Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's First 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 conference call is being recorded and webcasted at ri.embraer.com.br.
This conference call includes forward looking statements or statements about events or circumstances, which have not occurred. Embraer has based these forward looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance. These forward looking statements are subject to risks, uncertainties and assumptions, including among other things, general economic, political and business conditions in Brazil and in other markets where the company is present. The words believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward looking statements. Embraer undertakes no 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 forward looking statements. Participants on today's conference call are Mr. Frederico Cuirado, President and CEO Mr. Jose Filipa, Chief Financial Officer and IRL and Mr.
Luciano Flores, Director of Investor Relations. I would now like to turn the conference over to Mr. Frederico Quirado. Please go ahead, sir.
Good morning, all. We will go through the presentation. I'll ask Felipe to do that. And then of course, we'll be back to for Q and A. So Felipe, could
you please walk us through? Thank you, Fred. So we start the presentation of first quarter twenty fourteen earnings results in page three, where we have the highlights of the business. So starting with our highlights with the Commercial Aviation. As we already indicated in our backlog statement in mid April, we delivered 14 E Jets in the first quarter with that reaching over 1,000 deliveries of the E Jets since the beginning of the program.
Another important milestone of the E Jet program was the celebration of the tenth anniversary of the first delivery that happened. And now in relation to the new orders, as previously announced, we have the Air Costa from India order that placed a firm order of 50 E Jets E2 plus 50 options of models one hundred ninety and one hundred ninety five E2. This was already included in our backlog of the first quarter. Another important achievement was the beginning of the delivery of the E Jet 175, featuring aerodynamic improvements, which now able to reduce the full burn by 6.4%. In terms of market share, we continue to consolidate our leadership position in the first quarter of twenty fourteen in the segment of the 70 to 130 seats.
We had 50% of the sales and 60% of the deliveries worldwide. Turning into next page with the executive jet business. We delivered 20 executive jets in the first quarter, broken by 17 light jets and three large jets. This represents an increase over 60% when compared to the first quarter of twenty thirteen. And with that, we expect a better balanced delivery profile for the year.
We also had important milestones in the executive jets program with the delivery of the FINAN 100 number 300 after five years of entering to service and the opening of Embraer new executive service center in the city of Solo Caba in Brazil. And finalizing the executive jet business confirming this business maturity, Embraer reached the milestone of 1,000,000 flight hours in its fleet of over seven forty aircraft. Next page, in relation to defense and security. In the development of the LAS program, we started the assembling of the first Super Tucano aircraft and we expect the first delivery to be happening in mid-twenty fourteen. In terms of the modernization program Embraer has entered with the Brazilian Air Force.
We received the first fighter jet F5 of the total of 11 for the modernization program. Another highlight that through our subsidiary ATEC was the beginning of the operations of the Amazon air traffic control center. Finalizing the defense and security highlights in terms of the SeaStrong project, we are also advancing as planned and concluded the delivery of the first military operation center recently. We're now turning to next page, the film orders. The backlog as we released on April 15, reached the total of 19,200,000,000 of firm orders in the March.
This is the highest level since the February. Next page, as far as deliveries in Commercial Aviation, the left side of the sheet, we delivered 14 aircraft, which was slightly below our plan, but we expect to recover going forward in the second quarter. In executive jets on the right side, we had a good first quarter with a total of 20 aircraft delivered with broken by 17 light jets and three large jets. And for this business, we expect a better delivery profile for the year with less seasonality. With that, we are maintaining our guidance figures for 2014 in the range of 92 to 97 E Jets, 25 to 30 as active jets large and 80 to 90 executive light jets.
Next page, in terms of revenue, we as a consequence of the deliveries in the previous slide and also together with the defense revenues, we had a total of $1,200,000,000 in the first quarter, which broken by segment, we have the ARS555 million with the commercial aviation, ARS267 million in executive aviation business and ARS394 million dollars in defense. In defense, we had a strong first quarter, helping increase the typical light first quarter revenues. If we broke percent relatively through these business units, we had 45% of the revenues coming from commercial business, 21% coming from executive business and 32% from defense. We are in this case maintaining and confirming our guidance range projections for the year. Next page, Page nine.
Total revenues in U. S. Dollars and Brazilian reais, both increasing when compared with the first quarter of twenty thirteen, with the reais figures also helped by the exchange rate effect with increased this amount. Next page, as far as G and A expenses, we continue to see solid control of expenses reaching BRL140 million in the first quarter. We had some tailwinds in the first quarter, especially related to exchange rate, but although we don't expect this level to be repeated in the following quarters.
Page 11, next page, as far as EBIT, we reached the total of $92,000,000 in the first quarter with a margin of 7.4%. This result is primarily driven by the high first quarter revenues, coupled with a lower SG and A and research expenses. We are maintaining our guidance unchanged for the year in the range of R540 million dollars to R620 million dollars EBIT and a margin of 9% to 9.5%. Next page in relation to EBITDA. Following the similar pattern that we saw in EBIT figures, we reached a total of BRL151 million in the first quarter with a 12.2% margin.
We are also maintaining our guidance range for 2014. In Page 13, next page, net income. We had a net income of $111,000,000 in the first quarter with 8.9% net margin, reflecting the positive operational performance. An important effect was also the positive deferred income tax resulting from the exchange rate situation where the real had a stronger position against the dollar in this quarter, and that affected the income tax different income tax, which also helped the level of income that we are reporting. Page 14, next page in relation to inventories.
We reached a total of $2,500,000,000 in the March. This figure is in line with the business seasonality and with the previous year end of quarter. Page 15, as far as cash flow, we had an outflow of $4.00 $4,000,000 in the first quarter of twenty fourteen. The majority of $273,000,000 was used in the operation to prepare for the ramp up in revenues and deliveries for the remaining of the year. But we also had some investments in PPE and development, which amounted to the total of $131,000,000 We expect to see a reverse of this pattern more towards the end of the year, reaching our guidance of positive low double digit.
In next page, in relation to investments, we had a total of $39,000,000 investment in the first quarter of twenty fourteen, broken by $9,000,000 in research, 25,000,000 in development and $5,000,000 in CapEx. In general, we expect investments to ramp up throughout the year and meet our guidance figures of $650,000,000 in 2014. Next page, finalizing this presentation in Page 17, we show information related to our capital structure, where we continue to see a comfortable debt profile with five point nine years of average maturity and a total debt of billion, of which only 4% will mature in the next twelve months. In relation to our cash position, we had in the March, the total of R2.27 billion dollars thereby resulting into a net cash position of $53,000,000 With that, we've finalized this presentation. And now with Fred and the team, are ready for the questions.
Thank you.
Our first question comes from the line of Cai von Rumohr with Cowen. Your line is open.
Yes. Thank you and good quarter. So your government sales were particularly strong $394,000,000 I guess your guide is 1.2 to 1.3. Why was it so strong in the quarter given that my understanding is the LAS deliveries only begin about mid year? And what do you look for the rest of the year?
Is that a number that could be conservative?
Okay, Kai. Thank you for the question. Actually, have in this first quarter in defense, we had some activities in terms of revenues more associated with the KC-three 90 program, also with the LAS and SIFFROM together coupled with the satellites. So we had the situation. We don't expect to see this repeating this level for the other quarters.
So maintaining we our guidance range for the defense business, which will reach the levels that we indicated. So it was a positive thing for the quarter, but this will probably adjust throughout the year.
And then following up, you did substantially better than I think most of us expected in terms of G and A, selling and research. Maybe give us some color on where those numbers are expected to be and kind of the pattern of ramp as
you go through the year?
Yes. As we said, we think that the SG and A is something that as we've been saying is a focus that we're putting a lot of control and a lot of monitoring. The first quarter, we had the benefit of the dollar against the real compared to the previous year. This helped the reduction of this expenses and some reduction in some expenses in selling specifically for the quarter. So we understand that this level that we saw last year would be our trend for the year.
Okay. And the last one, could you give us an update on some color on bizjet demand? What you're seeing in the market?
Cai, this is Fred. So it's not much of a big change from our last call. Positive signs in Europe though, which is interesting. We are I mean, we're feeling good as far as maintaining our level of activity. So we are seeing some activity.
Europe I mean, sorry, in The United States that recovery the transfer recovery is there, to be not to make anyone very bullish about it on the segments where we are in. Of course, the upper segments, it's things are going better. But it's so far so good. Middle East reduced demands. China, there is a slowing demand as well.
There is this anti luxury, if you will, sentiment in the Chinese market now. We don't see that as something which will affect the long term prospects of that market, but it is certainly affecting in the short term. So that's a nuance that we're leaving as well. So maybe just one more comment. Brazil, which has been a strong market for us, we are seeing some slowdown, nothing to do with, I think, market itself, but the overall concern about, of course, election coming up.
So there is a natural pause in the campaigns. But having said that, we are still grabbing most of market share in our segments here. So I think that's kind of a big picture.
Thank you very much.
Our next question comes from the line of Chiran Badawala with Scotiabank. Your line is open.
Yes, good morning. I guess maybe just a couple of clarifications. First off, on the SG and A side, I think you mentioned that you want to keep the trend for the year. Do you mean that as sort of an absolute level in dollars? Or do you mean in terms of percentage of revenue?
Tram. Basically, our projection is around $160,000,000 by quarter. That's what we saw mostly last year. And that's what we expect to see, which will be about 11% of the revenues.
Thank you. Perfect. And I guess also just on the defense revenue. So I guess the majority of that in the quarter came from Brazil,
correct?
Correct. Okay. Maybe you can give us some update on the KC-three 90 Fred. How is that progressing still on track I guess for first flight by the end of the year? And maybe discuss as to the next few milestones on that?
Sure, Myles. We are assembling the first prototype. There are two prototypes in the contract. So the deliverables of this development contract are two prototypes and the whole industrial tooling and of course the IP. That's deliverable.
So first airplane being built in Gavion Pesotto as we speak. Things are still pointing out for flights before the end of the year. The classic challenges out there, of course, systems integration, but it's looking there's nothing that tells us today that will prevent us from flying before the end of the year. And of course, in parallel, I think the important milestone for the program this year is to assure the contract for the serialization of the aircraft for the Brazilian Air Force. And from that point on, then we'll be able to start our sales efforts for exports.
So it's going well. We probably will be releasing some pictures of the airplane in final assembly soon, I suppose I'm not sure that's I don't think it's classified. But that's something nice to be seen. It's a big airplane. It's very impressive when you get close to it and see it on the assembly line.
Sounds good. Look forward to the pictures. And I guess maybe just last question Fred on the bizjet side. This quarter it seems like this year I would say you're getting more of improvement earlier on in the year in terms of deliveries. Your deliveries have been more back end loaded for the last few years.
I guess my question is, is it fair to assume that now you're selling more to a backlog as opposed to maybe the last couple of years I guess there was more spot deliveries sort of towards the end of the year. Is that a fair assumption?
It's a fair assumption as far as trends. We're not clearly where we would like to be. This is business jets right specifically. And so yes, we are I would say we are reducing the seasonality effects. But we still I mean, still have some ways to go to have a real stable backlog and not being rushing for this roller coaster every quarter.
But it's the trend is absolutely in that direction, yes.
That's very helpful. Thank you very much.
Our next question comes from the line of Derek Spronck with RBC Capital Markets. Your line is open.
Good morning. Can you comment on any commercial sales campaigns in particular as you head into Farnborough?
Sure. We well, first of all, we do not really target I don't think anybody does that anymore target the air show as kind of a big splash of orders because as soon as we get them we have to announce them. So how are we in general? We are still looking for a book to bill above equal or above one for this year. So last year we had a formidable year in terms of sales.
We do not expect to repeat that year in 2015 in 2014, I'm sorry, 2014. Having said that, as I said, we do expect to sell more than we delivered this year. Overall, activities for both E1 and E2 in Europe, in Asia, maybe a couple of campaigns in Africa as well. Middle East is kind of slow at this stage. Brazil is always it's this regional packages is moving on.
It looks like it's going to go to Congress very soon. So that's something we expect to give us some momentum in the Brazilian market. That's potential that brings some potential not necessarily for this year, but for next year. In The U. S, we believe we won't see much activity as far as options confirmation this year.
It's going to be more concentrated next year. So by the combination of V1 and V2s, we again, we expect to have a book to be above one at least this year.
The thank you. In the delivery cadence for the commercial, was Q1 just a tooling ramp for The U. S. Carrier orders? And should Q2 have the full year run rate in place?
Or will there be a gradual ramp?
I think but my other percent, I think we probably lost one or couple of aircraft in the first quarter. It's pretty much in line with our planning. Again, we're talking about 92 to 97 airplanes in the year. So it's not particularly off the historical average. First quarter is always lower than the other quarters.
We saw fundamentally no big concern there. I think we lost maybe just one maximum to airplanes in this quarter, so which probably has already been delivered in the second quarter. Again, we are confident about the range of our guidance.
Great. And just one question one last question if I could. Can you just comment on the FX rate? And if it were to stay at current levels for the rest of the year?
Is that already is that
taken into consideration with your reaffirming guidance across all your measures?
Yes. Like we said in our last meeting, we used 2.35 as one average for the year. So that's what we considered. So we understand that this could be still in place our expectation for the exchange rate. So there's no reason for us to change it as The of the first first quarter was below that, Just a little bit below that, but that does indicate a short term or a mid term trend as well.
So we think that it's not a moment to review. That's why we're still keeping our projections using the exchange rate that we mentioned.
And would it be fair to say that roughly a 10% FX move would for a full year impact margins by 100 basis points? Is that a good sensitivity to utilize?
Yes, yes. About 80 to 90, close to 100. That's okay.
Okay. Thanks very much.
Our next question comes from the line of Ron Epstein with Bank of America Merrill Lynch. Your line is open.
Good morning. Question for Fred. A question I'm frequently asked by investors looking at Embraer is how should we think about the potential gap or not a gap of deliveries between the E1s and the E2s? So as the E2s roll into service, I guess, what 2018 and beyond and what you have in terms of the order book today, how do you think about filling that?
Ram. Thank you for the question. We I mean, this is certainly a major focus of our company has been for since we launched the Itu family last year. So 2014, as I just a couple of minutes ago, I just mentioned, we feel confident about our guidance. There's always some challenges in sales finance, but as far as backlog, we are pretty good in the picture.
2015 looks good too. 2016 at this time being just being two years away, it's probably as good as it could be. So we start to see, of course, in our skyline, a softer picture more towards second half of twenty sixteen and 2017. So we have plenty of time to take orders and get to fill that to fulfill that skyline. We believe the on top of the individual campaigns of 01/1990, 01/1995 here and there, there's always some action option activity.
We believe that probably next year, we're going to see another round of demand for The U. S. For 175s, which fundamentally from confirmation of existing options, we have a lot of options in our backlog. And there are a lot of 50 seaters, which will retire in that market in next several years. And there are not a lot, but they are starting to have a ramp up of older 70 seaters.
So especially CRJs, came earlier into the market compared to 170. So between the 50 seaters, which will be at the end of their leases and first expiration of lease in the 70 seaters, I mean, there will be a demand for new 76 seaters and we feel pretty well positioned to fill that demand. So, as I said, we were not underestimating the challenge. But I think we are feeling as confident as we could that what we have seen in 2014 and 2015 and starting to see 2016 will extend through and may probably even overlap with the E2 because in 2018, we have the 190 E2 coming to the market. But the 175 E2 will not come into the market until 2020.
So that demand for 76 seats will be fulfilled with existing 175 this enhanced version until 2020. So potentially given some overlap in those last two years of the decade.
Okay. Great. And if I can just one follow on question. The EQ195 is seems like a little bit of a different machine than what you guys currently offer in terms of size, range, fuel burn. In some ways, it really seems like a category killer.
What response have you had from the airlines on that airplane? And I guess specifically what I'm driving at, I mean, how is it positioning against the CS100? And even if you're comfortable talking about, I mean, how what's the feedback been vis a vis the A319 and the $7.30 seven-seven $108,100?
Yes, Ram. It's you're right on. The 195 E2 with the benefit of the bigger engine, the benefit that we do not have today with the existing engine. So it's an engine with a lot of power reserve. So we and of course the benefit of we it's a deep redesign of the family.
It's not just a reengineering. So with those two, let's say, flexibilities, we were able to stretch the airplane quite a bit and so we're increasing the payloads compared to the existing 195% probably more than 10%. And given this airplane with the new wing and new power plant, 190 let's say, existing 190 performance. So we are indeed creating a very viable, very attractive machine for the 120 plus dual class configuration. This airplane as far as dock, the direct operating cost per seat per trip for sure, but even per seat, it's going to be lower cost than anybody else in that size in the market.
So to your question, have the airlines already received that? I think they're starting to. If you look at our order book, both ILFC and Air Costa they have both one hundred ninety and one and ninety five the same quantities, which indicates that yes, we may be creating a little I not say a new segment, but we'll certainly be creating the possibility of a more affordable flight flying on this 120, 130 seat segment. It's been a stretched aircraft. It's going to have very compelling economics compared to the seven-seven, 30 seven-seven to the three nineteen and surely vis a vis the CS200.
Great. Thank you.
Our next question comes from the line of Joe Nadall with JPMorgan. Your line is open.
Thanks. Good morning. First question is on the working capital build. It was I know some of that certainly much of that was in commercial just getting ready for higher deliveries later in the year. Was some of that in defense also?
Most came from the commercial aviation. Okay. But we had also in defense yes, we have some we
have an increase in accounts receivable on top of that. Yes.
So is that an unbilled receivable that's building in defense on the KC-three 90?
No. It's just several programs that the general programs not specifically. There was an increase basically that the increase in the revenues in the first quarter led us to have this increase in accounts receivable. That's basically tied to. But together with the commercial and some in these active divisions, also the buildup of the inventories and the work in process for the coming quarters.
Okay. Okay. And on the SG and A, I obviously heard the explicit guidance of about 160,000,000 per quarter for the rest of the year. Were there any items in Q1 that led it down to 140 or was that just good performance?
No. This is a guidance actually. This is some level that we said should we maintain what we had this the first quarter. Like I said, there's something about some dollar denominated expenses that helped in the first quarter and some specific maybe seasonality of some business that didn't have some expenses, especially commercial expenses that could not repeat going forward. So it was a good result for the first quarter, but we don't expect to see this necessarily repeating in the next quarters.
Okay. And then just one more. Legacy 500, we're getting ready hopefully to go here very shortly. Just your latest update on that certification program and getting ready for first delivery?
Flight campaign pretty much done. We are in the phase of finalizing the reports. There is in parallel, we have the certification of the engine. It's an existing engine, but it has different thrust ratings and different feedbacks and whatever differences there are there. So that's also coming in parallel.
So targeting for mid year as we have been saying. So as far as the physical test of the airplane, we are pretty much done.
Okay. Thank you.
We took we just took our we've been now we have one of the prototypes has a full interior as the first, let's say, commercial specimen will be. And we are already showing the airplane a lot in inertials attracting a lot of attention. So I would expect that our salespeople more towards the end of the year, they really start to build up some momentum in the program.
Very good. Thanks, Fred.
Our next question comes from the line of Noah Pofak with Goldman Sachs. Your line is open.
Hi, good morning, everyone.
Good morning,
Noah. Good afternoon, your time. Fred, I wanted to go back to the broader business jet market question and thinking a little bit less about the actual real demand you saw in the quarter and a little bit more what you're seeing in terms of the leading indicators you care about. And I guess there's been some reason to believe that executive management confidence is increasing if we look at what's happening in the M and A market or with capital spending. So I just
No, sorry. You were cut off by about ten seconds. Could you we just heard into executive management and we lost you.
Okay. Yes. The point I'm trying to make I guess and the question is there's evidence of improving executive management confidence when you look at M and A activity, capital spending, some other items. And so I'm sort of curious just if you can talk about the conversations you're having with your potential corporate customers whether or not they seem like they're feeling more confident and more ready to potentially order aircraft Or if that's all irrelevant because used inventory is still too high?
It's kind of a mixed bag. No, it's see people there's a lot of cash out there. And so people are just some people are just back to normal business changing their airplanes every five years. Some are still reluctant. Many are still saying, well, know what, I can't fly my airplane for another two, three, four, five years.
And in the end, if I sell my airplane used now the inventories are high, so my costs I mean the price I can get for used aircraft is low. So I better just keep flying what I have. So it's you hear just about everything. But I think as a trend, I'm particularly optimistic in The U. S.
I think that The U. S. Market is by far the most mature market. People get it. The society understands business aviation.
So there is much less psychological factors than what you see in China and Brazil and even in Europe to a certain extent. So it's find it hard to give you, let's say, a clear answer because we kind of hear several different kind of conflicting stories. It depends a lot on each individual situation.
Do you have any thoughts on so it sounds like very low prices in the used market still a hurdle, because you can buy less expensive aircraft, but also you're not incentivized to upgrade because of your trade in value. Do you have any thoughts on where used inventory either on an absolute or percentage of the fleet needs to be? And how much better pricing needs to be before those hurdles can be overcome? Or is it pretty difficult to pin that down?
No. We can probably try to give a more precise answer. I would say, it has to be single digits for sure, not what we're seeing these days. Today, I think are what, 1210%, 1211% or something. So it should be certainly on the single digits.
I think historically, I prefer to ask my marketing guys and give you a precise answer later. I would if I just have to make a guess now it would be something like 5%, 6%. Yes,
we are
seeing Luciano just help me with the graph here. So in the good times about 43%, 4% and those are the good years. So now we are much higher now. Am I
reading correctly? Yes, And that specifying here Noah, this is Luciano Palomane. So the numbers that Fred highlighted there are particularly for the relatively young pre owned aircraft that go up
to 10 years of age. But beyond that we do not even count.
Okay. That's helpful. And then just a couple of housekeeping items. Did you go through what the other the negative other expense was? What caused that in the quarter?
Yes.
So we've typically said previously that that line should fluctuate around mid teens. We did have about $13,000,000 of nonrecurring in this line during this quarter that brought it up to an additional about $28,000,000 total, right? And that was primarily related to intercompany transfers and related taxes associated with those movements. So that's why you saw that, let's say, increase in that line for this quarter.
Okay, great. And then on the net interest income or expense, how should we expect that to trend versus the first quarter through the rest of the year?
No, I think that we have we're probably going to see an increase in terms of the expenses going forward in the levels that we saw last year, which is like just a specific moment related to some exchange rate and some specific RVG valuations and portfolio. But basically, this is only for the first quarter. I think that we shouldn't see that I think was better than what we should expect, but without anything that could be increasing too much that we had last year.
So we should look for that to go back to last year's quarterly run rate?
Correct.
Okay. Thanks very much.
Our next question comes from the line of Pete Skibitski with Drexel Hamilton. Your line is open.
Hi, guys.
Can you tell us what on the gross margin decline year over year, can you tell us what the primary driver of that was? Was it commercial mix or was it something else? Was it wage rates across the firm?
Yes. Hi, Pete. Luciano speaking here. So basically, I mean, on the gross margin, had primarily what we already mentioned a little bit of a different mix in commercial aviation more 170, 175 representing a little bit over 60% of the deliveries in commercial. And also on the executive jet side, we had a slightly lower gross margin as well.
So those I would say were probably the main contributors of the slightly lower gross margin for the quarter.
Okay, great. And then would you guys been able to raise EBIT margin guidance had the real not strengthened since year end?
I'm not sure.
I'm sorry Pete, can repeat please?
Sure. I was just wondering had the real not strengthened since year end, do you think you'd be in position to have been able to raise your operating margin guidance for the full year?
No. I mean, we based our planning in exchange rates of 2.35, which is clearly above last year's average. So it comes part of the sustaining for our EBIT guidance is FX around 2.35.
Okay. Okay. I also wanted to ask, I think you mentioned somewhere that wage rates have risen 8% this year. And I just wanted to see I've seen the CELIC rate rise pretty substantially in Brazil. And I'm just wondering if your sense with the CELIC rising so much, do you think wage inflation will maybe come down a bit heading into next year?
No. I think we'll see there an inflationary pressure in Brazil. And we unfortunately have an economy which is still indexed. So there are it's almost like automatic although it's not legally automatic, but in the end it's practically automatic every year. So with inflationary pressures, there will be pressures also for wage increases.
Having said that, I mean, believe that the exchange rate must also reflect that situation. So we see we don't see the real staying where it is today like 2.24. We see it going back to the 2.3%, 2.35%, 2.4% level. So 2.35% average for the year in our opinion it's a conservative or let's say a realistic expectation.
Okay. Just one more margin question. Are you guys able to give us operating margin performance for the segments for the first quarter?
I think we have that in our Yes,
Pete. So for commercial aviation, operating margin was about 6.2%. For BizJets, it was around negative 10.7%. And Defense and Security, it was around 18.7%, op margins.
Okay. And the strong defense performance, was mostly volume related? Or was there any mix issue there?
More volume related, yes. As the other two were volume related on the negative side as well. So we expect commercial to go up and executive jets go significantly up as well.
Okay. Just one last question on platforms. Has the Phenom 100E delivered yet, the upgrade there?
Well, I'm not familiar with that upgrade. 100E? What we have, we have the 300 and we have the 300 special version. Don't think we call it E, which has a different avionics as a Garmin 3,000 avionics, but that's on the 300 only. 100, I don't think we have anything any special version yet.
I'm sorry. Okay. Thanks very much guys.
Nice idea. Who knows? Our
next question comes from the line of Myles Walton with Deutsche Bank. Your line is open.
Thanks. Good morning, Phil.
Hi, Myles.
Hoping you get first Fred, you mentioned the Brazilian regional package moving through Congress. And then I think you also alluded to if it were to go well could be an upper to order activity in 2015. Could you talk a bit about the package and its specifics? And also does it open up new players in the RJ market? Or are these existing players who would just be building out their networks?
Sure, Myles. The package has fundamentally a focus in let me just start by saying about twenty five, thirty years ago Brazil had commercial service to some two fifty airports. That's twenty, twenty five years ago more or less. Now we have just around 150 airports. So we are probably a very few if not the only country in the world who has reduced the capillarity of the commercial aviation network instead of expanding it.
So the airports are there. So it has a lot to do with investing in updating and renewing, refreshing that infrastructure. But also, is some sort of subsidy as far as supporting airlines to fly into those airports. So subsidy in the sense of elimination of tariffs and maybe some subsidy in fuel. Fuel in Brazil is awfully expensive.
So the package is around those that tripods, investment in infrastructure to get the infrastructure in place, so people the airlines can fly into those airports and making it more affordable for the airline and mitigating the risk of the airlines flying to those airports. So how does that relate into the competitive scenario? I don't believe personally, don't believe there will be many startups. I think that's going to it's going to be for example, a good thing for Azul, I think, because they have the largest by far the largest network in Brazil as far as cities. I think they have like 115 cities.
And the second guys, I mean, and 10, although they're bigger, they fly to much less number of cities. So the network is already there. So as we prepare for that. And I think naturally GOL and TEN, we have the opportunity also to diversify their network. So I see more those three airlines strengthening their presence than really attracting new start ups just for regional.
But that's a personal view.
Okay. Okay. And then I guess on Azul, they've made talk about going into the wide body market. As it relates to their network using the 195, I mean, I imagine that's a positive so long as they don't look at Boeing and Airbus as kind of in between sources of load factor driving into those hubs where the widebody is going lead from. Do you have a sense as to Azul's plan in terms of expansion of the 195 portfolio as part of those widebodies?
As we have the same vision about their long haul service. I think that's a plus for Azul for sure and that's a plus for us, not only because Azul will be stronger, but there tends to be more hub feeding service. So that's good for us. So is Azul a potential user for more of our aircraft? I think it is not only E1s, but E2s.
So I was just talking about the 195 E2 with a question that Ron raised. It's a pretty competitive aircraft as far as capacity and costs. And so of course, I cannot I'm not in a position to say Azul will procure this airplane, but we certainly will try hard to make a case. And having they needed more capacity, I mean, in just a couple just three or four years, we'll be able to have an airplane, which is larger and deliver very appealing economics.
Okay. Yes. So just looking
at their backlog, I think the last one that they have on order to you is delivered out in 2015. So they'd probably be making a fleeting decision in the relatively short term.
It may be. It may be. I think 2015 is correct, but it may be.
And then one last one clarification.
I just want to make sure I heard it right. You said the EBIT margins in Defense were 18.7%, Luciano. And what's the guidance for the full year EBIT margins in Defense?
So the EBIT margins were 18.7, but we don't have guidance specifically by segment Miles. So only the consolidated 9% to 9.5% EBIT margin guidance. Is that
the highest the margin has ever been in the quarter in that segment?
Probably. Probably, yes. It's positive. The volume was extremely high.
Okay. All right. Great. Thanks guys.
Thank you.
Our next question comes from the line of Stephen Trent with Citi. Your line is open.
Yes. Good day gentlemen and thanks very much for taking my questions. Can you hear me okay?
Yes, Steve. How are you?
Great. Very well, Freddie. Thank you. Just a few quick questions for me if I may. When you think about upcoming elections in Brazil this year, do you have any color as to the policy positions or at least broad policy positions of the opposition candidates with respect to defense spending?
We really don't Steve specifically. We so far there are no official candidates. We have like three candidates. We know pretty much who they will be, but they are not official candidates yet. They have to be confirmed by their parties.
I think the only thing I probably could comment and should comment to your question is that there is a I think a growing consensus about the need for fiscal discipline. How does that affect defense in particular, it's hard to say. So there are two conflicting movements or two conflicting forces, one being of course the need to control budgets expenses. And the other one is really to keep refleeting the armored forces in Brazil because for decades they were not the investment was very low. So the need is really there.
If you believe if one believes that a contract like Brazil needs some defense capability, there is not much room to not to invest, if you know what I mean. So I think throughout the year, Stephen, we have probably after July, after this World Cup and when the campaigns really start, we have a much better color to share with you.
Okay. Very helpful Fred. And just one other quick question. When we think about the E2 and the time line with respect to entry into service, I mean certainly in the industry, it's not like there's just two or three suppliers to these programs. There are many suppliers and everybody has to be on time.
Do you have any takeaways or any view with respect to the extent that you're taking certain actions to maybe help ensure a timely entry into service of the E2, whereas it looks like all of your competitors have had at least some issues getting their planes into service in a timely manner?
Steven, we new I mean new airplane development, it's really tricky as everybody has suffered and demonstrated. So in the Lagos 500, we had our share of issues as certainly know, especially when you go to extremely integrated aircraft, fly by wire, the certification of software many times is the thing that holds the process. So we have not only the experience in the legacy, we have the experience in legacy 500, but also we have the experience in the KC-three 90, which is we hope to fly before the end of the year. When we combine those two experiences with the fact that the E2, the only large system that is totally new to the airplane are the engines and the engines are way they're very well in as far as their certification process. They will be available actually ahead of the airplane.
The critical path today is much more in Embraer's hands. So it's probably on the wing. It's a new wings, brand new wing. Actually, it's a brand new pair of wings, one for the one hundred seventy five and one for both the hundred ninety and one hundred ninety five. So we I mean, we are on the safe side as far as suppliers, because the only thing really new is the are the engines.
And the big challenge that we have as far as critical path, as far as timing, it's under our control. It's our wing, our design, our fabrication. So we have a much, much better control of that. So it's a big development. It's not just re engineering, but I have all the reasons to believe that and so far the program is actually a little bit ahead of the early stages.
So, we should be really able to certify the 01/1992 in the first half of twenty eighteen. We don't see any major roadblocks to that.
Okay. This
concludes today's question and answer session. I would like to invite Mr. Federico Fiorano to proceed with his closing statements. Please go ahead sir.
Well, thank you for holding on with us and look forward to talking to you three months from now. All the best and happy Labor Day in Brazil. I'm not sure it's not only in Brazil, in The U. S. And in Europe as well.
Thank you.
That does conclude Embraer's audio conference for today. Thank you very much for your participation.