Good morning, ladies and gentlemen, and welcome to the Audio Conference Call that will review Embraer's Third Quarter twenty fourteen Results. Thank you for standing by. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions to participate will be given at that time. As a reminder, this call is being recorded and webcasted at ri.embraer.com.br.
This conference call includes forward looking statements or statements about the 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 obligation to update publicly or revise any forward looking statements because of the new information, future events or other factors.
In light of these risks and uncertainties, the forward looking events and circumstances discussed on this conference call may not occur. The company's actual results could differ substantially from those anticipated in forward looking statements. Participants on today's conference call are Mr. Federico Correto, President and CEO Mr. Jose Filipo, Chief Financial Officer and IRO and Mr.
Luciano Freud, Director of Investor Relations. I would now like to turn the conference over to Mr. Jose Filipo. Please go ahead, sir.
Okay. Thank you, and good morning to all participants. We'll start the presentation and then we'll be moving to the Q and A section. So if you could go start with page three. Before the first business highlights, we would like to report this important date, which was last August 19 that Embraer celebrated its forty fifth anniversary.
It's a very important moment for the company that happened last August. With the next page, Page four, now the business highlights. Starting with inauguration of Embraer Engineering Technology Center in Melbourne, Florida, this facility is initially focused on the executive jet business, but later will expand to all our other business segments. Continuing with the example of Embraer commitment to sustainability, we had the milestone of a 10 anniversary of the certification of the ethanol powered Ipanema airplane. And in line with that Embraer was listed for the fifth consecutive year on the Dow Jones Sustainability Index.
During the third quarter, also Embraer received several awards and recognition in Brazil, especially related to people management and corporate governance, important and very important priority for the company. Next page, page five. Now moving into the business unit highlights. So starting with the commercial aviation business. We
had
a delivery in the third quarter of twenty nineteen e jet, a couple less than we planned, which we expect to be delivered in the fourth quarter. Also, continue to sell our current generation two important announcements. The first one is Japan Airlines, which signed firm order for 15 E Jet with additional 12 options. Together with Republic Airlines Airways Holdings signed a contract for 50 firm jets, which will operate under United Express brand. In relation to the E2 development, we are moving along with the important event of the first metal cut of the E Jet E2 manufacturing in the Everest plant in Portugal.
Next page, Page six, in relation to Executive Jet business. We delivered 15 executive light jets in the third quarter for a total of fifty four year to date light jets. We also received recently certification in both in Brazil and The U. S. Of our Lagos 500, which paved the way for deliveries, which first one happened in early October, the first delivery of the Lagos 500 program.
In page seven, still on this jet highlights, important milestone of the delivery of the Fino 300 to net jets, the delivery number 25, which returned into total of 200 deliveries of this model by the company. Currently, our total executive fleet executive jet fleet surpassed 800 aircraft. Another important recognition was the ranking of Embraer as number one in customer support and service satisfaction by the AIN magazine. With regard to our global footprint strategy, Embraer broke ground the Lagos 500 and Lagos four fifty assembly complex in Florida, Melbourne. And also during the quarter, we continued to expand our customer support and service network into Brazilian area.
Now moving to Defense and Security on page eight, two announcements of rollout program. The first one related to the first prototype of the KC-three 90. It happened in last October. And this airplane and this program, we had planned for the first flight to schedule for the end of this year. We also have the rollout of the first Super Tucano built in our Jacksonville facility for the U.
S. Air Force Light Air Support program. In relation to the Brazilian border control project, Cisfran, SAVIS participated in a successful exercise to verify the strong implemented operational capabilities, which lead us to keep on track for the development of this project. In terms of commercial activity, two important contracts. First, there was a sale of six Legos 500 to the Brazilian Air Force and this equipment will be used to perform flight inspection missions.
Also, Braddar was contracted by the Brazilian Navy to supply three radars. Now next page and moving to the financial results. We'll go now to Page 10 With regards to our backlog, we reported a total of billion of firm orders in the end of the third quarter that represents the all time high for the company. The big drivers of this number were the 28 KC-three 90 order from Brazilian Air Force and the commercial contracts as mentioned earlier in the presentation. Page 11, next page in terms of aircraft deliveries.
We delivered 19 commercial aircraft in the third quarter, the total of 62 year to date. And with respect to business units, jets already mentioned the 15 light jet deliveries for a total of 10 light and 54 sorry, 10 large and 54 light jets year to date. At this point, we take the opportunity to reaffirm our guidance figures for the year. Page 12, regarding revenues. We had a total of $1,200,000,000 in the third quarter, which can be broken by commercial aviation of $661,000,000 in the executive jets two thirteen and defense and security three forty six.
We believe we are on track to meet our guidance figures for 2014. Next page, still net revenues in terms of year to date both in Brazilian reais and U. S. Dollars. We had the year to date in dollar terms of $4,200,000,000 in terms of revenues and BRL9.7 billion in terms of local currency.
Our outlook for the year range between 6,000,000,000 and $6,500,000,000 Page 14, next page in terms of operating expenses. We continue to have a stable and controlled expense level. We had in the third quarter $52,000,000 of G and A and $99,000,000 of selling expenses. We believe that total SG and A for the year will be represented as 10% of the revenue range, which is in line what we've been saying before during the year. Page 15, regarding EBIT.
We had a total of income of operations of $68,000,000 with a margin of 5.5% in the third quarter that reflects the lighter deliveries and the mix that we had in the quarter. In terms of year to date numbers, we had a total of $347,000,000 with a margin of 8.2%. Our outlook for the year is in the range of $540,000,000 to $6.00 $2,000,000 and the EBIT margin of 9% to 9.5%. Next page, Page 16 in relation to EBITDA. Following the same drivers of the EBIT, we had a total of $136,000,000 in the third quarter with 11% margin.
In terms of the cumulated number for the year, we had the million with a 12.9% margin. We are now confirming our expectation to meet the guidance figures for 2014. Next page, page 17. In terms of net result, we reported a net loss of $11,000,000 in the third quarter, primarily due to the exchange rate fluctuation, which affected the company's deferred income tax. This effect already happened in the past.
But excluding that effect, the net income would be approximately $93,000,000 in the third quarter. We have with the R11 million dollars loss in this quarter accumulated of R242 million in terms of twenty fourteen to date numbers. Next page, page 18 in terms of inventory. We had a total amount of ARS 2,800,000,000.0 in the end of the third quarter, in line with last year third quarter figure and comparable to what we expect as we prepare to the stronger delivery activity in the last quarter of the year. Next page, page 19 in relation to free cash flow.
During the third quarter, we generated $49,000,000 of operating cash flow and we also continued to our investment plans with the program development and the CapEx. So the free cash flow was an outflow of million dollars in the third quarter. It is important to mention that this cash flow reflects an increase in our working capital requirements year to date, mainly due to the increase in accounts receivable. We have roughly $300,000,000 related to defense contracts that we expect to receive by the year end. This effect, coupled with the typical strong cash generation in the fourth quarter, lead us to believe that we'll meet our guidance figure for the year.
In Page 20, next page in terms of investment. In general, we are trending below our outlook. Research should not exceed $60,000,000 for the year. Development should stay below 300,000,000 and the CapEx should be in line with the outlook of $250,000,000 So, so far in terms of the year to date numbers, we had a total of $243,000,000 in terms of investment. Next page, page 21, the company capital structure.
We continue to show a comfortable debt profile with a five point six year average maturity terms with 4% portion in the short term, Reflecting our cash flow generation discussion before, we end the third quarter with a net debt position of $327,000,000 With that, close this presentation and we are ready now open for the questions. Thank you.
Thank
And our first question comes from Pete Skibitski from Drexel Hamilton. Your line is now open. Please go ahead.
Good morning, guys. I guess first question I'll ask is on the large cabin business jets. You delivered ten year to date. And I was wondering of the fifteen or so you need to deliver in fourth quarter to meet your guidance. Could you give us a sense of how many of those have already been ordered as of today or maybe how many are really close to closing?
Sure. We so we as we forecast, we forecast from 80 to 90 of the light jets and 25 to 30 of the large cabin jets. So as of today, we believe we're going to come to the lower on the small cabin. We're probably on the right in the middle of the range with maybe some potential upside within the range. On the large cabin though, we are looking more towards the lower end and with maybe a little bit risk on the lower end of the larger cabin.
Having said that, we are still comfortable that between the two families, we shall achieve the revenue guidance for the segment for the year.
Okay. Got it. And then I had a question on gross margins also. 19.5% they were up about 30 basis points year over year on really comparable revenue overall and comparable revenue at commercial also, but the mix was much better last year at commercial as well as at executive. So I wanted to ask how do I reconcile that?
Is it all kind of FX related? Or maybe are the margin headwinds on the 175,000,000 maybe not going to be as bad as you'd initially suspected? I was wondering if you can help me understand that.
Pete. It's Luciano. So a little bit more color on that. Basically, we think about the consolidated gross margin, had a slightly lower, let's say, Commercial Aviation segment margin, driven again largely because of the mix of more E175s in the quarter. But that was offset to some extent by higher gross margins in both the Executive Jets as well as the Defense and Security segment.
Okay. And Executive was that just kind of lower selling expenses within the segment? Actually no that wouldn't impact gross margin. How would I why were gross margins higher in executive this quarter given the mix was so much worse?
Actually, there were a
lot of Phenom 300s delivered in the quarter, 14 out of the 15 light jets. So that contributed to that. That reflects this gross margin of north of 22% that I alluded to.
Okay, great. Okay. Thanks guys.
Thank you. And our next question comes from Cai von Rumohr from Cowen and Company. Your line is now open. Please go ahead.
Yes. Thanks so much. So I guess you're saying you're keeping your cash flow guidance, but you also indicated I think that CapEx plan of $250,000,000 but you only did about $106,000,000 as you define it in the nine months. And your development plan of $3.20 you've done 111. So you indicated $3.20 is probably high.
So those are pluses. How come the cash flow wouldn't be even better than that? What are the offsets to that?
The investments will be lower, but as we mentioned, we have the pressure on working capital. So that's what expect to see. So we're working on reducing the accounts receivable. We had a higher number in the end of the third quarter. We expect to see that coming down in the fourth quarter, we're working.
If it comes down $300,000,000 you basically would be down year over year and you would be up. So I'm still a little bit confused in terms of why what the real offset is because it looks like that should correct itself in the third quarter unless there's something else happening.
Yes. But there's going to be the cash generation in the fourth quarter, which is stronger than the previous quarters as we'll be adding.
Cai, this is Fred. Let's just add a little bit of color. As we can see the year to date cumulative free cash flow, it's significantly negative. So we ought to generate a very strong quarter, which we are foreseeing. But I must say, we do have a risk in this $300,000,000 accounts receivable or related to defense, more specifically the Brazilian government programs.
So there is a risk there, which may even prevent us from achieving our guidance. So the view is that we will I mean, this is due. So this is something which it's contractually due. But it is, of course, the fiscal or let's say the governmental budgets in Brazil, it's public information. There are some constraints.
So I think we must at this stage emphasize that there is yes, there is a downside risk to that guidance.
Thank you very much. And just one two part follow-up. Could you maybe give us color in terms of 2016, how you're sold out in terms of the E Jets?
It's looking good. I mean, would not put a figure at this stage, Cai, but it's getting better. So when you were sitting in 2012, we're looking at 2014 and 2013 looking at 2015 and now 2014 looking at 2016. So we're probably in the most comfortable position of these three years.
Terrific. And last one labor. Where are you with your labor negotiations? And what kind of a wage hike should we expect for 2015?
Okay. Let me take the opportunity to give you a broader answer. We have several factories in Brazil. So I mean, we have already settled an agreement with the factory in Botuca 2. That's a 7.4% increase in wages applicable from September on.
The same proposal has been offered to our plants in Gavionpejo to where the defense people are Osoro Cabo, Talbata and San Jose De Los Campos. We have not yet a position from the Gavionpejo to Osoro Cabo and Talbata unions And we had a negative position from the San Jose Dos Campos union. We have three units in San Jose Dos Campos. And one of them our employees since last night, they have not been allowed. I mean, unit has completely blocked the entrances of the factory.
So we are paralyzed in our operations in that specific site, which is our largest site in San Jose De Los Campo. The other two sites in San Jose, they are operating normally. So I mean, we do not know how long that's going to take to sell. So it's conceivable that this will end up in the legal system in the courts. But it is our proposal is final.
And what we really regret is that this specific unit in Santa Ana De Los Campos with this very, let's say aggressive attitude of really blocking people's right to go and come freely is something we have seen happening in the same region, General Motors plant. And the outcome is very negative for both the company and employees. So we just now have to see how this thing unfolds. And technically, are obviously, have some slack as far as being able to be shut down for a few days and still deliver all of our guidance numbers and delivery etcetera. But at this stage, we have to leave day by day and see how this thing unfolds.
Than that factory, Thank everything is operating you.
Thank you. And our next question comes from Derek Spronick from RBC Capital Markets. Your line is now open. Please go ahead.
Good morning. Thank you for taking my question. My first question is on 2015 Aerospace production. You should have a fairly good visibility on your production skyline for 2015. Can you provide any color as to how you see 2015 shaping up as it compares to 2014 with regards to executive production as well as commercial aviation production?
Yes. I think it's a fair question. Of course, we will provide specific directions around is that February, Luciano? March, early March. So but yes, was an indication.
We see on commercial on the commercial jets, production levels probably sustaining with the possibility of a little bit of a higher number. But I think sustaining the same level is probably a very fair assumption at this stage. We will have a pressure on gross margin due to pricing. Pricing has become aggressive with of course the stiffening of the competition. Obviously, the tailwind side, we have a potentially more favorable FX next year and our continuous effort to hold productivity and to keep our costs where they should be.
Also the standardization of assembly the line where we have large quantities of airplanes, 175 airplanes for the same customer that also shall give us some benefit as far as productivity. On business jets, two we important markets, we see some down some reduction in activity. These are Brazil and China. But on the other hand, we are seeing an increasing level of activity in Europe, believe it or not, and United States. So that adds to the fact that we'll be ramping up the legacy 500 next year.
So we are probably looking to some degree of increase in our business debt business. And as we increase the top line, of course, the trend is we also improve our results because we do not need probably much more, if any, more fixed costs to do that. As far as defense, I pretty much see a stable activity, a lot of execution to be done. We have been executing very, very well in that business. In this particular business, FX will play against us because of course a large part of our revenues is in reais.
So but it's probably a wash. So stability is probably a fair outlook at this stage.
That's great color, Frederico. Thank you. Just another quick question on the legacy 500 in the April. I was at the BNBAA and
there was quite a bit
of buzz around those two aircraft products. Has that buzz and anticipation of the product, has that been translating into a good order backlog and healthy pricingmargins on the first initial order set?
As far as book orders, I would say, it has been reflected in the pipeline. So there is a significant amount increase in activity in the pipeline. So hopefully, that will translate in a few months in actual orders and increasing backlog. And you're right, I mean, the product is really superior. So we do expect that family to move us in a good direction.
As far as margin in the very first units, no. I mean, this is much more industrial typical industrial learning curve. The comment I would add is that this is I mean, so far, I'm knocking on the wood here, has been the best entry into service that we have had in airplane programs. And this is not just a coincidence. We invested a significant amount of work and money and testing and rigs and etcetera to achieve that.
So, so far the airplane is we have one prototype, continues its flying way ahead of the initial deliveries and the airplane has a very good degree of maturity. So we should have I think it's fair to say that we should have a relatively smooth learning curve ahead of us.
Okay, great. Thanks. That's all for me.
Thank you. And our next question comes from Myles Walton from Deutsche Bank. Your line is now open. Please go ahead.
Thanks. Good morning. Hey, Fred, I
was hoping you could give me a
little color on the defense sales for the year. I think that target is 1,200,000,000.0 to $1,300,000,000 and you did $1,100,000,000 year to date. So I guess I'm a little confused that the fourth quarter could fall off quite that much.
Myles, I mean, you're right. I mean, think if in the executive debt business, we may be looking at the lower end of the revenue guidance in the defense, certainly will be looking at the high end. And in that case, I think we have some upside risk of surpassing that. So it's a fair question, a fair point.
And is there anything in particular that's driving it modernization work or short cycle work? Would just imagine with the real weakening it would have actually been more of a headwind to your full year, but
sorry, Luciano you're saying? Yes.
Yes. No, Myles, no, it's the board. I mean, antidote that we have for this for potential negative impact in the reais revenues, revenues in reais in the fourth quarter is the deliveries of LAS Super Toucan in The United States. So I think again, it's very likely that are in the end range or even surpass it.
Okay. And then one other one was that you talked about in the release the lower development and R and
D expense and you talked about
it on the call. And you've made a point to say that development timelines haven't moved though. So presumably the cost of the net cost of your developments have actually come down. And I'm curious is that more from a supplier contribution perspective or just the net cost of your developments have come down and in particular on what programs?
It's a combination of factors, Myles. I would say a little bit of conservative planning probably from our engineering because this has been probably the most the highest volume of engineering work the company has ever endeavored. So I think there's maybe a little bit of conservatism there. There was a little bit of efficiency itself. So there is a continuous effort from our current team to drive efficiency.
And also as you mentioned, part I mean, our partners' contribution, which are more event related. So I think the combination of several factors shall keep us probably below 300, I would say more maybe between two fifty and three hundred.
All right. And then just one last one just to confirm. You said that defense sales flattish into 15 or growth and presumably you're to overachieve your guidance this year. So I guess that's flat to where you achieve, but maybe growth from where your guidance currently is? Is that the way to think about it?
That's a good question for clarification. I would I meant flattish as far as the guidance.
Okay. Thanks so much.
Okay. Thank you, Manas. Thanks for the question.
Thank you. And our next question comes from Joe Nadeau from JPMorgan. Your line is now open. Please go ahead.
Thank you. Good morning. Just as first question on the €300,000,000 of defense receivables. Are those related to any milestones like first flight on the $3.90? Or is this now due and payable and the government is just late?
No, it's contractual. So we have a progress accrual and it's not past due. We're just I mean, I just we're just I'm just raising this possibility, because of course, if you remember the last quarter, we did have this I think it was 150,000,000 to $200,000,000 which was a little bit past due, which was paid. So we see we sense some difficulties there. But contractually speaking and we know the efforts on the government side are to honor those payments.
But I think at this stage, I it's correct to say that yes, there is a risk.
But is it due is it in any way tied to first flight on the KC-three 90?
No, it is not. The way we have revenues in our company is just development how do you call it program? Percentage Percentage completion, that's the term. So there's no specific event for a flight, which we still believe is going to happen by the way.
Okay. That's my next question. So on another area, the legacy six fifty, I mean you said you expect growth next year overall in Executives driven by the 500, which of course makes sense. I'm wondering if you could give a little more commentary on the six fifty and how it's competing right now? There's a lot of new aircraft in the mid cabin area and what your expectations are going into next year for deliveries of that platform.
I think we probably will also see some improvement in the six fifty. It's an airplane that has a very good potential in The U. S. I think we have a homework to do as far as our own marketing, our own the way to sell the product and then to really have it in the market, position it in the market. It's a great product.
And I think we ought to do a better job. So yes, I also expect improvement in the $650,000,000 As far as the lineage, this is much more a niche product. So we'll also be seeing low single digit numbers three, four, five, six things in that range year over year. But the six fifty should perform better. This has not been a great year for the six fifty and it should improve next year.
Can you give just a little
more color on that Fred? I don't want to push too much on it, but there is a lot of new competition. So and there are some signs of certainly The U. S. Market improving in general.
I know this has been more of a European product at times in the past, but maybe a little more color on why you don't think it sold as well this year and why you do think it will get better next year?
Yes. And very candidly, Joe, I think it's been more our own ability to market the aircraft. I think there's nothing wrong with the airplane quite the contrary. And we have had a specific, let's say, underperformance in The United States. So this airplane is not an European scenario airplane.
This airplane is perfect for The U. S, but I think we have done a much greater job of selling the airplane abroad than we have in The U. S. So we are focusing that on that as well. And these things does not happen overnight, but we my team is really focusing also improving the $650,000,000 next year.
Okay. And then just one more. If you guys wouldn't mind providing as you've done in recent calls, the segment operating margins and gross margins?
Well, in the quarter, in the specific quarter
In Q3, yes.
Yes, in the specific quarter, we as far as operating margin, Luciano, help me here. It's around 4% commercial, around 13% defense and a negative 5.5% for executive due to the very low deliveries.
Okay. I'm sorry, missed that commercial. And if you wouldn't mind getting gross as well.
Commercial gross was
15.9%. 16%. 16% and operating margin 4%. Executive 22% gross and negative 5.5%. Defense 23% gross and 13% operating margin.
Very good. Thank you very much.
Thank you, Joe.
Thank you. And our next question comes from Eduardo Cotto from Morgan Stanley. Your line is now open. Please go ahead.
Hi, good morning guys and congratulations on the strong results. I have a question on the currency on the BRL. We saw a big movement in the currency in the last month or so. Can you remind us what is the lag between the movement in the currency and the impact of that in your results? Or in other words, when can we expect to see this two fifty or even weaker BRL being reflected on the year's results?
Normally, it
takes like two quarters to have the full impact, because it has to pass by the inventories and then go to revenue. So that's the timing of the effect typically.
Growing, right? So we have this from no impact to full impact. Yes. Within two quarters.
Okay. So probably we're going to see that more reflected next year?
Yes. We still can capture something if it remains at that level in the last quarter. But if it stays the because we normally we reduced the inventories in the end of the year. So if it was a stable quarter, several quarters, there will be something like that. But that probably we're going to capture a part of that in the last quarter as we deliver most of the inventory.
Okay. And just a second question regarding commercial orders. Can we expect more orders from The U. S. Already next year or the conversion of options into firm orders in The U.
S. Already in 2015 or this is more for twenty sixteen, seventeen?
No, no. I think it's correct to assume that we should see some more activity next year, which will lead us towards filling up the production line by the back end of twenty sixteen and mainly 2017. So yes, we expect that.
Okay. And just a final point, Fred. Can you give us your view regarding this Brazilian Regional Aviation Plan? I think it should be approved this month in the Congress. So any additional thoughts on that?
Yes. We are obviously very close to the issue. There will be the issue is in Congress right now. There was a report issued yesterday by the Special Commission and the report changed the government executive branch project. So they decided to postpone the vote from today to next Tuesday.
So we are in the hope that in Congress they do not distort the Bill Semper Executive Branch. But now it's really down to the basic politics in Congress and we will know by Tuesday. So at this stage, it's a bit hard to predict where this thing is going.
Okay. Can we expect orders coming out of this regional plan or it's still too early to assume that? If
the project if the bill sent by the executive branch is approved as it was issued, yes, we there will be it's a cascade effect. Fundamentally, there will be support for probably 100 more 50 to 100 new communities, which do not have air service today. This is low density traffic. And so that will drive demand for more airplanes and for smaller airplanes, airplanes typical of our size. So we have as it is public information, we have been discussing not only with Azul, which has already confirmed a new order, but also with TAM and GLO in that respect.
But it's kind of a go no go. I mean if the plan is approved, I think the potential is there. And by the way, this is not I mean we have to expect some competition there as well. I mean there is no protection for our airplanes. So Bombardier, we also have ATR, which has a large fleet in Brazil.
They also will potentially benefit. We work very hard to prevent that, it's a potential for regional airplanes in Brazil, which still today is very much concentrated in the trunk lines and it's a little bit uneven fleet distribution compared to The U. S. Or Europe.
Okay. Thank you.
Thank you. And our next question comes from Daryl Genovese from UBS. Your line is now open. Please go ahead.
Hi, good morning. Hello. Can you just put a little bit more and I know you've done some of this already, but just put a little bit more color on the moving pieces for 2015. So I guess in particular I think you guys have given some guidance in the past with regard to the real for a I think it was a 1% EBIT margin benefit for every 10% that the real weakens. Is that guidance still good?
Or has that changed with the ramp up of the Florida factory?
Hi, Daryl. So as far as next year, it's still a little bit too early to try to put specific numbers on that. Of course, we have to see exactly where the revenue and cost structure will be, especially as all the three business units comprise the revenues and cost structure. So of course, the general move will help and is a tailwind. Putting specific figures for next year, we'll have to wait a little bit more to get more clarity.
As Fred mentioned in early March, we'll have a better view there.
Okay. I mean is the when I'm just thinking about the percentage move on your currency exposure, I mean is my impression is that almost all of that is related to Brazilian labor. So when kind of thinking about the big weakening in the real that we've seen year to date relative to the labor inflation numbers that you're talking about? I mean, should we assume that those apply on roughly the same dollar cost base?
On the cost, you may we may simplify that. But keep in mind that there's also the pricing issue, which I mentioned, specifically more on the executive jets sorry, commercial jet side, smaller airplanes, 175, the mix is more 175 than 190, so lower price airplane and large transactions and steep competition. So it's I mean, we are sorry, but I think we really cannot advance much further at this stage.
Okay. Maybe a little bigger picture question then. With regard to the legacy 04/5500, any updated thoughts on what you think the ultimate market is for those airplanes? I think you guys had initially thought of it as kind of a 40 a year kind of number. But with the additional capacity that you're putting into Florida for legacy four fifty five million production, it seems like maybe your expectations there have increased.
Is that a fair assessment?
I mean, you're breaking up. So the last part of the question we missed it because you're breaking up.
Sorry, is that better? Yes. No, I was saying with regard to the ultimate legacy four fifty and five hundred production rate that you think you can achieve, I think a few years ago you were sort of characterizing it as a 40 a year kind of opportunity. And just wondering if that expectation has increased, guess, based on the fact that you guys are putting more midsized capacity into Florida, it sounds like maybe your expectation had moved up there. And just wondering where you think that program ultimately goes?
Yes. I mean, you look at that segment pre crisis, that segment was a very healthy one. So although in the short term, we may look at numbers which are in the 40 or 50 range. I mean, we have decided to have just in Melbourne, where these airplanes will be manufactured. Just there, we're to have already launched infrastructure for six months or for 72 airplanes.
We will start producing these airplanes in Brazil. So if that goes beyond 72, which may sound like a little bit of a dream today, but if you look back to pre crisis numbers, the numbers were actually higher than that. We can easily add capacity. So today, are committed to infrastructure for 72 airplanes a year, six airplanes a month. And we will of course as the demand takes us.
Great. Thank you.
Thank you. And our last question comes from Pete Skibitski from Drexel Hamilton. Your line is now open. Please go ahead.
Yes. Fred, I just want to ask on the Saab contract getting for Gripen's getting signed with the fab. I think I read it to be $5,400,000,000 which seem to be larger than I expected anyway. So I was just wondering if you could tell us what Embraer's share of that would be at this point now that it's signed? And maybe what kind of a timeframe you would expect to get started and complete that contract?
Sure. My understanding about the although we have no direct involvement in this contract between Saab and the Air Force is that this 5.4% is probably related to escalation and stuff like that. So there is to my knowledge, is no change in the subject matter of the contract, 36 airplanes and all the logistics associated. We have moved from an MoU to a, let's call, a very dense MoU or almost like a semi contract with Saab. And at this stage, I do not have yet numbers.
So I can tell you the expert says it's going to be us. But as far as scope of work, we will have the significant the most significant amount of engineering work on the B place version. We also have a significant amount of work in engineering as far as adaptations of the aircraft to the Brazilian Air Force specific requirements. We will assemble a number of airplanes in Brazil. That number may be probably no less than 15 airplanes, the last 15 airplanes in Brazil.
That's still under discussion. And we also there is also provision where there will be some sort of joint marketing of the airplanes between Embraer and Saab to new markets. So it's I mean, is a complex content. And as I said, we'll be able to put figures in that probably within six months. There is some work which will be started with very, very small as far as just context between the engineering teams.
So time frame is six months, we shall have a full final contract between Embraer and Saab. And then of course, we'll be able to disclose to you more precise figures.
Are you expecting to generate some revenue on it in 2015? Is that a fair statement?
No. If there is some, it will be negligible. No.
Okay. Got it. Thank you.
Thank you. This concludes today's question and answer session. And that does conclude Embraer's audio conference for today. You very much for your participation. Have a good day.