Good morning, ladies and gentlemen, and welcome to the Embraer Conference Call Partnership Embraer Boing. Thank you for standing by. As a reminder, this conference is being recorded and webcasted atri.embreer.com.dr. 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 or other companies present. The words believe, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward looking statements. Embraer undertakes no obligation to update publicly or revise any forward looking statements because of new information, future events or other factors. In light of these risks and uncertainties, the forward looking events and circumstances discussed on this conference call might not occur. The company's actual results could differ substantially from those anticipated in the forward looking statements.
Participants on today's conference call are Mr. Francisco Gomez Neto, President and CEO Mr. Antonio Carlos Garcia, Executive Vice President, Finance and Investor Relations and Mr. Eduardo Cotto, Director of Investor Relations. I would like now to turn the conference over to Mr.
Francisco Gomez Neto. Please go ahead, sir.
Good morning to all analysts and investors connected to our call today, and thank you for joining on such a short notice. My name is Francisco Commsito, and I am the President and CEO of Embraer. We are hosting this call following a release published by Embraer regarding the most recent development of the partnership between Embraer and Boeing, which we have been working on since 2017. Just giving some background on the transaction. After a long period of negotiations in 2018, the contracts were finally signed between Embraer and Boeing on January 24, 2019, and detailed the partnership between both companies.
After that, the transaction was recommended to move forward by our Board of Directors, supported by government authorities and approved by the substantial majority of our shareholders in 2019. As you see, this transaction has involved a long, costly and complex process. And Embraer has been working non stop day and night to conclude it. On April 8, we notified Boeing regarding Embraer's intention to extend for 6 months the master transaction agreement for the closing of the transaction, which was only subject to the approval by the European Commission. On April 25, while with disappointment, we received the notes from Boeing communicating its decision to terminate the agreement.
Embraer strongly believes that Boenye has wrongfully terminated the agreement to avoid its commitments to close the transaction and pay Embraer the $422,000,000,000 purchase price. Embraer believes it is in full compliance with its obligations under the agreement. And as we have said, we will pursue all remedies against Boeing for the damages incurred by Embraer as a result of Boeing's wrongful termination and violation of the contract. Now before I turn to Antonio, our CFO, who will give an update of our financials and initiatives we are taking to preserve liquidity, I just want to talk about Embraer's Commercial Aviation Business. Our Commercial Aviation Business remains strong.
We are leaders in the regional jet market, and we believe regional jets will lead the rebound in the aviation industry in the upcoming quarters. As a reminder, we will resume operations through regional and domestic routes, which are our key markets. Our U. S. Exposure in the short term deliveries is another advantage, as the United States is a region where the airlines are more advanced in terms of restructuring, air fuel, packages and restarting operations.
Our deliveries are also primarily concentrated in the replacement of all the aircrafts rather than growth. And with the return of the airlines, we expect those deliveries to resume immediately. I also want to call attention to our state of the art and complete aircraft portfolio with the E2 family and the massive leadership of the E175 in the U. S. This flexibility to produce at the same line E1 and E2 jets is another big advantage for us.
Of course, our industry will have to address the challenges of COVID-nineteen and current economic conditions. But finally, I would like to reinforce that Embraer has a great future ahead, and we will continue to be a proud Brazilian company competing in the global aerospace industry as we have been doing with great success in the last 50 years. As we probably say in Embraer, we live before the challenge. Now please, Antonio, go ahead.
Thank you, Francisco. I will detail now our liquidity and the initiatives we are doing to preserve cash. We are working 24x7 at February to preserve cash and address the equity market environment. To institute the company based on cash preservation and stringent cost control. I'm the leader of the cash management team, and we are having daily meetings to assess the impacts of COVID-nineteen in each one of our businesses.
Just to give details of our work, we are taking a deep look at the 4 key areas of the company: Peoples Health, cash inflow, cash outflow and financial liquidity. In terms of cash inflows, we will be managing sales, revenues, receivables and other banks to guarantee we will maximize the potential cash inflows and create specific action plans throughout the company to maximize aircraft deliveries, receivables collection and potential new add backs. As far as cash outflows, we have several initiatives that includes negotiation with suppliers on payment terms, inventory management to adjust short term production plans to the latest delivery schedule direct labor, engineering and SG and A adjustments include an agreement with all of our units that covers furloughs, reduced hours and salary cuts. We currently have around 30% of our workforce referrals and have cut all leadership on board salaries by 25%. Including all of these initiatives, we have at this point identified approximately $1,000,000,000 in potential cash savings for 2020, which will help us to offset the impact of lower deliveries and to preserve cash.
Our 3rd pillar is the financial liquidity of Embraer, and we ended 2019 with a cash position of $2,080,000,000 and raised another loan of $600,000,000 in March. Despite solid liquidity, we will have a frequent discussion to assess our cash balance, reduce the pace and size of our investments, reduced the working capital needs and maintaining open dialogues to ensure sales finance availability and look into additional financial lines. Our liquidity position is solid with very little debt obligation due until 2022. Embraer has additional credit facilities under discussion up to $1,000,000,000 with the Brazilians and international banks. The actions we are taking now will help Embraer to preserve the cash this year and assure that Embraer recruits remain strong.
Now we open for Q and A. Operator, please go ahead.
Ladies and gentlemen, we'll now begin the question and answer session. Our first question comes from Josh Newberg, Morgan Stanley.
Good morning, everyone. Thank you for the call. My first question relates to your indication that you'll pursue remedies against Boeing for the damages. I was just wondering if you could comment on whether there is already a legal proceeding or arbitration process underway and what the nature and if so, what the nature of that process is?
Thanks, Josh, for the question.
That's my first question.
Okay. Thanks for the question, Josh. Yes, there is an arbitrage process in place, but I cannot give you more details at this point of time.
Okay. Fair enough. And do you have an updated estimate on what your total deal separation costs add up to at this point considering both OpEx and CapEx?
No, not yet. We don't have this number yet. We just can say that we are talking about substantial costs. Okay, understood. And then if I
just may if I might just squeeze in one more, Could you talk about what the deal conditions are that Boeing alleges you failed to beat? Is that something you can address?
So, Josh, what I can tell you is that Embraer believes it is in full compliance with its obligation under the agreement. Envoy has wrongfully terminated the MTA to avoid closing the transaction and payer the $4,200,000,000 purchase price.
Okay. I imagine you're not at a point where you can really give much detail on the specific points that Boeing is making and the specific conditions that it's indicating you have not satisfied?
Yes. We are working on that, Josh. So we don't have more information yet to give you. You're welcome.
Our next question comes from Myles Walton, UBS.
Hi, good morning. Francisco, I wonder if you could comment the original rationale for the deal to tie up with Boeing was to basically add more scale to your existing commercial aviation business to compete with others who are also increasing their own scale, whether that's the C Series with Airbus or MRJ and the Bombardier eventual transaction. I'm just curious as you look at the landscape today in your commercial aviation business, would you now consider looking for other partners for that same means and end?
Well, I mean, yes, the JV would be a win win situation for both companies. But we are leaders in the regional jet market, and we believe regional jets will lead to rebound in the aviation industry as airlines will resume their operations through regional and domestic routes, which are our key markets. So our U. S. Exposure is another advantage.
The United States is a region where the airlines are more exempted and the rescue packages are restarting operations. So we understand that the competitive scenario has become more difficult, but we have a greater product portfolio, and we are ready for move on with our commercial aviation.
So just to allow me to complete a little bit, it's important to mention we have not yet seen the cancellation in regards to the commercialization, just deferrals, which shows a little bit that we still have our strength in the market.
If I may add as well, Marius, just to say that we don't comment specific speculations about potential new partnerships. We don't we cannot comment on that, okay?
Maybe another way to ask it a little bit is you've done a significant amount of work to separate the commercial aviation business from Embraer as it was preparing for this joint venture. Do you anticipate reintegrating that or for the meantime leaving it outside as almost a separate organization?
Well, it's too strong. We are going to analyze all the situation, and we will inform the market as soon as we have have made some decision on that.
Okay. Okay. And then maybe just a clarification on Antonio Carlos. You mentioned the $1,000,000,000 in cash savings for 2020 as a result of your inflow or outflow exercise. Can you just maybe give us color of what you anticipate for cash burn for 2020 is?
And then maybe the size of the damages you think are done because of this deal cancellation?
Mario, the guidance is still suspended, right? We are working very hard to have a new guidance as soon as possible. As Antonio mentioned, we have already identified this $1,000,000,000 in potential savings for outflows. But in terms of the cash inflow impact, we still need a little bit more time. And as soon as we have a new guidance, we're going to publish to the market in 20.
Okay. All right. Thank you, guys.
Yes. Just to comment a little bit, we Embraer is not only the commercial aviation. For sure, we have impacts in the commercial aviation, as I mentioned, the latest call we did for the 2019 figures. But we had a minor effect in the executive aviation in also in defense and the respective services. Means, I would say, it's nice to be present in different types of segments.
Our next question comes from Robert Spingarn, Credit Suisse.
Yes. Hi, good morning.
Good morning, Robert.
I think you said that you couldn't talk about potential other partnerships. But do you see Embraer is offering a value proposition that would be attractive in a partnership format with others?
Absolutely. So but we want to do our homework first, and we'll need some time to do that. And then we think about the next strategic step for our commercial aviation.
Okay. And then just going back to your comment on the E Jet leading the recovery. While there clearly was a trend toward down gauging after 9eleven and another might be expected now, you did come into this crisis with a fair number of E Jets parked. Prior, at least end of February, they're already 300 parked. So we have to absorb a fair amount of stored aircraft first, would you say, before you can get back to increased production because of leading the recovery?
Well, I mean, this year, it will be a tough year, and next year, probably will be worse than we expected before. But we do believe this recovery of the market, starting with the regional jets, will benefit Anglo Air for sure. We'll be analyzing our production plans within the next 2 weeks.
Okay. And then can you give us some understanding, I'm not asking for guidance here, but the environment in terms of corporate aircraft and bizjets, how you expect that market to be impacted by this situation?
Robert, basically, we're I was just saying that we're expecting business jet to have very little impact. We continue to deliver planes. We continue to produce the planes. We didn't shut down our facilities in Florida. So a couple of weeks a couple of days ago, we delivered another plane.
We continue to sell. So we remain, I would say, optimistic on the business jet market. We are not seeing meaningful impact from COVID on business jets, okay? We're upbeat on and even defense. The programs we have with the Brazilian government, they continue to go ahead.
So as accident defense, we are feeling good and we are addressing the potential impacts on commercial.
On the bizjet side, so you haven't had any customer behavior changes, deferrals, cancellations, anything like that?
We face until now just one single cancellation during this year, and we have really small amount of deliveries for next year. Really, very small amount. Okay.
There are some who believe this will actually increase demand for the bizjet because of the health risk of flying with other people and the greater privacy on the bizjet. Do you agree with that? Because I've always found that the BizJet market tracks corporate profitability. That is the strongest driver. And of course, corporate profitability is going to be under pressure for some time.
So net net, are you saying there's no effect or it's positive or it's negative over the next 2 years?
I would say Well, yes. Go ahead, Francisco. Yes. We have some opinion, and we had a great year in the business yet in 2019. We were prepared to have another great year in 2020.
But because of the COVID, we had some impacts. As Antonio and Edu said, I mean, minor impacts in terms of in the business jet with some deferrals for the 2nd semester and some for next year. But we do believe that the business jet will recover in 2021 and will be a great help for India.
Our next question comes from Ron Epstein, Bank of America.
Good morning, guys. Hi, Ron. What path forward here, right? I mean, I guess a couple of questions. 1, are you really all that surprised given the situation Boeing got themselves into and the need for government support and so on and so forth.
I mean, this couldn't have been that big a surprise that they tried to do what they did or did what they did. And then 2, what is the path forward? I mean, Miles suggested maybe you have another suitor, but how do you view the company as just an independent stand alone airplane company?
Well, thanks for the question. We were surprised and disappointed with the Boeing's decision. And as I said before, I mean, I believe Boeing has wrongfully terminated this EBITDA. And the reason is to avoid closing the transaction in payers with BRL 4,200,000,000. And 2nd, I we are now we are really considering what would be the best strategy for our commercial aviation.
We believe we do have great products. And as I said before, I think the rebound of the market will be another opportunity for regional jets. So we are going now to deep dive in the plans to review our current structure and current strategy for the commercial aviation.
How much redundancy is there now in personnel? After all the separation activities that happened have happened, is there 10%, 20% overlap in personnel? How do we think about that? And as a follow on to that, to become one company again, is it simply just moving people from one campus to another campus? Just very high level, how do we think about the reintegration of the 2 business units?
How disruptive is that?
Well, this is another work we have to do. Our focus is to go through crisis to preserve our cash. After this decision from Boeing, We are going to we have in place a lot of programs now to overcome the difficulties. And we do more sales and analysis about personnel and how can we proceed with the current situation we have.
Okay. And then maybe just one last final question and I'll hand it on to somebody else. When you think about the action with Boeing, I mean, are you going to pursue it in Brazilian jurisdiction, in an international jurisdiction? So, yes, just repeat that because my phone might have been unclear. With the action against Boeing, are you going to pursue that in an international jurisdiction, international court or in the Brazilian court?
I mean, how would you how long would you expect it to take? I mean, these international disagreements can be years years to close.
I understand your question, but at this point of time, the only information I can give you is that there is an arbitrage process in place, and we cannot give you more details. I'm sorry.
Our next question comes from Kai Van Roemer, Cowen.
Yes. Thank you very much. So what I mean, both of these proposed JVs, commercial and KC-three ninety, looked like they had significant strategic advantages for both parties. Where are you with the KC-three ninety? Is that JV dead?
Is it on life support? Where is it alive? What's the status?
Well, the JV for the C90 was part of the transaction. At the point, we decided to terminate the deal. We understand this includes the C390 JV.
Okay. And then obviously, you're upset with the outcome and you're in the midst of arbitrage. But as I look at the landscape, there are no other obvious partners who would have brought the advantages that Boeing would have. Is there any chance that this transaction could be resurrected under somewhat different terms?
I don't believe that Boeing decided to terminate the NPE.
Okay. And then in terms of cash, you exited the year with $2,300,000,000 You basically had a financing of $600,000,000 in March, another $1,000,000,000 of potential. So that brings us to $3,900,000,000 How much cash do you need on hand to run the business?
We believe to run this company without to be able to absorb the turbulence, we always need it to be around above $2,000,000,000 That's more or less our internal number here. That's and again, we do have liquidity available, and we should also see more deals this week and get us to additional help if it's necessary.
Sorry, Kai. I was just going to say that if I may add, we our working capital for the whole business, it ranged from BRL 5,000,000 to BRL 700,000,000 throughout the year. So with this cash around BRL 3,000,000,000, We are super strong to go through the working capital needs throughout the year. So we don't see any liquidity issue on Embraer right now.
Thank you. This concludes today's question and answer session. That does conclude Embraer's audio conference call for today. Thank you for your participation. Have a good day and thank you for using Chorus Call.