Good morning ladies and gentlemen and thanks for standing by. This conference call will be conducted in English, but please let me say a short announcement for Portuguese speakers.
[Foreign language]
My name is Guilherme Paiva and I'm the head of Investor Relations and M&A for Embraer. I want to welcome you to our third quarter of 2024 earnings conference call. The numbers in this presentation contain non-GAAP financial information to facilitate investors to reconcile Eve's financial information in GAAP standards to Embraer's IFRS. We remind you that Eve's results were discussed at Eve's conference call last Monday on November 4th. It is important to mention that all numbers are presented in U.S. dollars as it is our functional currency. This conference call may include statements about future events based on Embraer expectations and financial market trends.
Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with the applicable rules, the Company assumes no obligation to publicly update any forward-looking statements for detailing financial information. The Company encourages reviewing publications filed by the Company with the Brazilian Comissão de Valores Mobiliários, or CVM. At this time, all participants are in a listen-only mode. We will give instructions later on for participation in the two question-and-answer sessions. As a reminder, this conference is being recorded. Participants on today's conference call are Francisco Gomes Neto, President and CEO of Embraer, Antonio Carlos Garcia, CFO , Louise Harrison, Corporate Communications Director, and myself. This conference call will have three parts. In the first part, top management will present the company's Q3 results.
In the second part, we will host a Q& A session only for investors, and last but definitely not least, we will host a Q& A session only for the press. It is my pleasure to now turn the conference call to our President and CEO Francisco Gomes. Please go ahead, Francisco.
Thank you. Good morning and good afternoon to all. Welcome to Embraer's third quarter 2024 results conference call. Today we update our 2024 guidance to reflect both opportunities and risks for our operations in financials. We reiterate our $6.2 billion midpoint of the range revenue guidance for the full calendar year. We are happy to increase our adjusted EBIT margin interval to 9.5% and our free cash flow generation to $300 million or higher. In operations, we reiterate our 125 to 135 delivery guidance for Executive Aviation in 2024, however, we reduce our Commercial Aviation guidance from 72- 80 jets to 70- 73 aircraft because of supply chain problems. In Q3, Embraer revenues increased more than 32% year over year, helped by Executive Aviation and Defense & Security, both up more than 65%.
However, the top line for Service & Support and Commercial Aviation were also up by double digits during the period 16% and 11% respectively. In the first nine months of 2024, overall company revenues increased 24% compared to the same period in 2023. The highlight was Defense & Security with an increase of 56%, followed by Executive Aviation with 41%, Services & Support with 16% and Commercial Aviation with 12%. Our continuous efforts to improve efficiency and profitability led our adjusted operating margin to improve to 17.6% during Q3. Even if we exclude for the $150 million from the Boeing arbitration agreement, our adjusted operating margin was up to 8.7% in the quarter. If we look at the year to date period, our adjusted operating margin improved year- on- year to 10.8%.
Even if we exclude the Boeing related monies, our adjusted operating margin expanded year- on- year to 7.2% during the first nine months of the year. Our firm order backlog reached $22.7 billion in Q3, supported by a robust year to date book-to-bill ratio higher than 2-to-1 in late September. Fitch Ratings upgraded Embraer's rating from BB to BBB minus with a stable outlook. I'm happy to announce that our company is rated investment grade by two out of the three leading U.S. Rating agencies. Our rating with Moody's remains one notch below investment grade, but now with a positive outlook. We delivered a total of 57 aircraft in this third quarter, or 33% higher year- on- year. So far, the total number for 2024 currently stands at 128 aircraft, or 22% higher than the same period for 2023.
We also delivered two C-390 Millennium in Defense during the quarter and a total of three tactical cargo planes for the first nine months of the year. We still face several supply chain challenges this year, we reinforced our supply chain organization by enforcing our team capability, introducing digital tools and artificial intelligence, and expanding our presence with more employees closer to our most critical suppliers. All these initiatives aim to address the ongoing obstacles and help us to further improve the efficiency of our global supply chain capacity management. I will now move on to the operational results highlights by business units in the next few slides. In Commercial Aviation, we highlighted the order of eight E190-E2s to Virgin Australia.
This order reflects the strong ability of our E2 Jet family to operate in several markets and provides a viable option to complement the airline's larger narrowbodies and to replace its smaller long serving aircraft. We also did the first delivery of three E195-E2s to LOT Polish Airlines leased through Azorra. LOT became the first operator of our brand new at that time E-Jets family E170s more than 20 years ago. Revenues increased 11.4% year- on- year during the quarter. The adjusted EBITDA margin for the quarter declined from zero to minus 5% year- on- year because of supply chain delays, product and customer mix. In the ninth month of 2024 the adjusted EBIT margin was minus 2.3% compared to minus 1.3% in the ninth month of 2023. We currently are in campaigns for more than 200 commercial aircraft in different continents.
We expect the profitability of our Commercial Aviation division to improve in Q4 2024 and beyond despite the strong competition in the segment. In Executive Aviation, the top line expanded 65% year- on- year in Q3, supported by higher volumes and product mix. Revenues for the current year are now at $1.1 billion or circa 40% higher than the same period in the previous one. The business unit achieved the best third quarter in the first nine months in terms of revenues and deliveries in its history, demonstrating growing performance, good sales momentum and sustainable demand across our business jets portfolio. The Adjusted EBITDA margin for Executive improved from 10.7% in Q3 2023 to 16.3% in Q3 2024, helped by more higher-profit deliveries. The Adjusted EBITDA margin for the first nine months of the year moved up from 4.0% in 2023 to 12.5% in 2024.
In Defense & Security, there were three main highlights during the quarter. First, the deliveries of the first C-390 Millennium to Hungary and the seventh one to the Brazilian Air Force. Second, the signing of the order for nine units from the Netherlands and Austria. And third, the brand new orders for six to 12 A-29 Super Tucanos from Paraguay and Uruguay. The recent signed orders underpin the $1.5 billion increase in the company's backlog in Q3. Revenues for the division increased 65% year- on- year in Q3 and 56% year- on- year in the ninth month of 2024. Turning to profitability, the adjusted EBITDA margin declined from 15.6% in Q3 2023 to 7.2% in Q3 2024 because of product and customer mix and supply chain delays as well.
For the year, the adjusted EBITDA margin was 0.8% in the first nine months of 2024 compared to 7.2% in the same period of 2023. In Services & Support, the division continued to be one of the main drivers of profitable growth for the company with higher revenues and profitability. Revenue grew 16% year- on- year during the quarter, while the adjusted EBITDA margin recorded a solid 3.9 percentage points gain for the year. The adjusted EBITDA margin increased to 16.2% in 2024 compared to 14.6% in 2023. The business unit announced a $70 million investment in a new MRO center in Fort Worth, Texas which aims to expand our maintenance services network to support the growing customers fleet of E-Jets in North America. Finally, Eve, our eVTOL business continues to progress in its development process.
The company unveiled its full-scale prototype in July and it's now moving forward with battery installation and lift fan production to get ready for its first flight in early 2025. Eve also completed an additional $236 million secured loan which will help to support the development and industrialization of its eVTOL. Embraer remains confident in Eve's business outlook as its majority shareholder with an 83% equity stake. We expect our eVTOL certification by ANAC in Brazil and FAA in the U.S. in 2027. I will now hand it over to Antonio to give you further details about the financial results and then I will be back with closing remarks.
Thank you, Francisco. Good morning and good afternoon to everyone. I'm very happy to highlight another set of solid financial results in Q3. Let's now move to Slide 10 in the presentation and start with deliveries. The highlight of the quarter was Executive Aviation which delivered 22 light jets and 19 medium jets. The total 41 jets for the quarter was an impressive 46% increase year- on- year and the first material positive results from our production leveling plan whose goal is to have a more stable production pace throughout the year despite supply chain delays. Meanwhile, Commercial Aviation deliveries increased 6% versus a year ago. In this quarter our E2 family represented 75% of total deliveries and our E1 Jet family the balance 25%. It is important to mention our Commercial Aviation division is facing significant supply chain delays mainly in E2 assembly line.
In Defense, we are pleased to have delivered two C-390 Millennium aircraft to Brazil and Hungary. The global fleet in operation now totals 10 aircraft among Brazil, Portugal, and Hungary. It is important to remind you C-390 are not included in our 2024 deliveries guidance, Slide 11. Please, the company continues to break records. The $22.7 billion accretive and solid backlog here in Q3 is almost 10% higher quarter on quarter and more than 25% higher year- on- year with growth in all divisions. The highlight for the quarter goes to Defense & Security whose $3.6 billion backlog increased almost 70% quarter on quarter and year- on- year and reflect the new contracts for C-390 Millennium and Super Tucanos. Services & Support also move up 12% supported by the new contracts in Defense and Commercial Aviation.
The backlog for Commercial Aviation with 374 firm orders and Executive Aviation with a record pace of business jet deliveries during the quarter decline is likely. Moving on to revenues, the strong pace of deliveries led our top line to reach almost $1.7 billion in Q3 or 13% higher quarter on quarter and 32% higher year- on- year. On a year to date basis, our revenues have now topped $4.1 billion or 24% higher or close to $800 million, more than $3.3 billion recorded in the same period of 2023. The total nine months revenue represent about 65% of the midpoint of our 2024 guidance of $6 billion-$6.4 billion. If we look at the pie chart on the right we can see Executive Aviation with 32% of the company's revenue higher almost seven percentage points year- on- year driven by the increase in deliveries.
Meanwhile, Defense contributed with 13% of total revenue versus 10% a year ago. In the opposite side, Commercial Aviation declined 5 percentage points to 28% of company revenues in third quarter 2024 compared with the same quarter last year and services support 3% year- on- year. Next slide please. On EBITDA and EBIT we continue to capture the benefits of diligent cost and expense control and the efficiency program. We generated $357 million in adjusted EBITDA in third quarter 2024 with a 21.1% margin. Meanwhile, the adjusted EBIT in the quarter was $298 million for a 17.6% margin. However, there was an important $150 million contribution from the Boeing agreement which propped up both margin by circa 900 basis points for the period.
If we look at the results for the quarter ex Boeing agreement, the EBITDA margin improved 60 basis points year -n- year from 11.6% to 12.2% while EBIT margin improved almost 100 basis points from 7.8% to 8.7% supported by higher profitability and Effective Aviation and Services & Support. Onto Slide 13 now, please. In Q3 if we exclude Eve, we generated $241 million in adjusted free cash flow because of the higher numbers of aircraft deliveries and advanced customer payments. Year to date our free cash flow was negative $320 million. However, it should turn to positive by year end because of the historical concentration of deliveries in Commercial Aviation and down payments in Defense programs during the last quarter of the year.
Moving to investment and again without Eve, we spent $42 million in research and development during the quarter, $59 million CapEx, and net $10 million Pool Programs for a total of $111 million compared to $103 million a year ago. Our capital allocation continues to be focused on segments with higher returns as Executive Aviation $90 million to increase our production capacity in line with our recent backlog growth, Services & Support $90 million in our subsidiary OGMA for the maintenance service for Pratt & Whitney engines, Services & Support $70 million to expand our MRO footprint to service Commercial Aviation clients in North America. Our adjusted net income was positive $221 million for the quarter supported a 13.1% adjusted margin. If we exclude the Boeing agreement, our adjusted net income was $122 million for a 7.2% margin compared to $33 million and 3.6% margin a year ago.
Slide 14, going to our liability management plan in third quarter 2024, we continued our initiatives to extend the duration of reduced the cost of our debt. Our cash flow position including our revolver credit facility in U.S. was basically equivalent to our gross debt balance in Q3. Therefore, we have a very solid cash balance and no relevant debt to be paid back during the next two and a half years. The company has materially deleveraged its balance sheet over the past three years and we are happy to highlight our net debt to EBITDA leverage ratio declined to 1.3 times in Q3 2024 as shown in the top right corner of the slide. I want to mention our circa $700 million EBITDA ex Boeing agreement over the past 12 months which is now almost 25% higher than the $560 million generated in 2023.
The liability and cash management strategy strongly contributed to the credit rating upgrades by Fitch from BB to BBB minus with a stable outlook in late September. Consequently, both Standard & Poor's and Fitch currently rate the company as an investment grade company. In a nutshell, we remain focused on generating cash, reducing our debt levels, lowering the cost of our debts, and improving our credit metrics. Last but not least, let's talk about our guidance. We presented our updated 2024 guidance on Slide 50. We updated the guidance focusing on company's efficiency and considering the overall performance of all business units. From a financial perspective, we still feel very comfortable with our current $6 billion-$6.4 billion revenue estimates for the full year. This is a benefit of having different business units where the strength of service and defense helps to offset some missing deliveries in Commercial Aviation, for example.
More importantly, the company has been able to operate more efficient than expected with cost control that can be seen by SG&A expenses, for example. Thus, we have revised upwards our adjusted EBIT margin by 250 basis points from our previous 6.5%-7.5% range to our new 9%-10% percentage points estimate. We highlighted the Boeing agreement money circa 1.25% net without taxes or with taxes and final offset accounted for 200 of 250 basis points change. Meanwhile, the one tax credit benefit mentioned in the Q2 earnings release accounted for a balance of 50 basis points. Therefore, the company was able to maintain its margin guidance stable after the adjustment for the extraordinary events.
Despite a reduction of five aircraft deliveries in Commercial Aviation segment for the year in Commercial Aviation, we moved the delivery guidance down from 72 to 70-73 aircraft deliveries to reflect our most updated accurate estimate, considering the risk from supply chain constraints. Our 2024 guidance for free cash flow generation increases from $220 million or higher to now $300 million or higher. The changes reflect monies from Boeing agreement, the loss of around five previously mentioned aircraft in Commercial Aviation guidance and the forecasted down payments from recently signed defense contracts. From an operational perspective, we feel comfortable to reiterate our 125-135 guidance for Executive Aviation. Despite the ongoing supply chain challenges we face on a daily basis, we continue to work steadfastly to accomplish our production plan with safety and quality and to reach our new 2024 financial operational guidance.
We are also on track to deliver four C-390 Millenniums scheduled for this year. Looking forward, it is important to mention we still see double-digit growth for aircraft deliveries, revenue and EBIT in 2025 and beyond, notwithstanding the current operational challenges. With that, I conclude my presentation and hand it back to Francisco for his final remark. Thank you very much for your attention.
Thank you, Antonio. We delivered another solid quarter for our shareholders despite all the challenges we continue to face in our supply chain. I am especially proud of the hard work of our almost 20,000 employees whose contributions helped us reiterate our 2024 revenue guidance and even better revise upwards our adjusted EBIT margin and free cash flow estimates for the year. Aussie, Aussie, Aussie. Oi, oi, oi. I would like to give a warm welcome to Virgin Australia as a new operator of our E2 Jet family and the first in Oceania. We believe the world's most fuel efficient single-aisle aircraft will offer outstanding comfort, the lowest noise emissions and fuel burn in its class and higher performance to complement the fleet of one of the largest Australian airlines.
The joint purchase for C-390 Millennium by the Netherlands and Austria will allow both nations, as well as current and future operators to cooperate with other NATO nations. They should benefit from synergies in areas like training, logistics and future growth of the platform. We welcome the two newest members of the growing group of the most efficient and modern military tactical transportation aircraft. Our company remains very well positioned for the future, especially with a nine-year high $22.7 billion backlog and the steady progress seen in our operational and financial indicators underpinned by our solid strategy plan. To finish, I'd like to thank you all again for your interest and confidence in our company. We are optimistic about year-end results and very confident about our future. We continue working hard and embracing the foundation of our culture that is safety first and quality always.
Let's now move to the Q& A session of the call.
We will now start the question and answer session. The first part of the Q& A session will be exclusively for equity research analysts and investors. The second part of the Q& A will be only for the press. We highlight again this conference call is being conducted in English with translation to Portuguese. Please let me say a short announcement for Portuguese speakers.
[Foreign language]
We request participants interested in asking questions to press star nine on the phone at any time or press the raise hand button on the platform. When your name is announced, please press star then six on the phone or make sure that your microphone is on and start your question. We will also answer questions sent via the platform chat.
If you need assistance, please use the Q& A button on the platform to give everyone a chance to participate. We request to ask just one question per call. Our first question comes from André Ferreira with Bradesco BBI. Please go ahead.
Hi, good morning. Congrats on the results and thank you for taking my question. Just one quick one here about the commercial aircraft guidance. I guess the revision is of course related to the ongoing supply chain issues. But does it mean that the supply chain got worse or is it just more of a course adjustments and just a follow up on this? Is it more so the supply chain issues or maybe did the lower guidance have a component of mix or just operational issues related to bunched up deliveries for the later half of the year? Thank you.
Thank you. Francisco Gomes Neto speaking. Thank you for your question. Again, this delay has to do with the supply chain only. On average we have seen improvements in the supply chain but we still were facing challenges with a specific group of components, mainly engines and structural parts. And there's no other reason? No, no reason of mix or labor or other topics. It's basically due to supply chain and basically with two aircraft.
Perfect. Thank you.
Thank you. The next question comes from Lucas Marquiori with BTG Pactual. Please.
Go ahead.
Thank you.
Hey guys, morning, just want to hear.
Your thoughts on margins actually?
So if you could give us any.
Color on why the weaker margin on commercial. I know, I mean probably volumes, but if there's anything else there.
Any comments on if this should kind.
Our ramp-up better for next Qs.
Also on Executive Aviation. If you guys think this high very.
Strong margins on Executive Aviation. If you guys think this is sustainable for Q4, maybe 2025 as well? I mean any color on that would be helpful guys. Thank you.
Thank you Luca for the question. Antonio speaking here. Nice to talk to you. In regards to Commercial Aviation, we have a combination of facts in Q3. It is a mix of more E2s instead of E1s, first point, and also the customer mix which is not favorable for the margin results and is basically highly concentrated in Q3, apart from the, I would say, lower volume that should be offset in Q4. I would say our expectation continues to be for this year low single-digit margin for Commercial Aviation and moving forward mid single-digit. The case does not change. It's just really a bad quarter in regards to a specific performance and customer mix for Executive Aviation. As we have some good size in the quarter and a lot of output that we need also to see in this case.
I would say I do not see 16% happen in Q4, but lower teens margin is going to be our pace for Q4 and the years beyond.
Thanks. Thanks Antonio, super helpful. Great to talk to you again.
Thank you. Thank you.
The next question comes from Marcelo Motta with J.P. Morgan. Please go ahead.
Hi everyone. Thank you for taking. My question is regarding the recent defense orders from Czech Republic.
You know, if we look at the document that was published by the government.
From Czech Republic, I mean, they talk about a contract that has a high value.
I mean, we are talking about potentially.
Being, you know, over $400 million. So just trying to understand here if this is related to services of. If the aircraft that they are buying, you know, they have a much higher average price and potentially higher margin than the rest. And also they comment about a very strong down payment for this order.
So any color that you can give.
Yes, on that front, that will be very helpful. Thank you.
Thanks, Marcelo. Antonio, speaking here. I would say it's true what is written there, but not as it was mentioned. I would say is a big amount of money. But it's not only defense is also going to the service piece that we are going to put in the backlog on Q4. I would say as long as you get the money on our bank account. That's why when we set the new guidance for cash flow, $300 million or better is because of it. We do not have already received it. If you receive everything that was written the contract, then probably have still an upside under free cash flow guidance.
Perfect. Super clear. Thank you, Antonio. Thank you.
Welcome.
Thank you. The next question comes from the cell phone number ending with 7519 with Citi. Please go ahead.
Good morning.
Good morning, can you hear me?
Yes.
Hi.
Good morning, guys.
Steve Trent from Citi and thank you.
Very much for taking my question. Good morning, guys, and sorry for my little electronic trouble there. Just a very quick question. I recall that on the commercial aerospace side, you guys roughly did 2/3 or thereabouts of your aerostructures work in house, which seems considerably higher than your competitors in a good way.
Do you see any opportunity at all?
M& A or otherwise, to tick that number up a little bit? Or do you think on a long-term basis, 2/3 is a good level when you look at where we are in the cycle? Thank you.
Hello, Steve, nice to talk to you and thanks for the question. I would say we are, I would say highly verticalized on our infrastructure business. For sure. It is also a piece that is really under severe pressure outside our company here. I would say we always do make or buy analysis, but we are not. Look, we do not see M&A as an alternative for us on this regard. If you could insource additional parts is okay, but I would say it's not something that we are putting a lot of energy right now to look for that.
Appreciate that and I will stick to your one question guide so thank you very much for the time, gents. Take care.
Thanks Stephen.
Thank you. The next question comes from Myles Walton with Wolfe. Please go ahead.
Okay, I think I got this. Good morning, Antonio. Francisco, Gui, can you hear me? Morning.
Yes.
Awesome.
So, I wanted to go to new product investment if I could and in.
The context of the financials that you're.
Putting up, it looks like executive is sort of lights out in terms of sheer performance over the near term and over the medium term. And similarly you're having struggles financially in the commercial side with relatively captive markets in the 175 and obviously competitive markets in the E2. Does that inform where you're going to put the next dollar of investment? And if you can't make profit in six years in Commercial Aviation, there's a lot of speculation that you'd go further and deeper into that market. But the financials at least looking backward would tell me that's probably not a good idea. Does that resonate with you, Francisco,
Myles, thanks.
Thanks for the question. You know, I think this is the beauty of having different business, right? I mean one in one period, one business is good, other one is not as good and another period is the opposite. I think the period where we are living now we are seeing a very good performance with our Executive Aviation, our business aviation and not as good as in commercial. But remember that our most profitable area is services and in services almost 40% of the services revenue come from commercial jets. On the other hand, yes, we see good perspective for the still for the next 10 years. But the E2s, if you look at the from what is happening in the market since 2023 we added five new customers for the E2s.
You know, customers asked, for example, Scoot in Singapore showcasing our aircraft in Asia-Pacific, Royal Jordanian doing the same in the Middle East, Luxair and LOT Polish. I mean, Europe. LOT Polish is considering to replace almost the entire fleet. You know, Mexicana in Mexico, I mean, joining Porter. So we see good perspectives for the E2s as well in the future. And then we'll see the Commercial Aviation coming back to good performance as well as Antonio said to middle digit in terms of EBIT but with a very strong contribution from Defense and Support performance as well.
Myles, just to complete the answer here, what we are capturing the new backlog or new contracts for Commercial Aviation. We have a different margin profile than we have with the old contracts. We are in this, I would say, migration right now from old backlog contracts to new ones. I would say that's why we are confident to the mid single digit margin, the mid-term I would say in the next three years. That's our trajectory right now that we are foreseeing. And again big part of it is already embedded in our backlog.
Okay, just one clarification. You mentioned fourth quarter Commercial Aviation margins would get better. Are they going to be positive in the fourth quarter?
Yeah, absolutely. We see for the whole year lower single-digit margin between 2% to 3%. That's more or less what you see today. And the mix for Q4 delivery is much more favorable. That's more or less confirming what I just told you right now. That's some new contract we have in our backlog. That's accurate even for a much better margin. A part of the operations that we do have more volumes in Q4.
Also most, if you look at the past years, the Commercial Aviation with all the difficulties have delivered positive results. The same we expect for this year and years ahead.
Thank you.
Next question comes from Lukas Lage with XP Inc. Please go ahead.
Good morning everyone. Thank you for the question. Antonio, you mentioned the three points of non-recurring items in the adjusted guidance for EBIT margins this year. That would imply an adjusted level of 6%-7% on a recurring basis. I mean now that we're heading into the end of the year and look and more closely monitoring what 2025 will look like. I mean is this 6%-7% range a good reference to have in mind for next year's profitability as a starting point? I mean and not trying to have a number, not to have a figure but I mean you mentioned profitability improvement expectations for commercial in the upcoming quarters. I mean what should we have in mind as profitability drivers for the next years for the other divisions as well?
I mean trying to compare what should we expect in 2025 onwards compared to the 6%-7% range reference that we would imply for this year's profitability on a recurring basis? Thank you guys.
Thank you.
Lukas and Antonio speaking here. I hope you change your report getting out from the neutral to the positive for sure. The margin we are seeing right now is far below our ambition in this group here. What you should see for the future. Then I will ask Guilherme to explain about this year. If you see our backlog, we are growing in all divisions on the Defense Service and Executive faster than Commercial Aviation. We do see the three business units and lower teens margin in the coming years. That's accurate already for a higher number. And with the improvement on the Commercial Aviation. We do see, I would say the overall company margin moving up to a higher single digit or even closer to a lower double digit. That's the future for the current one.
I just want to explain to you about the non-recurring items that we just reported today.
Hey Lukas, thanks for the call and good morning. So if you look at our guidance, we increase by 250 basis points, both the low and the high end versus where we were before. The move is fully explained by the BA monies that we received and also the one-time tax credits that we reported in Q2. So as Antonio mentioned in his previous speech, despite lowering our guidance for Commercial Aviation by on average five aircraft, we were still able to achieve the operating margin that we had set forth in the beginning of the year. Looking forward, as we have operating leverage in the company as we continue to grow our production, we would expect the margin in the next couple of years to continue to improve.
And, Lukas, if allow me to complement what my colleagues just said. We have very well structured initiatives in place such as price discipline in new sales, cost reduction initiative, production lead time reduction, expense and investment control, production linearity. So all those initiatives combined what Guy just said about delivery growth, this will result in better financial performance. So this is why we are saying that we expect to improve our performance in all the business including Commercial Aviation as well.
That's clear. Thank you guys.
Thank you, Lukas.
The next question comes from Daniel Gasparete with Itaú. Please go ahead.
Hello guys, thank you very much for the call. The first question would be related to the competitive environment. We are talking about supply chain issues.
So I wanted to get your view.
On how the whole supply chain issue on the market has been translating to better opportunities for you guys to gain.
New orders or price at better margins.
Just to get a sense if the clients are moving out for perhaps your competitors moving to Embraer, to E2 or to E1 given the supply chain issues on the competitors. And secondly, if you allow me, Francisco mentioned about the beauty of having a diversified portfolio, right? You have executive right now doing very well and commercially ramping up. So I just wanted to get Francisco's view on when he expects executive to turn or if it's not on horizon at all. Thank you very much.
All right, Daniel, thanks for the question. So let's start with the supply chain. As I said before, we see in average supply chain is improving, but you know, the aggressive growth of all OEMs is pressurizing the supply chain, right? So again they are improving average, but we are still struggling with specific components.
So what we have done, we have put in place a new organization in our supply chain area. I mean, with more people working very closely to our most critical suppliers. We are implementing a new digital platform to improve the speed and accuracy in the relationship with our suppliers. We are implementing also new platforms to help us to manage better the forecasting in the parts in our organization. Again, we are doing a lot of things to make our supply chain management globally more robust. We have also put in place a team to manage the global chain capacity. So to make sure that we are monitoring not only the tier one but tier two and tier three of our suppliers to make sure that you have a capacity to fulfill with our demands in the future.
So again, we expect to grow, as Antonio said, double digits again next year. We have been growing a lot in the past three years. But this better structure and with our experience we have accumulated with the relationship and the performance of our suppliers, we believe our plan for next year will be even more robust than it was for this year. And number two, you mentioned about the executive jets. I do not expect executive jet is going backwards. I mean, we see the market for us normalizing, but at high levels we do see growth in our executive jets and sales and deliveries for the following years.
Thank you very much, Francisco, if you.
Allow me just to follow up here.
Just to better understand the first part of your answer. Would you say that your level of conversion in terms of the bids that.
Your competition has been increasing given.
This whole supply chain issue on the.
On the market affecting your competitors, or.
Would you say will be the same? Just trying to separate things here.
I don't know if I understood your question. Could you repeat, what do we mean by conversion
if in the bids that you are competing against competitors, if you are seeing that the level of conversion.
If you're winning more contracts or not?
Regarding Commercial Aviation, given the whole supply.
Chain.
We are very actually very optimistic with the potential new orders. We are basically sold out until 2026. We have available slots from 2027 onwards. But we are in campaigns for more than 200 aircraft. So we are very optimistic to fuel our production slots until the end of the decade for all the units. I mean, Commercial Aviation is active in defense. So we are in a very positive moment at this point of time in terms of seizing opportunities to fuel our production as well. As I said before, in the following years.
That is great, Francisco. Thank you very much and have a good day.
Thank you.
Welcome, Daniel. Thank you.
The next question comes from Alberto Valerio with UBS. Please go ahead. Mr. Valerio, we cannot hear you.
Can you hear me now?
Yes, yes we can.
Sorry, sorry.
Morning. Thanks for taking my question, Guy.
Antonio Francisco.
I have two on my side that left for me.
It's about the Boeing deal. If you could provide us what would be the tax on these $150 million and the cash out of it?
And the second one looking for 2025.
Can we consider this of KCs per quarter, two per quarter for next year, 80 maybe for the entire years for next year. And also I remember that you guys was trying to make better seasonality on deliveries for commercial and business jet. Look like business jet work very well. Commercial, not yet. But how can you look that for the next year? Thank you.
Hi, Alberto, thanks for the question. On the Boeing monies, you know, as Brazilian corporate, we have to pay fully the 43% which includes fiscal things and in income tax in Brazil. So at the EBIT level we recorded the full $150 million, and for the bottom line, we do expect to pay according to the legislation initially 34% of income tax.
But we have to kind of obviously look at all the tax credits and you know, the possibilities that we have at year end when we do our accounting for the full year. Let me pass it to Francisco to go over the KC-390.
you, KC. Yes, Alberto. We are planning to grow the production delivery of KC in 2025 as well as for the other business units. So we actually are going to see growth, important growth, double-digit growth in all the four business units we have. Commercial, Executive, Defense and Services.
Thank you. About the seasonality, can we consider that.
Commercial will also have a better seasonality next year?
Well, commercial, we are still dealing with the limitation in terms of supply chain to grow. We could grow further in commercial and even a business jet. But we are making a very robust and realistic plan according to our experience with the supply chain. So even then we are planning to grow two digits in all the business units. And so especially commercial, as I said before, we are working in a lot of campaigns with more than 200 aircraft and we expect to see results, you know, within the next six-to-eight months.
Thank you very much, Francisco Gomes Neto.
You're welcome.
Talk to you, Alberto.
Thank you. The next question comes from Victor Mizusaki with Bradesco. Please go ahead.
Hi. Congrats for the quarter. I have just one question here. When we take a look on service support revenues and I mean when I take a look at first quarter, second quarter and third quarter and then we compare third quarter with the first. We're going to talk about a big expansion of like $60 million. Right. So my question here is if we can assume that this is basically the ramp up of OGMA expansion and I mean if, let's say that, I mean we're talking about like $60 million per quarter of additional revenues, then we're talking about annualized revenues of like 240. So my guess here is that I mean the ramp up is moving faster than expected and now we're talking about like 50% of potential revenues from this expansion.
So my question here is if this analysis makes sense and that's why margins in this division is also moving up. Thank you.
Thanks.
Victor Antonio speaking. Thanks for the nice question here. We are going in the revenue side for Services & Support. You are going use. You already realize we are up on the revenue side. I would say the ramp up on the OGMA oper ator for the MRO for the engines is just 40% off out of it. On the other side we are continuous to grow and with the new content. That's why I would say we do see a peak in revenue for this year and the margin is going to I would say be accurate even what we are showing here and, and the accumulated nine months. That's why your math is a little bit better. Your math is really fits. Please do not forget we're on path for the MRO facility. This year is more causing losses than wins.
Not because we have a pre-operational cost, but at the end, to answer your question, I do see something like $100 million more for the year on Services & Support, with the margin have accumulated year to date.
Okay, thank you.
Thank you, Victor.
Thank you. This concludes the question and answer session for equity research analysts and investors. Now we will start the Q& A session dedicated to the press. First we will answer questions in English and then we will answer questions in Portuguese. We will also answer questions sent via the platform chat. Please let me say a short announcement for Portuguese speakers.
[Foreign language]
We ask participants interested in asking questions to press the Raise a hand button on the platform. When your name is announced, please make sure your microphone is on and start your question. If you need assistance, please use the Q& A button on the platform to give everyone a chance to participate. We request to ask just one question. Please hold while we poll for questions. The first question comes from Jon Hemmerdinger. Please go ahead.
Hi there. Thank you so much. Jon Hemmerdinger from FlightGlobal. Francisco, can you expand more on the supply chain issues? You mentioned engines and you mentioned some structural components. How bad is the issue still? How many engines are you short? What's your expectation for improvement on the problem next year? And what about components? What types of components are in short supply? When is this going to get significantly better? Do you have anything more you can add?
Thanks for the questions about specifics about engines. We have to recognize that we are increasing the demand for engines a lot this year comparing to last year. So the problem is that we are not getting the engines on time to be able to finalize the assembling of our aircraft and delivery the aircraft to the customer. That's the issue. But the output in terms of quantity is improving from last year to this year and we expect to continue to improve for next year. The problem is the timing. This is why we are still struggling with the deliveries and are reducing our guidance in terms of aircraft for Commercial Aviation. But we are also having issue with other parts, structural parts, interior parts, that have been also a bottleneck for us to finalizing the aircraft on time according to our plan.
But we are now improving our planning criteria for next year in order to avoid this kind of, I'd say, last minute surprise. But again, I mean, we recognize that you are increasing the demand for range. Not only us but all the industry will put more pressure on the, on the supplier. Right. But things are improving, but not, let's say, not at the pace we need for this year. Hope I answer your question.
You did. Thank you.
Welcome.
The next question comes from Cristian Favaro with Valor. Please go ahead.
Guys, can you hear me?
Yes.
Yes Cristian, we can.
Okay, thank you. My question would be a really straightforward one regarding the U.S. market. I mean they have a new president now and everyone in the market is trying to understand the possible, the possible effect on every industry. And my goal is, I mean, do you see any risk in terms of sales to the U.S. or policies that might affect the business for Embraer in the region? I mean Brazilian President Lula is a really huge promoter in terms of spreading Brazil abroad and he's not actually an ally of Trump. So what's your perspective on it? Thank you.
Thanks for the question, Cristian. Well, at this point of time we don't see any big risk or big impact for Embraer. Let me remind you that Embraer has been in the U.S. for more than 45 years. We have in the U.S. almost 3,000 highly qualified employees. We have in the U.S. almost $3 billion in assets. We have production plants in the U.S. We have a very important content in our aircraft, of U.S. products, U.S. equipment. So again, we have aircraft, we sell. We are helping the U.S. economy as well. So again, because of this partnership, this connection, long term connection with the U.S. we don't believe that Embraer will suffer with this change. This is our view at this point of time to make this very clear.
Thank you. The next question. Okay, this concludes the question and answer session in English for the press. This Q& A section is now being conducted in Portuguese. To switch to English, please press the interpretation button on the platform and then select English.
We're now going to start the Q& A session in Portuguese. We kindly ask journalists who want to pose their question to press the raise hand button on the platform. And whenever your name is announced, please activate your mic and ask your question. We're also going to answer questions in writing through the platform chat. If you need assistance, please use the Q& A button on the platform. To give everyone a chance to participate, please ask just one question at a time. The first question is from João Sorima from O Globo. You may now proceed. Good morning. Good morning, João. Congratulations on the results. Thank you for taking my question. Can you talk about your sales campaign for KC-390? Thank you for your question, João. We are quite optimistic. We're very excited about the perspectives for KC-390 this year. We have already announced 11 new orders.
Netherlands, Austria, and recently Czech Republic. There are many other campaigns that are ongoing as we speak. This is a best in class aircraft for the segment. It's been quite well welcomed, especially in Europe and Asia. Last year we sold to South Korea. So yes, we're very optimistic with our sales and the growth we're seeing for this aircraft for the next years. Thank you. Next question from Cristian Favaro from Valor Econômico. Please go ahead. Hello everyone. Now, since we're speaking Portuguese now, I'm going to ask another question. Can you please give us some color on the FNAC? We talked about this fund. We were waiting for news on that regard. How does that reflect on you? Is there an upside for the future? Can that help the company in any way? Can we increase the number of orders per capita for airlines in Brazil?
Well, Cristian, you can actually ask as many questions as you want. Okay, be our guest. Now we see this quite positively. FNAC is advancing quite well and it's a fund that is now available to support airlines. I think we need healthy airlines. We need the market to grow. We are seeing the market grow, but we're surely going to need to have stronger airlines who will need more aircraft. Now, since the government is to improve connectivity not only between large cities but also small cities, we understand that our aircraft is a perfect fit for such strategy. Our aircraft is of the ideal size, it's quite efficient, and we're confident that airlines are going to see that. Azul already does and we expect other airlines to see the same.
So we're quite positive, not only with the FNAC fund, but also considering that we're going to have new airports soon enough and the current government is trying to better connect smaller cities in the country. Perfect. Follow-up question. Do you know when this is actually going to be seen as money for the market? When airlines are actually going to have access to this fund? Any estimates on that? Not really, because Embraer is not directly involved with that. We just follow up the news because it's in our interests, but we're not directly involved with the process. So I can't really answer that question. I see. Thank you. Thank you, Cristian. Thank you. Next question was sent via chat by Ricardo Meier. When we look at this slide of operators for KC-390 show the flags from Morocco, the UAE and Chile. Are they potential customers?
Ricardo Meier from the Airway website. You know, Ricardo, these countries are interested in those aircraft. We're looking closely into some of them, not to all of them. But yes, I think these countries are interested in these products, nothing more than that. In the Middle East we've been in touch with some countries trying to tap into some sales opportunities. But for other countries, like I said before, I think they could be interested potentially in our products, which is quite positive. Thank you. Next question by Jessé Nascimento from Vale 360 News. Go ahead. Mr. Nascimento. You're muted, we can't hear you.
Hello.
Apologies. Good morning everyone. Francisco, Antonio and everyone, here's my question. I wanted to hear your take on the Boeing crisis. They are laying off many employees, including people from São José dos Campos office. How are you going to make the most out of this opportunity? How are you going to sell more Super Tucano aircraft? This Embraer has been expanded, spending their operations on the commercial market. Now, since you touched on the American market, you mentioned the U.S. elections and Trump coming into office. How can that impact defense market since you want to expand to the U.S.? Hello, Jesse, thank you for your question on the Boeing issue. We do follow up the news.
But.
We have our own strategy and we've been following that strategy with great discipline, and that's what's bringing about these great results we can now see, and that's what we're going to continue doing. You know, creating our own strategy and just deploying that and of course, watching out for what's happening around us in the U.S., note, like I said before, we have a long lasting partnership with the U.S. for more than four decades, not only in terms of Commercial Aviation, but also in terms of business aviation. Great part of that happens in the U.S. We've got 2,000 aircraft flying in the U.S. and Defense is of course a great potential market for our KC-390 aircraft for the future.
We've been working on that to be able to introduce this aircraft in the U.S. Considering this long lasting partnership and considering what we bring to the market in terms of products and equipment, we don't think there will be any negative impact. Much to the contrary, we think this partnership will become even stronger with the U.
S. Thank you.
This concludes the conference call. Just one second.
We apparently do have a question.
We have one last question in English from Karl Schwarz. What will be the total investment needed on Eve up to certification and delivery start?
It's around $600 million total today and we have cash to run the company for the next three years.
Thank you very much. This concludes the Q& A session and Embraer's earnings call.
Thank you very much for your participation. I hope you all have a great day.