Morning, ladies and gentlemen, welcome to the audio conference call that will review Embraer's first 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. If you should require assistance during the call, please press the star key followed by one. As a reminder, this conference is being recorded and broadcasted at ri.embraer.com.br. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred. Embraer has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance.
These forward-looking statements are subject to risks, uncertainties, and assumptions, including, among other things, general economic, political, and business conditions in Brazil and in other markets where the company is present. The words believes, may, will, estimates, continues, anticipates, intends, expects, and similar words are intended to identify forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statements because of new information, future events, or other factors. In light of these risks and uncertainties, these forward-looking events and circumstances discussed on this conference call might not occur. The company's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference call are Mr. Frederico Curado, President and CEO, Mr. José Filippo, Chief Financial Officer and IRO, Mr. Eduardo Couto, Director of Investor Relations. I'd like to turn the conference over to Mr. José Filippo. Please go ahead, sir.
Okay, thank you. Good morning, everybody, and thanks for joining Embraer's first quarter 2016 conference. As we've been doing in the past, we're going to do the presentation, and then we'll be ready for the questions. Starting the presentation, page three. The highlights. Starting with the institutional highlights, with the information that Fitch Ratings started coverage of Embraer with investment-grade rating of BBB minus. Standard & Poor's reaffirmed our BBB rating investment grade. Now we have coverage by three rating agencies. Next page four. Moving to operating highlights and starting with commercial aviation. We had a total delivery of 21 E-Jets in the first quarter, which included the first E175 to KLM of the order of 17 firm.
Regarding customer activity, the Austrian Airlines became a new E-Jet operator, and we announced earlier this month that Horizon Air ordered 30 E175s, which will fly for Alaska Airlines. In relation to the E2 development program, two important updates. The E190 prototype undertaking ground tests ahead of the first flight in the first half of this year. As you remember, we had the whole rollout in early February. We started the production of the first prototype of the E195 model. Next page five. Talking about executive aviation highlights. The delivery of 23 E-Jets in the first quarter of 2016, including the first delivery of the Legacy 500 in China. An important milestone in the executive jet business was the delivery of the aircraft number 1,000, which was the Legacy 500 to Flexjet. Regarding sales activity, we selected Across as Embraer sales representative in Mexico.
Next page six. Moving to defense and security business. Regarding the KC-390 program, the second prototype flying the flight test campaign with the first flight yesterday. Also, the first prototype is already performing ramp opening tests in flights. In relation to the defense company's activity, first in the development of the Brazilian satellite, Visiona signed six contracts for remote sensing services. On radars, we signed contract with Brazilian Navy to develop Girasol S prototype radar. Finally, in defense, our activity in support in the upcoming Olympic Games in Brazil concluded the air traffic control and message systems tests. Next page. Now talking about the financial results, we move to page eight with the firm backlog numbers. We reached a total of BRL 21.9 billion in the end of March, slightly below the end of last year, above the first quarter of 2015. Next page nine.
As far as aircraft deliveries. Starting the left chart. Commercial aviation delivered 21 E-Jets in the first quarter. In the right side, executive jets, 23 deliveries in the fourth quarter, broken by 12 light jets and 11 large jets. We are reiterating our outlook for the year of 105-110 E-Jets, 40-50 Executive large jets, and 75-85 Executive light jets. Next page 10. Net revenues. We had a total of $1.3 billion in the first quarter, equivalent to BRL 5 billion. Also for the 2016 outlook, we are maintaining our range between BRL 6 billion-BRL 6.4 billion in terms of net revenues. Next page 11. Revenues broken by business. From the top right, in commercial aviation, we had a total of BRL 711 million in the first quarter. To the bottom, BRL 189 million in defense.
For the left in the bottom, BRL 402 million in executive jets in the first quarter. For all of the business, we are maintaining our guidance range for 2016. Next page 12, regarding SG&A expenses. We reported a total of BRL 140 million in the first quarter. In relation to G&A, we had a total of BRL 39 million, below the same period of last year. On selling expenses, BRL 101 million in the first quarter of 2016, above the same period of 2015, reflecting primarily the high number of deliveries. Page 13, next page. In relation to operating income, we reported a total of BRL 86 million in the first quarter, with 6.5% margin, which combined a positive 12.3% in commercial aviation, a negative 1.5% in executive jets, and a positive 2.2% in defense.
Regarding the 2016 outlook, we are confirming our estimate of BRL 480 million-BRL 545 million, with a margin of 8%-8.5%. Next page, as far as EBITDA, we reported a total of BRL 168 million in the first quarter, with a margin of 12.8%. For EBITDA, we are also confirming our estimate for the range of BRL 800 million-BRL 870 million, with a margin of 13.3%-13.7%. Moving to the next page, regarding net income. We reported a profit of BRL 104 million in the first quarter of 2016, with a 7.9% margin. As we've been observing in previous quarters, this result was impacted by the exchange variation in the income tax. In this quarter, we had a positive impact. Next page 16.
In relation to investments, we had a total of $52 million in the first quarter, broken by $7 million in research, $12 million in development, and $33 million in CapEx. These figures are net of contribution of suppliers. For 2016, we are estimating the total of $650 million for investment. Next page 17, regarding free cash flow. We used $216 million in the first quarter, primarily reflecting the normal increase of working capital in the beginning of the year and the investment in the development of the E2 program. For 2016, we are estimating the use of $100 million or less. Next page, finalizing the presentation before the Q&A section, our capital structure. We reported a net debt of $220 million in the end of March, with $3.4 billion in cash and $3.6 billion in debt.
In relation to our debt profile, we are maintaining a comfortable maturity term of almost six years. With that, we conclude the presentation. Now we're ready for the Q&A. Thank you.
Thank you. If you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel the request, please press the hash key. Press star and one to ask a question. Your first question comes from the line of Cai von Rumohr from Cowen and Company. Please go ahead.
Yes, thank you very much. Good results. Can you give us some color on what you're seeing in terms of demand in the biz jet market? I think others have said it was particularly slow in January, February. It has gotten a little bit better since then.
Hello, Cai. We see also some softness. No real change from the last quarter. The U.S. market continues to be where most of the activity is. Some softness there. Also, there is, as we have said before, some pricing pressure on all OEMs. Stable is the way I would describe it.
Okay, thank you. The last one. Now that your competitor has won Delta, and I guess IAG is talking to them, what are you seeing as a result in your RJ and in your kind of commercial air transport market, both in terms of opportunities and in terms of any changes you might have foreseen in terms of the pricing there?
Well, I think, of course, Delta was a very important campaign, and in no way I want to diminish the importance of that campaign. It was somewhat atypical. It was not a straight race between the 75 new aircraft. In our case, the offering, as requested by Delta, was a combination of new and used aircraft. We remain very convinced that we have an extremely competitive product family, both in the E1 and down the road in the E2. We were very aggressive in the campaign. I believe, although of course, we do not know the details of the competitive bids, the onerous contract provision of half a billion dollars for certain contracts, I think probably says a lot about where the decision came from.
We remain competitive, also disciplined as far as the integrity of our product portfolio and our backlog, our cash position and balance sheet. We're not discouraged at all about this result, and we remain, as I said, very comfortable with the competitiveness of our company and our products.
Thank you very much.
Okay.
Thank you. Our next question comes from the line of Myles Walton from Deutsche Bank. Please go ahead.
Thanks. Good morning. I was wondering if you could talk a little bit about the demand picture in the defense environment, in particular as it relates to the KC-390 with the second aircraft in the air. Does that get you closer to the point where international campaigns can come to fruition?
Good morning, Myles. Yes, well, first, on the development side, it is very important not to miss our deadline of certifying the aircraft by end of next year so we can start deliveries in 2018. Everything is going fine. Second prototype will fly. Oh, it has flown.
Okay.
Okay, great. Yeah. Not only this, but also some very key flight tests such as the ramp opening in flight and also the parachutes, parachuter, the door, and opening the envelope. So far, we are doing extremely well. On the development side, we are extremely happy with where we are. As far as campaigns, there are preliminary campaigns going on. As we all know, these military campaigns are typically longer than a commercial. Having said that, dialogue is going on with several potential customers and also with Brazil, because there is this outstanding order of 28 aircraft, I believe three of them to be delivered in 2018. Budget constraints, of course, but as you probably have seen in our financials, we have been able to keep what we said we would keep. Our accounts receivable, where they are, payments are regular, and now we have rescheduled the contract.
We are optimistic about not only the fulfillment of the Brazilian contracts, but also international prospects. Probably, I would say towards the end of the year or early next year, we are going to have probably more momentum as far as those sales campaigns.
Okay. Could you comment on the margins at Executive? It is about, I guess, a $15 million year-over-year, $16 million year-over-year negative swing in operating profit on a $250 million higher revenue base. I know the 650s are a big portion of that. Were there any negative adjustments to use or anything else that is bringing down that overall EBIT margin? Then give us a trajectory to get to the exit mid to high single-digit target for the year.
Yes, Myles. We are still maintaining that target. What we saw in the first quarter was a negative mix, which included the Legacy 650, with the impact that most of these Legacy 650 were a carryover from last year. We also had in the selling expenses a couple of non-recurring items there, some $10 million of non-recurring there, also the number of deliveries impacted that number as well. It is a combination that had that. It is important that we are still confident about the capacity to deliver what we indicated for the full year in terms of Executive Jets margin.
Okay.
Your next question comes from the line of Josh Milberg from Morgan Stanley. Please go ahead.
Good morning, everyone, and thank you for the call. I had a couple questions on defense. The first was, well, it was good to see your EBIT margins are turning positive this quarter, just wanted to know if you had any cost-based revisions in your favor this period. If not, if that's something we're likely to see in upcoming quarters, assuming that the currency stays where it is.
Yeah. We didn't have any impact in terms of contract revision as we had last year. We already said that if we see more stability in terms of the currency, we should have this situation, which actually happened. It was basically on the activity in the first quarter. We still think that it is possible to keep in that level and probably, like we indicated, close to mid-single-digit margin in this year.
Just to add, Josh, it's Eduardo here, to what Filippo said. We didn't have any base adjustment as far as effects on defense, we used around 390 BRL for defense in the first quarter. As the currency gets stronger, if that continues, we may have the opposite effect of what we had last year when we had negative impacts as far as cost-based revision.
Okay, great. Thanks for that. Just another question on defense is if you could touch on the issue of defense receivables. The currency moves cloud the picture a bit, but we saw in the ITR that the amounts with the government, I think, were down about 10% sequentially in local currency terms. I just wanted to understand what was going on there and what we might expect looking forward.
In dollars, not really any sizable change. $350 million just for the defense program, Brazilian Government to BRL 347. Eduardo, do you-
It's BRL 1.2 billion.
Coming now from BRL 1.3 billion, almost BRL 1.4 billion.
I think it's currency-related, right?
Yeah. Mostly currency-related.
Yeah. In dollars, pretty much the same.
Yeah. Since the second quarter of last year, we have been able to maintain accounts receivable more or less stable, actually slightly down. It came from $370 million, second quarter 2015, to $347 first quarter 2016. Down $30 million. Small amount.
About 10%.
Yeah.
Any developments since the close of the first quarter or anything going on there that might move it better or worse in the next quarters?
Well, last year, as we said, we did a great effort with our customers. The Brazilian Air Force is the main one, but also the Ministry of Telecommunications, the satellite side, and also the SISFRON with the Army to really adapt our pace of our programs to the budgetary reality that they could afford. This has been actually followed quite correctly over the first quarter. Our expectation is that we do not have any interruption of this. We all know, we are facing some political turmoils here in Brazil. There is an impeachment process going on right now in the Senate. It has already passed the lower house. The market in Brazil is reacting very favorably to the potential change. One way or the other, our expectation is that the commitments which are in place will be respected, at least.
Of course, if the country gets better, the macroeconomy gets better, of course, we'll be even more certain that the commitment will be fulfilled and the budget will start to be adjusted upwards and the current fiscal loss will be reduced, and the ability of the government to fulfill its obligations will be reinforced. We are, as I said, what we see ahead is at least the continuation of the first quarter, and therefore, the achievement of our goals, of our guidances.
Okay. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Ronald Epstein from Bank of America. Please go ahead.
Good morning, everyone. This is Mariana Perez Mora for Ron.
Good morning.
Morning.
Hello. Hey, in the quarter, you signed a long-term agreement for a flight hour pool program with Colorful Guizhou Airlines. In addition, you spent BRL 14 million for the pool programs spare parts. Can you talk about your strategy with regards to the aftermarket? How should we think about the size of the parts pool business today, and can you quantify the long-term earnings potential for this?
Okay. Well, all three business units are more and more investing in our after-sales infrastructure and s upport programs. It's a clear strategic direction, and again, as I said, in all three business units. Commercial, of course, was the pioneer in this. We do not report separately the results. We embed everything under each unit. I can say qualitatively it's growing. I'm checking here while Eduardo fetches some data. Qualitatively, it's a growing interest and focus of all our three units. I do not know, Eduardo, if we have any specific figures.
It's above 10%. It's around 10%-15%.
Of revenues.
Yeah.
Of revenues. Tends to have, of course, a more predictable and higher margin.
Perfect. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Alexander Falco from HSBC. Please go ahead.
Good morning, everyone.
Morning.
Hello.
Hi. Good morning, everyone. My question is regarding commercial and the margins going forward. Is it fair to say that if we see FX in the same path that we saw in the same levels as we saw in the first quarter, we're probably going to see this is a peak margin for the year? Second, I would like you to comment if there's going to be any shift on the levers going forward on this division. Thank you.
On the second part, shift of what?
Sorry.
Mix. Okay. In the first quarter, the average exchange rate was exactly 3.9, which is quite a coincidence, of course. That is exactly the number we use in our planning. That's a good reference to where we can be as far as the margins on the commercial business. Of course, as the FX comes down, as Brazil evaluates, there will be some cost headwinds, which we will face, as we have faced over the last several years, just boosting the cost reduction measures. Whether or not it's the peak, it's hard to tell. But if you remember, a year ago, we were all discussing that the mix of 175s would bring the margins down. Less 190s, 195s, and more 175s. We said that potentially, yes, but we would fight very hard on the cost side.
Also benefit from the standardizing of the fleet, because many of those contracts are large quantities, we can really have a more standard product and supply chain management. There we are. Delivering more or less the same margins with fundamentally 175s. Any currency headwinds will be counteracted by additional efforts. We adjust, and we do have budgets in BRL and USD separately, we're going to adjust the budget in BRL to the new reality of the exchange rate, we do not really just lose this momentum. On the shift in the mix going forward, this year is fundamentally 175. We have activity, especially in Asia and Middle East, but more so some in China as well, which are more centered in the 190, 195.
We may see a little bit different mix in the future, but fundamentally, the bulk of demand will be 175s for the last 2 years at least. 2016 and 2017, the bulk is 175. We may have some tailwinds of some additional 190s, 195s.
Perfect. Just one quick follow-up. After the Delta campaign, is there any big campaign in the horizon that you guys could share with us? Thank you.
We don't think there is any short-term campaign going on to be decided in the U.S. right now. The potential in the U.S. is too large. We at Embraer still have 120 options, 175s, for the next few years. There are still some, whatever, 3 to 400 aircrafts, 50-seater aircraft, which will be replaced in the next several years. There's also potential demand for replacement of our early 70-seaters, especially older CRJ, which can also bring additional demand. I think the U.S. has seen a great demand for aircraft. I think the campaigns of 2016, the largest ones, are done. We don't know, probably 2017, is that when we see more activity again. Also, as I said, we see demands going on in Asia, little bit in Europe, more on eastern part, maybe, and also Africa. Those are more 190, 195s.
Okay. Perfect. Thank you so much.
Your next question comes from the line of Pete Skibitski from Drexel Hamilton. Please go ahead.
Hey, good morning. Hey, guys. On the cash flow for the first quarter, you've used substantially less this year than you did in the first quarter of last year, you beat your initial guidance, of course, for the full year in free cash flow. I'm just curious, do you think there's a nice opportunity to outperform this year in free cash flow guidance? It's a good start, I think some of the things that allowed you to beat last year, like supplier contributions, customer advances, running down the inventory seems like opportunities this year as well. Just looking for some color there.
Okay, Pete. Actually, this is something that we're very focused on because it's important in terms of cash generation, all the working capital management and being very close to that. I think that we follow pretty much the standard of the first quarter, which is the increasing in terms of inventory to build the capacity for the deliveries throughout the year. It's natural. We had a tailwind of suppliers contribution, like we mentioned, that positively affected this quarter that maybe we don't see that in the same level going forward in the following quarters. Basically, we are pretty much aligned in what the target that we set, the consumption of BRL 100 million or less. I don't think that's much change in terms of it could be reflected throughout the year.
I think it's more like a cultural thing in terms of the first quarter that will be adjusted then the following quarters.
Okay. Understood. Just one follow-up. The Horizon order, the last quarter, is that going to fill out your last available slots in commercial for 2017, or are there still some available slots left? I think you're about 80% filled even before that order.
Well, that of course, Pete, will depend on where we set our production levels. If we think about a stable production level around 100, we are pretty much done. The answer to your question is yes, we do have, not available slots. We do have the ability to offer slots in 2017. Of course, we are.
Okay. Maybe incremental orders kind of pressure your production rate up a little bit next year?
Well, at least maybe to maintain where we are, around low one hundreds, 105 or something like that. We're very comfortable about keeping more or less the same level where we are. We do have the ability, of course, if we have confirmation within the next, let's say, six months or so, to raise in the back end of 2017, raise delivery, if we need. The supply chain and our industrial capability is not limiting our ability to sell maybe more aircraft in 2017.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Derek Spronck from RBC Capital Markets. Please go ahead.
Morning. Thanks for taking my question. In Defense, you're undertaking many different or new or newer initiatives from the satellite remote sensing service, where you indicated you signed a bunch of contracts recently. How material could these new initiatives grow into, if we exclude the KC-390, and which initiative holds the most promise?
Thanks for the question. Besides, let's say, the flying objects on the space, on the military Defense and Security business. We have those three additional, core competencies and around three different companies. One, Atech. It's really a software house. That's the company which we believe there's a great potential there for further expansion. Maybe not only into the Defense and Security space, but there is competence in software there, which we are assessing and trying to see which other applications we could use, the knowhow that there is there. Atech, that's on the software development side. We have Visiona on the space side. Of course, this company started through one single program, one single project, which is a geostationary satellite, a huge one, more like a PMO project. It's gaining momentum, it's gaining knowledge and knowhow.
As you correctly said, we did sign some new contracts. The way we see and want to position Visiona is the space company of Brazil. We also see expanding opportunities as soon as the economy rebounds. There is, of course, a second geostationary satellite foreseen for the next two or three years. There are also smaller constellation of low orbit satellites and maybe even other services. We are also considering discussions with potential partners, so we can boost our ability to acquire technology in space.
Visiona is the second pillar. The third, Savis, is the company which is in charge of the SISFRON. It's our first very broad, very horizontal, integrated defense system. Including radars, including acquired equipment and things on the ground, and also UAV, et cetera. It's also a third competence of integrating complex systems, especially for the military and for defense and security. Recently, we have actually merged Savis with Bradar. It's a company that does have a product portfolio. As we adjusted our activities to the reality of our main customer, the Brazilian Air Force and Brazilian Army, I think we are well-positioned, again, to number one, consolidate our portfolio of competence. Number two, really try to make more inroads into the export market.
That's great. Thanks. How healthy are the margins on that business there, outside the defense aircraft line? Are they generally accretive for your overall business?
It is. We had a very nice growth story for the last several years. 2015, we were hit by the lack of payments from our main customer. Let's say, as the world is in conflict, there is, of course, a growing activity as far as the military procurement around the world. It's not only now just acquisition of equipment. It's a lot about systems, integration, surveillance, which are some niches where we have products, we have offerings. We actually believe this business, which again, was hit hard last year by the Brazilian government payables and the reduction also in quantities and rhythm, will resume its growth. Again, mostly probably for exports from now on.
We also, of course, have the Super Tucano now being built in the U.S., that's also a very good platform for export of the aircraft into areas of the world where this counterinsurgency aircraft is required.
Thanks. Moving on to the commercial aero. You've been focused on the E170 with the scope clause changes. The E190, 195 sales appear to be a little bit more challenging recently. If we were to look at the E2, have the market dynamics changed at all when you look at the demand environment for the E2 190, 195? Is the Bombardier CSeries, I know they don't compete directly, but is the Delta order becoming more of a concern for the E2 190, 195?
No, we do not see a change in dynamics in the mid to long term. The E2, we will enter into market by 2018, the first model. In the short term, I think there are a couple of important elements in the scenario. One is the very large backlog of both Boeing and Airbus for MAX and NEOs. There is clearly a huge amount of aircraft already ordered. Also, the reduction in the oil prices has eliminated the urge of many airlines to replace their fleets with more efficient aircraft in the short term. This is, I think, what we are seeing when you see across the industry, Boeing, Airbus, the book-to-bill is less than one. In the short term, yes, that does not quite affect the E2. We are doing well in the E1.
We know we're sold out in 2016, and it looks very good in 2017 and even 2018. The fundamentals are there, and we are crossing this period relatively unscathed and with a strong backlog. As far as the CSeries, the CSeries 100 has a direct competition with our 195 E2. Again, we are very sure about the competitiveness of the 195 E2, given, of course, normal competition conditions, both performance-wise and competitiveness-wise, and maintenance costs, acquisition costs, operation costs. The C300 is more a game for Boeing and Airbus. It's a larger aircraft, it's a more 737, A320 competition. No real change in the dynamics. Again, I think the Delta order was an important one, but was a bit atypical, and I do not know how much of the half a billion BRL impairment is related to that order.
Between that order and Air Canada's order, there's a half a billion BRL impairment, which I think explains a lot about what happened there.
Okay. That makes sense. Thanks.
Your next question comes from the line of Stephen Trent from Citi. Please go ahead.
Hi, good morning, guys. Just two or three from me. First, could I trouble you to repeat what you said earlier about the margins per segment, EBIT margins? I caught Defense at 2.2%, but could I trouble you for Exec and Commercial again?
Sure, Steve. Good morning. This is Fred. Commercial is around 12%, 12.3% to be exact. For Executive, negative 1.5%. Defense and Security, you got it right, 2.2%.
Great. Thanks so much, Fred. Then in terms of the executive segment itself, just curious about dynamics for large-cabin versus small and mid-cabin stuff. Are you seeing, is it fair to bifurcate this market in terms of pricing trends and what you're seeing in demand and competition headwinds from those two sides? Is it somewhat more uniform than I think?
Stephen, I think the pricing pressure is across the industry, is across all niches. When you do that, and when you see those movements, they tend to blur the lines between segments a little bit. A potential buyer of, let's say, a larger Falcon or Gulfstream, it's not so uncommon now to see that same person interested in evaluating a Legacy 500, which is a different aircraft, smaller, but cheaper, and vice versa. Yeah, there is pricing pressure around. What we have done is, we could have ramped up our larger aircraft, the Legacy 450, 500 aircraft, more than we did. We are really trying to have some pricing discipline here. The 650, as we already discussed, we have some carryovers from. This quarter, we had two elements which impacted the results. We should be certainly around the mid to high single digit otherwise.
This BRL 10 million non-recurring commercial expense, but also purging a little bit of some carryover of 650s from last year, which had aggressive pricing. I think we are in a good balance of volume versus margins going ahead. Of course, the 300 is a best seller of its segment, both smaller aircraft. I think everybody is seeing this. All segments are seeing this pricing pressure. I think until the market really rebounds fundamentally, we have the U.S. today, all the other markets are relatively soft. Some are actually, there's very little activity, such as Brazil, for example, or even China. I don't see a bifurcation. I see an overall trend. Of course, just to add a final comment, the pre-flow market, there's a lot of available, relatively new aircraft around there.
Some are clearly for sale, and some, even if they're not officially for sale, but they are always there also, giving some drag in our ability, our industry ability to raise prices. The pre-flow market also plays an important part in this.
That's great. Very helpful, Fred. Just one last question, I'll let someone else ask a question. I saw in your release, I was intrigued by the meetings you had with a couple of Middle Eastern ambassadors on defense products, which seems logical given the incredible turmoil in that region of the world at the moment. When you think about longer-term chances to replicate SISFRON or something like that, would you say, broadly speaking, that you're potentially talking to other regions of the world in terms of offering your suite of defense products?
Yes, Steve. This is exactly our willingness, our strategy. As we have built a broader portfolio of our products, but also services integration, we are now able to offer more turnkey solutions than we were in the past. Of course, as we are able to sell a complete package, including, let's say, aircraft, radars, C4I system softwares, you name it, integrating third parties, other OEM equipment into it. These things should be, number one, higher revenue numbers, but number two, very importantly, higher margin numbers as well. I think the experience that we have acquired in the SISFRON in particular, is your question, will indeed allow us to be able to play into that segment. Yes, there are other countries interested in seeing. We have been able to, of course, with the Brazilian Army, at their invitation.
Some delegations visiting on site and seeing what's being done there, it's great and it's the best marketing you can have, seeing an operating system actually working. Last year, we actually sold our first integrated system, I'm not only talking about something which is just an idea. To your question, we are really focusing on trying to expand that activity and showcasing that to other countries.
I'll let someone else ask the question. Very helpful, Freddy. Thank you.
Thanks, Steve.
Thank you. Our next question comes from the line of Marco Steiner from Neue Zürcher Zeitung. Please go ahead.
Hey, thanks for the call. I just wanted to ask a little bit on the trade-ins that you talked about in the fourth quarter call in the executive business, as a driver of poor margins in the fourth quarter and to what extent that's going on now, and what the trade-in strategy was or is, and if it's changed at all.
No. This quarter, I think, was relatively normal as far as trade-in, which means, no major cost headwinds due to trying to expedite sales of non-Embraer branded aircraft. It is where it should be, kind of a neutral contribution to the business, facilitating, of course, sales. We tend also always to favor trading in our own products. Sometimes we do have to take other manufacturer products. What we saw last year, to your question, was, I think, a little bit of a non-recurring event. We should not see another glut of used aircraft or traded-in aircraft being sold to really move the inventory as we did last year.
I guess just to finish up, it just seems very hard to meet the kind of executive jet guidance for the year. I know you're sticking with it, can you tell us a little bit more about where the improvement really comes in the second half of the year?
I think it's a very fair question, yes, I'll be glad to share with you our visions. We had a concentration of six jet in the first quarter. As you know, our guidance is from 40-50 large cabin aircraft. Large for us is the Legacy 450, 500, and 650. The vast majority of the remaining deliveries will be 450s and 500s, which have a much more pricing power than the 650, relatively speaking, at this stage. On the Phenoms, on the light side, 75-85 aircraft is our guidance. We are actually today with less of a challenge as far as the remaining sales than we were same time of last year. Number 1, we believe the volumes will be there. We are feeling good about our ability to sell and deliver all those airplanes as per the guidance ranges.
Number 2, there will be a margin increase due to mix going forward. If we do something around 8% for the next three quarters in that business, we should land more or less where we said, on mid to high single-digit margins on this. What we need is something around 8% in average for the next three quarters.
Okay. Thank you.
Thank you. Our next question comes from the line of Bruno Amorim from Santander. Please go ahead.
Hi, good morning. I have two questions. The first one is on the trade-ins. I'd like to better understand why is it so different for you guys, taking an aircraft from a different manufacturer, with regards to impact of the trade-ins on the margins. Is it because you are not able to sell the aircraft from different manufacturers at market prices? The second question is on the impact of low oil price on new orders. You said, when answering a previous question, that maybe low oil price, this should imply a lower level of new orders for new aircraft. I remember in previous quarters, you mentioned that not necessarily this environment should imply a relevant impact on the number of new orders for several reasons. The aircraft, they have other reasons why they could be interested in renewing their fleet.
What is your latest view on that, and to what extent do you really believe low oil price should impact or not the flow of new orders? Thank you very much.
Okay. On the trade-ins, the fundamental difference is on our aircraft. We have the ability to bring the aircraft in-house. As we have, of course, the type certificate of the airplane, we can enhance it, we can introduce options. We can play with the aircraft, and offer a total care package as far as customer support. It's like a more in-house solution. On somebody else's aircraft, it's fundamentally a brokerage transaction. We try to, just as we acquired, to resell it. Obviously, it will depend which price, how much we paid for the aircraft. Last year, we had a little bit of that. We ended up selling used aircraft at a lower cost than what we actually recognized as a trade-in. That created that non-recurring effect last year. The fundamental difference is actually hardware.
It's actually material, our ability to really do some enhancements around the airplane, and holding the inventory, sometimes even investing in revisions or C checks or whatever has to be done. Sometime blending in customer support packages. On the lower oil prices, I don't think I may have not been clear, and I don't change my mind. I mean, there are airlines which, they have other reasons to, on solar sense. We just announced 30 airplanes for Alaska, for Horizon. Delta just acquired A320neo airplanes as well. There are procurements which we'll continue to go on, and airplanes will be sold. What I referred to is that there was an extremely concentrated effort in the last four years or so of orders, especially MAX and A320neo, but also E2s for that matter, which, they happened with the view that oil would stay around $100-$120 a barrel.
There was a kind of a golden rush for acquisition of those aircraft. This urge is clearly down now because, number one, the backlogs are full. Number two, oil, there's no urgency in the short term. Those airlines which will substitute the airplane in the short term, they're doing that for other reasons such as obsolescence, such as fleet expansion or something like that. That strong movement, exclusively motivated by oil prices, there is a clear slowdown there. Longer term, I think oil will go up. To which level, nobody knows. The fundamentals of any airplane that burns 15% less fuel than next existing airplane, those fundamentals remain. They will be the reason for fleet renewals down the road, but just not immediately. Anybody willing to buy an E2 or a A320neo or a MAX, they probably can.
They're either already in the backlog, or they can wait some years down the road for that.
Very clear. Thank you very much.
Thank you.
Thank you. This concludes today's question and answer session. That does conclude Embraer's audio conference call today. Thank you very much for your participation.