Embraer Secures Contract to Deliver 8 E190-E2 Jets

Embraer S.A. ERJ recently clinched a contract from Virgin Australia for delivering eight of its E190-E2 small narrowbody aircraft. Deliveries are expected to start in the second half of 2025.

The steady stream of orders for Embraer's E190-E2 aircraft underscores the jet maker's ability to meet the growing jet demand from airlines.

Significance of Embraer's E190-E2 Jets

The E190-E2 is considered to be the most fuel-efficient single-aisle aircraft, with the capacity to reduce emissions by about 30% compared to the Fokker F100 aircraft fleet, which is currently used by Virgin Australia. Moreover, with this aircraft being certified to fly with blends of up to 50% sustainable aviation fuel (SAF), E190-E2 is a desirable choice for airlines looking for jets with low carbon emissions and fuel burn. It also offers lower noise, thereby offering better comfort to its passengers.

Due to such remarkable features, Embraer must have been witnessing a steady inflow of orders for this jet model. The recent order placed by Virgin Australia is a bright example of that.

Opportunities Ahead

The demand for global air travel has been on a steady rally recently and is expected to do so in the near future as well. Per the report released by the International Air Transport Association ("IATA") in June 2024, total air traffic in June 2024 (measured in revenue passenger kilometers or RPKs) increased 9.1% compared to June 2023.

IATA expects world passengers to increase by 3.8% per year, on average, resulting in more than 4 billion additional passenger journeys in 2043 compared to 2023. Due to such a solid passenger traffic projection, total RPKs are expected to increase by 11.6% in 2024, thereby paving the way for spurring demand for fuel-efficient jets like those manufactured by Embraer.

Embraer's Commercial Aviation segment backlog at the end of the second quarter of 2024 was $11.3 billion, which went up a solid 170% sequentially, marking the biggest increase in this unit. Such solid backlog strength of the company should enable it to eventually recognize significant revenue growth once the deliveries are made.

Peer Prospects

Other companies that stand to benefit from the growing passenger traffic are Airbus SE EADSY, Textron TXT and Boeing BA.

Airbus is one of the forerunners in the commercial aircraft space. Its order backlog amounted to 8,585 commercial aircraft at the end of June 2024, while the company delivered 323 commercial jets in the first half of 2024.

Airbus' long-term (three to five years) earnings growth rate is pegged at 13.9%. The Zacks Consensus Estimate for EADSY's 2024 sales implies an improvement of 7.2% from the prior-year figure.

Boeing has been a premier manufacturer of commercial jetliners for decades. Its Commercial Airplanes segment delivered 92 airplanes in the second quarter of 2024. This unit has a backlog of $437 billion during the same period, up from $363 billion recorded at the end of the second quarter of 2023.

Boeing's long-term earnings growth rate stands at 21.3%. BA shares have rallied 37% in the past year.

Textron's unit, Textron Aviation, is a well-known designer of business jet brands like Cessna and Beechcraft. The segment's order backlog at the end of the second quarter of 2024 totaled $7.5 billion. The unit delivered 42 jets during the same period.

Textron boasts a long-term earnings growth rate of 10.1%. The Zacks Consensus Estimate for TXT's 2024 sales implies an improvement of 5.6% from the prior-year figure.

Price Movement

In the past three months, shares of Embraer have risen 11.5% compared with the industry's growth of 2.3%.

Image Source: Zacks Investment Research

Zacks Rank

Embraer currently carries a Zacks Rank #5 (Strong Sell).

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