bright future. There are good opportunities here for us to improve our margins. I believe that since we have now invested a lot in this program, as I said, we have to concentrate now in our cost side, in becoming more efficient. And that's just the company in a way that we can deliver a better margin. So I'm quite positive that there is a good room for that.
And this is where one of the my focus will be exactly on this. I'll talk about the markets a little bit. Starting by business jet market, I think it is a soft market. It is a soft market. The new guidance or the revision of the guidance that we are making today is in line with what the market is doing, right?
So we are seeing the market in general reducing guidance by around 8%, right? So we are doing the same. We do not want to fight against the market. So we have to recognize that it is a soft market. So we will no longer fight for market share.
I believe that we have to sustain our business and make it in a sustainable rights business. So it's not selling by selling, but it's selling in order to also make money and give a return to our shareholders. So this is what we are looking for. Business that may not recover for a while. Nobody knows, but no one expects that in the next 2 years or 3 years, this market will recover.
We still have a lot of used aircraft in the market, around 11% of used aircraft inventory when compared to the size of the fleet, right, total fleet. So we have around 400 used aircraft in the market. And the forecast this year is for deliveries of around 6.40 650 aircraft only coming down from the peak in 2,008 of 1200 aircraft. So it is a different market, and we have to adjust to this new market. On the commercial aviation, so we are very bullish, as I said.
So D2 is going very well. So we are involved in many campaigns, a lot of interest in these aircraft. And on defense, definitely, so we have the KC-three ninety as a huge potential to boost the defense business. So the show up of the KC-two nineteen Fibro, the level of interest that these aircraft has attracted, the agreement that we made with Boeing for marketing and after sales support for the KC-three ninety on a global basis, the efficiency of these aircraft, the flexibility of these aircraft. So I'm sure that the KC-three ninety will be a huge success.
So we are very bullish on the defense, on the KC-three ninety going forward. Last but not least, a word about our provision. I think it's very important that we are getting to the end of this case. That's important for us. So we will turn this page.
And with that, so we'll be looking again to develop our business and to further develop Raizen Braer. So with that, I turn to you for your question, please.
Your first question comes from the line of Myles Walton.
I was wondering if you could talk a bit about the cash flow guidance. So $50,000,000 of that looks like lower profitability, but the other $250,000,000 of the negative revision to free cash flow, is that all inventory? And similarly, Filippo, what should we think about planning wise for 'seventeen in terms of reversing that inventory?
Yes, Myles. Good morning. Actually, it's exactly what you Yes, Myles. Good morning. Actually, it's exactly
what you mentioned.
The increase of
the consumption of cash
this year
is pretty much related to the inventory. As you know, production is already set in terms of supply chain for this year. We're trying to make some possible adjustments, but we expect to end up with some higher level of inventories, which will be the higher the most impact in the consumption this year. Of course, we expect to in this strategy to really discipline in terms of the way we approach the executive market in terms of sales. We expect to be maybe what's possible next year without measuring the price.
And that definitely, we can have an adjustment in terms production for next year. They'll be using the inventory that we end up this year potentially. They'll be reverting part of that next year if possible. That's how we assess this.
But how much of a delivery cut next year, I mean, that's a pretty big implied delivery cut next year that would take place on business jets, if that's the case. So I guess as a placeholder, are you looking for business jets to be down 10% next year or more?
No. I think it's too early to say that the projection for next year is going to be done sometime soon in the future. However, I think that we work we don't work in the reduction. This reduction probably we plan to have to be flat for next year. That's the first.
Not a continuous reduction. That's not what we're working.
Okay. And then can you comment, Paolo, maybe on the legacy 450? I don't think it's been delivered here in the first half. When does that start to pick back up in terms of deliveries? And what's the obstacle?
So we will start delivering the second half now. So it's all good. So we are in good shape to start to deliver the 4th field. So we are very bullish, as you know, on the 4 500. So to write great products, and I'm sure that so the market will recognize the 450 as much as being recognized the 500 as being the 2 best aircraft in the category.
Okay. And last one, could you give the Eduardo, could you give the segment's margin or margin by segments for EBIT basis?
Yes, Magnus. I can give to you. The for the Q2, commercial was 10.7% defense, 2.4% and executive, minus 8.5%.
Okay. Thank you.
Thank you. Your next question comes from the line of Cai von Rumohr. Your line is open. Please ask your question.
Yes. Thank you very much. Could you maybe give us a little bit of color by model? We're hearing from one of your competitors that you're bringing the price of a 500 down to compete with the Latitude and that the 450 is really not selling well. Thanks.
So, Caio, I believe the pressures on the business, Jeff, unit are huge, as I mentioned. So we are seeing a soft market. And our competitors have adopted a new strategy that is to discount the price of their product. So we are following this. Of course, that we have to be responsible and also give our answer, right, to the market.
However, we hope that going forward now with more discipline in our side and not looking at market share only and also adjusting our costs, our internal costs, especially in the units. So we believe that we'll be able to get back to the margins that we need to make this business sustainable.
Just a quick follow-up. If you're going to carry some inventory over to next year, I assume it's business jets, What is the impact going to be of presumably having to discount to move some of that inventory and the adverse overhead of kind of cutting production rates down even more? And what can you do to kind of offset that to sustain the profitability or at least to minimize the profit downsizing bizjets? Thanks so much.
So the carryover on the inventory on the business jet unit is already reflected in the guidance that we gave on cash flow, right on free cash flow this year, coming from 100,000,000 to 400,000,000 negative. So it's already there. And next year, we will adjust the production of the business jet unit for the new levels that we are going to, I would say, forecast for next year. So but there will be a carryover for next year.
Thank you very much.
Thank you. Your next question comes from the line of Alexander Falcao. Your line is open. Please ask your question. Alexander Falcao, your line is now open to ask your question.
Please go ahead.
I'm sorry. Thank you. So my question is regarding the sense we're expecting because of the FX, a bigger reversion on the fence. So I just wanted to know, if you guys could walk us through what happened there. And is this just a part of the reversion of all the provisions that you did last year or that we shouldn't expect any bigger improvements in the margin on that front?
Thank you.
Okay, Alessandro. I don't think it's going to be a major impact in defense. There is, of course, as we already indicated last year, the exchange rate impacts that contract of defense. But as we have less to go in terms of the contract, this effect tends to be lower. However, of course, we are seeing that those negative impacts that we had last year, they're no longer happening.
And this is important to confirm that this is an impact there. So you saw positive. I think the defense tends to be in a way that we already indicated to you recently in the mid single digit, that's something that we could work for this year. So I don't think it's going to be necessarily major impacts there, but it's going to be something positive, of course, but not in a big impact because of the stage of the development of the contracts that are affected by the exchange rates.
Okay, perfect. Just one more follow-up question on commercial. Just wanted to know where you are in terms of the gap between the E1 and E2. Where do you see after these new orders? What do you see in terms of gap specifically for 2018?
Where we are right now? And how much more you need to feel comfortable for the transition? Thank you.
Well, so we are in this regard, I think we are doing very well. So we have 2017 in very good shape and 2018, so step by step. So we are closing this gap. So we still have, I would say, about 35% maybe for 2018. But we are very much comfortable that we will also fulfill 2018.
So we still have, like, 2 years, right until there. And given the level of activity that we are seeing in the commercial right side. So we have the comfort that it's going to be okay. So beyond that, it's still early to say. But these orders that we have recently announced, of course, that calls also for deliveries in 2019 and all.
Okay. Perfect. And just to follow-up on that. In terms of modeling, how much of the options you guys usually model that are converted specifically for the E-one?
Well, this is a tough question because, of course, the market is very dynamic. So it depends on the moments of the market. But historically, a ballpark number of rate conversion is about 60%. This is more or less the number. So it's not an exact number, but as I said, ballpark number.
Perfect. Thank you.
Thank you. Your next question comes from the line of Derek Sprague. Your line is open. Please ask your question.
Thank you. Good morning. As you round out the development of the E2, it would seem like a natural progression for you to develop a large cabin business aircraft. Is that still under consideration given the current environment in business aircraft? And if not, what other areas or products do you find potentially interesting as a future development program?
Well, Derek, good question. So we don't know yet whether or not we will be looking to a new business yet. I think we have to look at what we have done in the last years and monetize these investments before we can move forward and go into new investments, have investments. So as I said at the beginning, so I think we have excellent products now in the 3 business units. And we have to make sure that we can consolidate these investments before we can write a plan for new investments in the future.
Of course, there will be new products in the future. But at this moment now, I think our focus must be in consolidating these investments.
Okay. And would you have a couple of opportunities in defense perhaps in maybe smaller programs or smaller investments that you're looking at?
So I'm sorry, can you No, no. No big investments in this sense now. Of course, always in painting, right, I'd say a product, but no big investments. So our focus also on defense is to go more international, trying to diversify more the business in terms of geography. And as mentioned before, the KC-three ninety is a terrific aircraft, and I'm sure that we will go more and more international in defense as well.
Okay, great. And just quickly on the commercial side. Can you comment on the pricing and order environment in commercial? And any update on potential scope clause changes in the U. S.
To 100 seats? And then finally, are you seeing any competition from the MRJ or the Superjet picking up?
MRJ Superjet, not really, especially MRJ, right? So I think they are still late in program. Superjet, a little bit in Russia and the countries surrounding Russia. Of course, we have in Mexico. But other than that, so we are not seeing too much superjet in the market.
And as scope grows in the U. S, I think this will not happen anytime soon. I think there is still a long way to go until the scope clause may change from 76 to 100 seats. Of course, if this change will be very well positioned since we have the most efficient aircraft right in the segment. We continue to sell very well the 76 seats in the U.
S, and we continue to follow the opportunities in that market for the 100 seat plus in the major airlines. So there might be opportunities there that we have to be very close to it, and that may happen maybe next year.
Okay. And are you seeing any signs of a little bit more rational pricing from your major competitor in the regional jet space?
Well, I think this is well known, right? So what our competitor strategy is right now in the market. So we are following this very closely. We are I think we have already been very vocal regarding this point. So we want to make sure that our competitor will not use government money from the taxpayers in order to provide aircraft at below cost right in the market.
So I think this is very important to make this point. And every time that this we believe that this is happening, we'll be vocal about that.
As a taxpayer, I appreciate that. Okay, thanks guys. Appreciate that.
Thank you. And your next question comes from the line of Pete Skibitski. Your line is open. Please ask your question.
Good morning, guys. And Paul, congratulations.
Thank you.
Paul, can you talk about the commercial ore environment? Farmer was fairly quiet. And I apologize if this was asked, I got off call late. But how is the campaign environment in the second half of the year? And do you I've seen some mention of some potential large ones in India.
And do
you think you can get
to a one time book to bill in commercial orders this year?
Yes. I have to be very careful of what I say here because I don't know if our competitors are on the line, right? So I have to be careful. But anyway, so I think in Farm Bureau, we have announced important orders, so not very large number. However, important orders in the sense of new airlines, right, joining the E2 program, E1, E2 program, E Jets program, and also repeating orders.
And going forward in the second half, so we are involved in many campaigns. Again, so not individual large orders, but diversified airlines and diversified regions of the world. And this is very important to us. So we are not seeing any big, big, very big campaign now, but many campaigns and which brings important diversification to us.
Got it. Great. Great. And then just one follow-up. On the 200,000,000 dollars contingency, again, I might have missed this, but can you give us a sense of the timing on the cash impact of that?
Is the cash payment going to be a similar order of magnitude? Or is it likely to be less? And is that going to be kind of a 2017 event? Can you give us any more color around that?
Not yet. So this is a provision that we made now. We are still negotiating with the DOJ and the SEC, and this is what we can inform now.
Okay. Okay. Understood. Thanks, guys.
Thank you.
Thank you. And your next question comes from the line of Victor Mizusoorti. Your line is open. Please ask your question.
Hi, thank you. I have two questions. The first one, taking a look on your guidance for 1,000,000 jet sales and cash flow generation for this year, If it was when that production rate is unchanged, can you add basically 10 new 1,000,000,000 jets to your inventory with an average price
of $30,000,000 Is
this number correct? And the second question, can you give us an update on the negotiations with Republic Airways?
I think that, Vic, in terms of the calculation you made for the even clauses of the active jets, I think the number of aircraft is reasonable. However, the price seems to be a little bit higher than what we should expect. So maybe it's about there, but with a lower amount.
So regarding Republic, so I can give you an update. I believe Republic Chapter 11 is moving well by the sense of the Republic being able to have agreements with the major airlines and major suppliers. So Republic Ares reached an agreement with Delta, United and now is negotiating the final stage, as far as I understand, with American Airlines. Regarding BRA Air, so we are in deep dialogue now to for the 24 aircraft that we have to deliver next year. We are postponing 9 aircraft from this year to next year, as already announced.
And therefore so next year, we will have more deliveries. So we basically will deliver next year approximately 20 aircraft and 4 in 2018. So it's not yet 100% finalized, but this is the ballpark number. So it's in this regard, so it's going well. So we are in the final stage of negotiations with the Republic.
Okay. But there's 9 aircraft that should be delivered this year. Is this number incorporated in your guidance? Or is this something that maybe can change in the future?
No. The guidance is kept the same. So we are not changing at all the guidance. So we will meet our guidance in the commercialization. Victor, it's Eduardo here.
Just to be clear, as we shift some slots, we continue to see 105 to 110 deliveries this year even if we don't deliver claims to Republic this year. So that's the point.
Okay. Thank you.
Thank you. Your next question comes from the line of Josh Milberg. Your line is open. Please ask your question.
Good morning, everyone. Thanks for the call. You commented on the margin performance by division in the second quarter. I was hoping you could give us a rough idea of what margin expectations are for the individual divisions or what those are what's embedded into your full year guidance in that respect? And maybe also what you see as the biggest risk to that guidance now?
I think that we the revision on the guidance was basically driven by the Executive Jets. I think we're comfortable about the other business, the way we started. And we mentioned the guidance that was provided. So as we said, commercial, like low double digit, of course, the defense in the mid single, like I already mentioned. Executive is what we are already reviewing.
So it's going to be, again, probably a little bit less than originally. It will be like targeting the mid single digit, but probably lower than that, towards that.
Okay. And what FX assumption are you working with now?
We work with the current situation, which is BRL3.3 per dollar.
Okay. That's very helpful. And then just moving a little bit away from the results, I was just hoping you could revisit the whole issue of any discussions by the Brazilian government on either removing or amending some of the tax breaks you get either thinking about maybe the payroll tax benefits and the legal bank?
Of course, there has been a lot of discussions on the tax the fiscal situation in the Brazilian government. There's always a lot of talk about tax benefits that were given or some type of thing. I don't think that we have any specific benefit to that. I think labor being something that covers investments in technology for the whole industry, which tends to be capped. We don't think there's a big risk of that to be changed.
So basically, the adjustments that we already saw are the ones that we expect. And we don't see major changes going forward for those for that situation.
Okay. Thank you very much.
Thank you. We have no further questions. This concludes today's question and answer session. That does conclude Embraer's audio conference for today. Thank you very much for your participation and have a good day.