REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class: |
Trading Symbol |
Name of each exchange on which registered | ||
☒ | Accelerated Filer | ☐ | Non-accelerated filer | ☐ | ||||||
Emerging growth company |
U.S. GAAP ☐ | |
☒ | Other ☐ | |||||
issued by the International Accounting Standards Board |
TABLE OF CONTENTS
i
ii
INTRODUCTION
In this annual report, “Embraer,” “we,” “us,” “our” or the “Company” refer to Embraer S.A. and its consolidated subsidiaries. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “US$,” “dollars” or “U.S. dollars” are to United States dollars. All references to the “Brazilian government” are to the federal government of Brazil.
Presentation of Financial and Other Data
Financial Data
Our audited consolidated financial statements as of December 31, 2022 and 2021 and for the three years ended December 31, 2022, or 2022 audited consolidated financial statements, are included in this annual report.
Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB.
After analyzing our operations and businesses on a standalone basis with regard to the applicability of International Accounting Standards, or IAS 21 – The Effects of Changes in Foreign Exchange Rates, particularly in relation to the factors involved in determining our functional currency, management concluded that our functional currency is the U.S. dollar. This conclusion was based on an analysis of the following factors, as set forth in IAS 21: (i) the currency that most influences sale prices of goods and services; (ii) the currency of the country whose competitive forces and regulations most determine the sale prices of our goods and services; (iii) the currency that most influences the costs of providing goods and services; and (iv) the currency in which the funds for financial operations are largely obtained. Our audited consolidated financial statements included elsewhere in this annual report are presented in U.S. dollars, which is our presentation currency.
For certain purposes, including providing reports to our Brazilian shareholders, filing financial statements with the Comissão de Valores Mobiliários (Brazilian securities commission), or CVM, and determining dividend payments and other distributions and tax liabilities in Brazil, we have prepared, and will continue to be required to prepare, financial statements in accordance with Law No. 6,404 of December 15, 1976, as amended, or the Brazilian Corporate Law.
Other Data and Backlog
In this annual report:
• | some of the financial data reflects the effect of rounding; |
• | aircraft ranges are indicated in nautical miles; |
• | one nautical mile is equal to approximately 1.15 ordinary or “statute” miles, or approximately 1.85 kilometers; |
• | aircraft speeds are indicated in nautical miles per hour, or knots, or in Mach, which is a measure of the speed of sound; |
• | “ANAC” means Agência Nacional de Aviação Civil, the Brazilian aviation regulatory authority; |
• | “EASA” means European Union Aviation Safety Agency; |
• | “FAA” means the Federal Aviation Administration; |
• | the term “eVTOL” means electric vertical takeoff and landing aircraft; |
1
• | the term “regional jet” refers to commercial jet aircraft in the 35-120 seat-segment; |
• | the term “commercial aircraft” as it applies to Embraer, refers to our aircraft in the up to 150 seat-segment, which includes our regional jets; |
• | the term “EMBRAER 170/190 jet family” refers to aircraft models EMBRAER 170 (E170), EMBRAER 175 (E175), EMBRAER 190 (E190) and EMBRAER 195 (E195); |
• | the term “E-Jets E2 family of jets” refers to aircraft models E175-E2, E190-E2 and E195-E2; |
• | the terms “entry-level jet” and “light jet” refer to executive jets that usually carry from four to eight passengers and up to nine passengers, respectively, that are designed for short take-off distances; |
• | the term “medium cabin jet” refers to executive jets that usually carry up to 12 passengers and can cover distances ranging from 1,700 to 3,900 nautical miles; |
• | the term “large jet” refers to executive jets that usually carry up to 19 passengers and can cover distances greater than 4,000 nautical miles; |
• | the term “ultra-large jet” refers to executive jets that usually have longer ranges and over-sized cabin spaces and can carry up to 19 passengers; |
• | the term “executive jets,” as it applies to us, refers to our aircraft sold to companies, including fractional ownership companies, charter companies and air-taxi companies and high-net-worth individuals; |
• | the term “Boeing Transaction” refers to the Master Transaction Agreement (the “MTA” or “Master Transaction Agreement”) entered into by us on January 24, 2019, collectively with certain other transaction documents with Boeing and certain subsidiaries of Embraer or Boeing, which were wrongfully terminated by Boeing, pursuant to which a subsidiary of Boeing would acquire a controlling stake in Embraer’s Commercial Aviation segment and Embraer, or a subsidiary of Embraer, and Boeing, or a subsidiary of Boeing, would form a joint venture for the promotion and development of new markets and applications for the C-390 Millennium multi-mission transport aircraft; and |
• | the term “Business Combination” refers to the business combination agreement entered into by Eve UAM, LLC and Zanite Acquisition Corp. on December 21, 2021, which was completed on May 9, 2022. |
We calculate our backlog as the sum of the contract values of all firm orders (i) for any aircraft that have not yet been delivered, (ii) for services and support contracts for all business segments, including repair services and spare parts contracts for a period of more than one year, and (iii) for services and technologies contracted and not yet performed in our Defense & Security segment. A firm order is a firm commitment from a customer, represented by a signed contract. Options to acquire aircraft are not considered as part of our backlog.
Special Note Regarding Forward-Looking Statements
This annual report includes forward-looking statements, within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, principally in Items 3 through 5 and Item 11 of this annual report. We have based these forward-looking statements largely on our current expectations and projections about future events and industry and financial trends affecting our business. 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 our other markets; |
2
• | political, economic or financial instability, as well as geopolitical instability abroad, including in relation to the United States or the Russian invasion of Ukraine and related developments and effects; |
• | changes in competitive conditions and in the general level of demand for our products; |
• | management’s expectations and estimates concerning our future financial performance, financing plans and programs, and the effects of competition; |
• | the effects of customers canceling, modifying or rescheduling orders; |
• | the effect on our revenues of changing priorities or reductions in the Brazilian government or international government defense budgets; |
• | our level of indebtedness; |
• | our capital expenditure plans; |
• | inflation and fluctuations in exchange rates; |
• | the impact of volatile fuel prices and the airline industry’s response; |
• | our ability to develop and deliver our products on a timely basis; |
• | availability of sales financing for our existing and potential customers; |
• | existing and future governmental regulations, including economic policies of the Brazilian government; |
• | our relationship with our workforce; |
• | the outbreak of communicable diseases in Brazil and other countries; and |
• | other risk factors, including those set forth under “Item 3. Key Information—D. Risk Factors.” |
The words “believe,” “may,” “will,” “forecast,” “estimate,” “plan,” “continue,” “anticipate,” “intend,” “expect” and similar words herein are intended to identify forward-looking statements. We undertake 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 in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements. As a result of various factors, including those risks described in “Item 3. Key Information—D. Risk Factors,” undue reliance should not be placed on these forward-looking statements.
Part I
Item 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
Item 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
3
Item 3. | KEY INFORMATION |
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Business Operations and Contracts
Our aircraft sales are subject to cancellation and rescheduled delivery provisions that may reduce our future income, profitability, backlog and cash flow.
A portion of our aircraft firm orders is subject to significant contingencies before delivery. Prior to delivery, some of our purchase contracts may be terminated, or all or a portion of a particular firm order may be canceled, for different reasons, including (i) extended delays in delivering aircraft or failure to obtain certification of the aircraft or otherwise meet performance milestones and other requirements, (ii) the failure of a customer to honor its aircraft purchases or (iii) production rate shortfalls.
Our customers may also reschedule deliveries or cancel orders, particularly during an economic downturn. In 2022, we had income of US$17.8 million related to contractual fines paid by customers due to contract cancellations compared to contractual fine income of US$7.1 million in 2021 and US$15.1 million in 2020. Material cancellations, delays or decreases in the number of aircraft delivered in any year would reduce our sales and revenue, and, consequently, our profitability, cash flow and backlog.
We may be required to refund cash contributions in connection with the production or development of our aircraft if certain milestones for our aircraft are not reached.
We have arrangements with our risk-sharing partners, pursuant to which they have contributed to us, in cash over the years, a total of US$1,369.5 million since the beginning of the development of the EMBRAER 170/190, Phenom 100/300, Legacy 450/500 jet families and the E2 jet family through December 31, 2022. Cash contributions would have to be refunded by us to the risk-sharing partners to the extent that we had failed to fulfill certain agreed-upon milestones. In 2022, we met all the required milestones, and as a result, the full amount of the cash contributions was nonrefundable.
Although, currently, no cash contributions from our risk-sharing partners are refundable, we may enter into similar arrangements, and if we are unable to meet certain milestones agreed upon with our risk-sharing partners, we may be required to refund cash contributions for which we have not established provisions.
We work with a limited number of key suppliers.
We do not manufacture all of the parts and components used in the production of our aircraft. As of December 31, 2022, 74.9% of our consolidated production costs in our Commercial Aviation, Executive Aviation and Defense & Security segments consisted of materials and equipment purchased from our risk-sharing partners and other major suppliers. Risk-sharing arrangements are those in which suppliers are responsible for the design, development and manufacture of major components or systems of our aircraft. In some cases, the aircraft are designed specifically to accommodate a particular component, which cannot be substituted by another manufacturer without significant investments. In addition, there exist only a limited number of suppliers of certain key components of aircraft globally. We work closely with our main suppliers in order to mitigate any potential supply chain risk, but we cannot assure you that these risks, which could negatively and adversely affect our operating and financial performance, will not materialize.
4
In addition, as a result of post-pandemic economic recovery which resulted in a global increase in demand, our suppliers may not have the ability to fully meet such increasing demands of their customers, including us, especially because of the reductions in workforce and other measures taken in response to the pandemic. Therefore, we cannot assure you that we will not be adversely affected by this change in the global supply-chain dynamics, which is still affecting the industry world-widely.
Any accidents or catastrophic events involving our aircraft could adversely affect us.
We believe that our reputation and the safety record of our aircraft are important selling points for our products. However, the safe operation of our aircraft depends to a significant degree on a number of factors largely outside our control, including our customers’ proper maintenance and repair of our aircraft and pilot skill. The occurrence of one or more accidents or catastrophic events involving one of our aircraft could adversely affect our reputation and future sales, as well as the market price of our common shares and the ADSs.
Any decrease in Brazilian government-sponsored customer financing or increases in government-sponsored financing that benefits our competitors, may decrease the competitiveness of our aircraft.
Traditionally, aircraft original equipment manufacturers, or OEMs, from time to time, have received support from governments through governmental export credit agencies, or ECAs, in order to offer competitive financing conditions to their customers, especially in periods of credit tightening from the traditional lending market.
Official government support may constitute unofficial subsidies causing market distortions, which may rise to disputes among governments at the World Trade Organization, or WTO. Since 2007, an agreement known as the Aircraft Sector Understanding, or ASU, developed by the Organization for Economic Co-operation and Development, or OECD, has provided guidelines for the predictable, consistent and transparent use of government-supported export financing for the sale or lease of civil aircraft, in order to establish a “level-playing field.” ECAs from signatory countries are required to offer terms and conditions no more favorable than those contained in the ASU’s base financial agreement when financing sales of aircraft that compete with those produced by the OEMs of their respective countries. The effect of the agreement is to encourage aircraft purchasers to focus on the price and quality of aircraft products offered by OEMs rather than on the financial packages offered by their respective governments.
The Brazilian ECA, Brazilian Social and Economic Development Bank (Banco Nacional de Desenvolvimento Econômico e Social), or BNDES, together with the Brazilian National Treasury Export Guarantee Fund, offer financing and export credit insurance to our customers under terms and conditions required by the ASU. Any reduction or restriction to the Brazilian export financing program, and any increase in our customers’ financing costs for participation in this program, above those provided in the ASU’s base financial agreement, may cause the cost-competitiveness of our aircraft to decline. Other external factors may also impact our competitiveness in the market, including, but not limited to, aircraft OEMs from countries which are not signatories to the ASU agreement offering attractive financing packages, or any new government subsidies supporting any of our major competitors.
From 2005, when we first delivered EMBRAER 170/190 jet family, through 2022, 29% of our Commercial Aviation deliveries was subject to official export credits. In 2022 and 2021, 26% and 38%, respectively, of our Commercial Aviation deliveries were supported by the Brazilian export financing program. We cannot assure you that the Brazilian government, for policy reasons or otherwise, will not reduce or discontinue this type of funding for the financing of our aircraft or that other sources of funding will be available to our customers. The loss or significant reduction of funds available to our customers, without an adequate substitute, could lead to a reduction in sales of our aircraft or to an increase of eventual aircraft financing arrangements.
5
Industry and Competition
A downturn in our key markets may reduce our sales and revenue, and, consequently, our profitability.
A substantial portion of our results are comprised of sales of aircraft, which have historically been cyclical due to a variety of factors that are both external and internal to the air travel industry, including general economic conditions, and the outbreak of communicable diseases, which we cannot fully foresee as of the date of this Annual Report.
Economic downturns in our industry, such as the one caused by the COVID-19 pandemic, may reduce air travel demand and corporate and personal spending, and investments by governments in new assets, which may negatively impact our Commercial Aviation, Executive Aviation, Defense & Security and Services & Support segments. These downturns have led in the past and may also lead in the future, to a decrease in the volume of financing available to our customers for aircraft purchases, particularly in the aforementioned segments. A continued downturn in general economic conditions could result in further reductions in air travel and decreased orders for our aircraft. Our customers could also continue to defer or to cancel their purchases of our aircraft. We cannot predict the magnitude or duration of the impact that the events could not only have on the air transport industry as a whole, but also on our business in particular.
We depend on key customers.
In our Commercial Aviation segment, as of December 31, 2022, 88.9% of our firm orders in backlog for the current EMBRAER 170/190 jet family were from Republic Airlines and Horizon Air / Alaska. Our E-Jets E2 family backlog mainly comprises orders from the companies Azul, AerCap, AirCastle, AirPeace, Porter, and Azorra, which represent 83.1% of our E-Jets E2 family orders. We believe we will continue to depend on a select number of key customers, and the loss of or difficulty in maintaining the relationship with any one of them would significantly reduce our sales and market share.
In the Executive Aviation segment, we have been increasingly relying on individual orders as the share of fleet orders in the backlog has been diminishing. Despite the fact that we occasionally sell Praetors and Phenoms to large fractional operators, we believe that fleet renewal demand will occur at a constant and moderate rate over a longer period as the current operator’s fleet ages.
In our Defense & Security segment, the Brazilian government is our largest customer of defense products. Revenue from sales to the Brazilian government accounted for 42.5% of the segment revenue for the year ended December 31, 2022. We cannot assure you that the Brazilian government will continue to acquire defense products and services from us in the future at the same rate or at the same level. For instance, in November 2021, the Brazilian Air Force decided to unilaterally reduce the total value of their KC-390 Millennium aircraft agreement with us, which caused a reduction in our backlog and a decrease in revenue. In February 2022, we and the Brazilian Air Force engaged in negotiations, which resulted, among other matters, in the reduction of the total number of KC-390 Millennium aircraft to be delivered under the terms of the agreement from 28 to 22. In October 2022, we and the Brazilian government engaged in further negotiations which resulted, among other matters, in the reduction of the total number of KC-390 Millennium aircraft to be delivered under the terms of the agreements from 22 to 19, with no possibility of unilateral reductions.
We cannot assure you that the Brazilian government will not take similar actions in the future. For further information, see Note 1.1.1 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
We may face a number of challenges resulting from the development of new products and the possible pursuit of strategic opportunities and transactions.
We cannot assure you that our products will be accepted by our customers and the market, and if any of our new products do not meet customer expectations or market demand, our business would be adversely affected. In addition, as we continue to develop new products, we may need to reallocate existing resources and coordinate with new suppliers and risk-sharing partners. Finally, cost overruns and delays in the development and delivery of new products would adversely affect us.
6
We may pursue strategic opportunities and transactions, just as we have in the past, including joint ventures, partnerships, acquisitions or divestitures. We may face a number of challenges, including difficulties in identifying appropriate partners, assimilating with or adjusting to our partners’ or targets’ operations and personnel, maintaining internal standards and controls, as well as the diversion of our management’s focus from our ongoing business.
For instance, in 2021, we, through our subsidiary Eve UAM, LLC, or EVE, entered into a business combination agreement with Zanite Acquisition Corp., or Zanite, to further develop EVE’s urban air mobility (“UAM”) solution, through design and production of eVTOL, service and support, fleet operations and urban air traffic management. The business combination was completed in May 2022.The expected results from this business combination are subject to risks, such as the establishment of the UAM market, the adoption by consumers of an entirely new form of mobility offered by eVTOL aircraft and the UAM market, possible underperformance of the UAM solutions developed by Eve Holding, including the eVTOL aircraft, among others. We cannot assure you that our long-term estimates with respect to the prospects, operations, growth potential, integration and other factors related to this business combination, as well as on the process of integration of the acquired assets, will materialize.
We cannot assure you that we will be able to meet challenges related to strategic opportunities and transactions. Accordingly, cannot assure you that our business or the trading price of our common shares or ADSs. will not face disruptions as a result of future opportunities or transactions or the markets’ perception thereof.
We face significant international competition, which may adversely affect us.
The worldwide commercial aircraft manufacturing industry is highly competitive. Along with other large international companies, we are one of the world’s leading manufacturers of commercial aircraft. Although we have attained a significant market share for our commercial aircraft products, we cannot assure you that we will be able to maintain it. In order to remain competitive in the commercial aircraft manufacturing market in the long-term, we must continue to make technological, efficiency and performance enhancements to our aircraft.
As a relatively new entrant to the executive jets market, we face significant competition from companies with longer operating histories and established reputations in the industry. Some of our competitors in the executive jets market have a longer track record and a more established customer base. In addition, the level of pre-owned aircraft for sale in the market may continue to pressure the demand for new aircraft. This may impact the value of the pre-owned aircraft in our portfolio, despite a recent decrease in the level of pre-owned aircraft for sale in the market. We cannot assure you that we will increase our market share in the executive aviation market, that we will not experience a reduction in our current market share of this business segment, especially taking into account competitors’ growth and investments and possible limitations in our supply chain capacity.
Protectionist measures adopted by the governments of specific countries could adversely affect us. Our production is spread globally, with parts manufactured in one or more countries and assembled in another, and as a result any limitations to trade, including quotas, tariffs, subsidies or local content requirements, may increase our production costs and affect our capacity to compete in equal terms in the market for our products.
In addition, geopolitical factors also impact the defense and security industry in general, as sovereign countries have discretion on how, when and how much to invest in military equipment. Accordingly, not always the best technical and commercial solutions are chosen by these sovereign countries, due to the many geopolitical factors involved.
7
Moreover, the defense and security industry is subject to trade compliance requirements, as well as export control rules and regulations. Our defense and security products are mainly affected by North American and European rules and regulations on trade compliance and export controls. Accordingly, if any of these governments, or the governments of the countries where we have operations, decide to impose restrictions on trade and export activities, we may be unable to sell or deliver aircraft to some countries for a period of time, which may adversely affect our results of operation and financial condition.
Regulatory, Compliance and Legal
Legal proceedings pertaining to the now terminated strategic partnership with Boeing, including arbitration proceedings related to Boeing’s termination of and failure to close the MTA and/or the Contribution Agreement, may adversely impact our business, financial condition and results of operations.
We have incurred and continue to incur additional costs in connection with the prosecution, defense or settlement of the currently pending and any future legal proceedings relating to the Boeing Transaction and/or Boeing’s termination of and failure to close the Boeing Transaction. Such legal proceedings include, among other matters, the ongoing arbitration proceedings between Embraer and Boeing that have commenced in connection with the wrongful termination of the MTA and/or the Contribution Agreement by Boeing. Both Embraer and Boeing have commenced arbitrations in connection with the termination. Such legal proceedings may also include litigation brought by our stockholders and holders of our ADRs related to the Boeing Transaction and/or Boeing’s termination of, and failure to consummate the transactions contemplated by, the MTA and the Contribution Agreement. We continue to strongly believe that Boeing wrongfully terminated the MTA and the Contribution Agreement, that Boeing was under an obligation to continue to comply with the terms of the MTA and the Contribution Agreement, that Embraer was in full compliance with its obligations under the MTA and the Contribution Agreement and that our pending arbitration proceedings against Boeing and its affiliates are a valid enforcement of our rights under the MTA and the Contribution Agreement.
We cannot predict the outcome of any such legal proceedings. Such legal proceedings may also create a distraction for our management team and board of directors and require time and attention. In the case of an adverse determination in the arbitration proceedings, we may not recover any damages from Boeing and we may be required to pay significant monetary damages to Boeing. In addition, even if we ultimately succeed in such legal proceedings, there may be negative publicity attached to such legal proceedings, which may materially and adversely affect our reputation and brand names. As a result, any legal proceedings relating to the Boeing Transaction or Boeing’s termination of and failure to close the Boeing Transaction could, among other things, adversely affect our business, financial condition and results of operations.
Intellectual property violations may adversely affect us.
We rely on patent, copyright, trademark and trade secret laws, and agreements with our employees, customers, suppliers and other parties, to establish and maintain our intellectual property rights in technology and products used in our operations. Despite these efforts to protect our intellectual property rights, any of our direct or indirect intellectual property rights could be challenged, invalidated or circumvented. In addition, although we believe that we lawfully comply with the intellectual property rights granted to others, we may be accused of infringement on occasion and could have claims asserted against us in the future. These claims could harm our reputation, lead to fines and penalties and prevent us from offering certain products or services. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, hurt our reputation and/or require us to enter into licensing arrangements. We may not be able to enter into these licensing arrangements on acceptable terms. If any infringement brought against us is successful, an injunction may also be ordered against us to stop infringing the alleged rights, which could adversely affect us, our research and/or production.
8
We benefit from certain tax and other government-granted benefits and the suspension, cancellation or non-renewal of those benefits would have a material adverse effect on us.
Similarly to other Brazilian companies across multiple industries, we receive certain tax and other government-granted benefits, including incentives related to our export and research and development activities. To take advantage of the tax benefits, we must meet certain requirements, such as making investments in research and development, record taxable profits, among others. For additional information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Tax Incentives.”
Moreover, these incentives may be cancelled or suspended by the Brazilian government at any time without prior notice, and the maintenance of such incentive plans by the Brazilian government depends on factors we cannot control or predict. We cannot assure you that these incentives will be maintained or renewed or that we will be able to obtain new incentives.
We are subject to stringent certification and regulatory requirements, which may adversely affect us.
Our civil aviation products are subject to regulation in Brazil and in each jurisdiction where our customers are located. The aviation authority in Brazil, known as the National Civil Aviation Agency (Agência Nacional de Aviação Civil, or ANAC), or the Brazilian Aviation Authority, as well as authorities in other countries in which our customers are located, most notably the FAA and the European Aviation Safety Agency, or the EASA, must certify our civil aviation products before we can deliver them to our customers. We cannot assure you that we will be able to obtain certification of our aircraft on a timely basis or at all. In addition, complying with the requirements of regulatory authorities can be both expensive and time-consuming. If we fail to obtain a required certification from an aviation authority for any of our aircraft, that aviation authority can prohibit the registration of that aircraft within its jurisdiction until certification has been obtained. Changes in government regulations and certification procedures could also delay our start of production as well as entry of a new product into a new market. Despite our continuous efforts to strictly observe and comply with all aviation certification and other regulatory requirements, we cannot predict how future laws or changes in the interpretation, administration or enforcement of those laws will affect us. We may be required to incur significantly more costs to comply with these laws and/or to respond to these changes.
Internal Controls
We have identified material weaknesses in our internal controls over financial reporting. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and our reputation.
As part of management’s assessment of its internal controls over financial reporting for the fiscal year ending December 31, 2022, management identified material weaknesses as defined under the Exchange Act and by the U.S. Public Company Accounting Oversight Board, or PCAOB, in our internal controls over financial reporting, as a result of the material weaknesses identified at the consolidated financial statements of EVE, one of our subsidiaries. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual financial statements will not be prevented or detected on a timely basis. The material weaknesses identified relate specifically to sufficiency of personnel with appropriate qualifications, experience and training related to certain complex accounting matters.
While we have remediated these material weaknesses, we cannot assure you that our subsidiaries will not identify significant deficiencies or material weaknesses in their internal controls nor that there will not be material weaknesses or significant deficiencies in our internal controls over financial reporting in the future. Our failure to maintain internal controls over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. In addition, we may not be able to prevent or detect a material misstatement in our financial statements on a timely basis or at all. Such misstatements could result in a future restatement of our financial statements, could cause us to fail to meet our reporting obligations or material adverse effect on our business financial condition, and results of operations.
9
The material weaknesses did not result in a restatement of our prior year financial statements. For more information, see “Item 15. Controls and Procedures.”
Labor and Workforce
We may suffer from a lack of qualified personnel.
From time to time, there is significant competition within the aviation industry for skilled personnel in general and engineers in particular. To the extent this competition re-emerges, we may be unable to recruit and retain the necessary number of highly skilled engineers and other personnel we require. Failure to coordinate our resources in a timely manner or to attract and retain skilled personnel could slow down our development efforts and cause delays in production and deliveries of our aircraft, which would adversely affect us.
Scope clause restrictions in airline pilot contracts may limit demand for commercial aircraft in the U.S. market.
A key limiting factor in demand for regional jets is the existence of scope clauses contained in airline pilot contracts. These scope clauses, which are more prevalent in North America, but also exist in other important regions, including Europe, are negotiated between the airlines and the pilot unions, usually every three years, for purposes of imposing restrictions relating to the (i) number of aircraft that a regional carrier may operate; (ii) number of seats in an aircraft that a regional carrier may operate; and (iii) the weight of the aircraft that a particular regional carrier may operate. The most recent rounds of negotiations between the major carriers in the United States were concluded in 2022 with no significant changes. As a result, our opportunities for near-term growth in the U.S. regional jets market in the 76-seat jet category may be limited. In this context and considering that the United States is the most important market for the E175 aircraft, on February 18, 2022, we announced a three-year pause on the development of the E175-E2 jet which is expected to entry into service between 2027 and 2028. We cannot assure you that current restrictions will be reduced, or that they will not be expanded, including by amending these scope clauses to cover larger-sized commercial aircraft.
The supply of pilots to the airline industry may be limited.
U.S. Federal Aviation Administration, or FAA, regulations may negatively impact the supply of qualified pilot candidates eligible to be hired in the airline industry. A first officer in U.S. domestic operations must hold an airline transport pilot certificate and an aircraft type rating to fly the aircraft. An airline transport pilot certificate requires that a pilot be 23 years of age and have 1,500 hours total time as a pilot. Due to these requirements, there may be a growing scarcity of new entrant pilots who meet the experience qualifications, mainly affecting regional carriers which are the usual entry airlines for new pilots (major airlines are expected to hire many of their experienced pilots).
In order to mitigate this issue, certain airlines, for example American Airlines, Jet Blue, and United Airlines, especially in the United States, have adopted internal measures, including but not limited to creating professional pilot programs and providing financing alternatives. However, any inability to recruit, train and retain qualified pilots may materially affect our customers’ operations.
As a result of the COVID-19 pandemic, many professional pilots were laid-off and may choose to pursue another career. Additionally, the uncertainty related to the future development of the aviation industry, may decrease newcomers’ interest for the profession.
10
Cybersecurity
Failure to adequately protect against risks relating to cybersecurity could materially and adversely affect us.
We, like all business organizations in the digital world, are subject to a broad range of cyber threats, with varying levels of sophistication. These cyber threats are related to the confidentiality, availability and integrity of our systems and data, including our customers’ confidential, classified or personal information. In addition, because we have access to certain information technology systems of some of our customers, any successful cyberattacks on our systems may tamper with or expose our customers’ systems and their data.
We maintain extensive technical security controls, policy enforcement mechanisms, monitoring systems and management oversight in order to address these threats. While these measures are designed to prevent, detect and respond to unauthorized activity in our systems, certain types of threats, including cyber-attacks, could materially and adversely affect our business and reputation. A successful cyberattack may result in unavailability of our services, leak or compromise of the integrity of information and could give rise to the loss of significant amounts of client data, other sensitive information and loss of funds as well as damage to our reputation, directly affecting our clients and business partners.
Furthermore, some of our business partners, such as our suppliers, have access to some limited confidential and strategic information regarding our projects and engineering data. As many of these suppliers face similar security threats, any attacks on their systems could result in unauthorized access to our systems or data.
For instance, on November 24, 2020, we suffered a cybersecurity incident in our IT systems, which was later identified as a ransomware attack. The attack resulted in the encryption of an environment of virtual servers hosted in Brazil, prevented access to certain files and resulted in the inadvertent disclosure of data, some of which were made available on the dark web. We have reported the incident to law enforcement authorities.
Immediately after the incident, we employed significant IT resources, took measures to protect and strengthen the security of our systems, isolated the affected environment and repaired our network. As part of our reaction, we hired Tempest Security Intelligence, a leading cybersecurity firm, to investigate the incident and supplement our remediation efforts.
Despite our extensive security controls and measures to prevent the violation of our systems and data storage, we cannot guarantee that other cyberattacks or similar breaches will not happen in the future.
Environmental, Social and Governance
We are subject to environmental, health and safety risks.
Our products, as well as our manufacturing and service activities, are subject to environmental laws and regulations in each of the jurisdictions in which we operate. These laws regulate product performance or content, energy use, greenhouse gas emissions, air quality, water and noise pollution, hazardous substance management, human health risks arising from the exposure to hazardous or toxic materials, the remediation of soil and groundwater contamination, among other matters.
In addition, environmental regulations related to climate change, including CO2 emissions standards adopted by the International Civil Aviation Organization, or the ICAO, are one of the main drivers of global aerospace industry research and development investments since they may affect customer preferences. We may incur additional costs to improve or create new compliance programs to meet environmental regulatory requirements. We currently have several comprehensive programs in place to reduce the effects of our operations on the environment. For additional information, see “Item 4. Information on the Company—D. Property, Plant and Equipment.”
11
Moreover, our services and products must comply with health and safety laws and regulations, as well as substances and preparations. We strive to maintain the highest quality standards and closely follow potential and confirmed changes in laws and regulations to adapt, redesign, redevelop, recertify or eliminate our products to remain compliant with those claims. Seizures of non-compliant products may occur, and we may incur penalties. In the event of an accident or other serious incident involving a product, we may be required to conduct investigations and undertake preventive and remedial actions.
Climate change may have adverse effects on our business and financial condition.
Climate change related risks are gaining increasing social, regulatory, economic and political relevance, both in Brazil and internationally. New regulations related to climate change may affect our operations and business strategy, leading us to incur financial costs resulting from: (i) physical risks; and (ii) transition risks, including climate litigation. Physical climate risks are those that arise from changes in weather and climate that impact the economy, including rising global average temperatures, which can cause sea level rise and acute climate risks caused by natural disasters, including but not limited to floods, fires and hurricanes. Such disasters could adversely affect our and our clients’ and business partners’ operations, including by impairing flight services and aircraft circulation. In addition, physical risks could cause market volatility and negatively affect the trading price of our ADSs. In addition, our facilities and resilience may also suffer physical damages due to severe weather events which may represent increased operational costs.
Transition climate risks are those that arise from the transition to a low-carbon economy. We expect that the market may face significant and rapid developments in terms of new technologies, policy, legal and regulatory demands capable of impacting our activities and the value of our assets.
Effects from both physical and transitional climate risks may also represent losses for our clients and business partners, affecting their profitability as well as their ability to fulfill their obligations.
If we do not adequately identify and embed the risks associated with climate change into our risk framework to appropriately measure, manage and disclose the various financial and operational risks that may result from climate change, or if we fail to adapt our strategy and business model to a changing regulatory and market environment, we could face a material adverse impact on our business growth rates, competitiveness, profitability, capital requirements and financial condition.
We may not be able to achieve our carbon emissions targets or make progress in other environmental, social, and governance initiatives.
In August 2021, we announced our intention to reach carbon neutrality in our operations by 2040 reducing Scope 1 and 2 emissions at least by 50%. This commitment relies mostly on the purchase of Sustainable Aviation Fuels (SAF), electricity from renewable sources and carbon offsets. Our estimates concerning the timing and cost of implementing our targets are subject to several risks and uncertainties, such as low availability of SAF, especially in Brazil where the majority of operations is concentrated, and variations in fuels, energy and offset prices. Accordingly, there can be no assurances that our targets will be achieved.
We are setting our strategies and new products aiming to a net-zero emission aviation by 2050. In order to reinforce this commitment, we signed in 2021 with other representatives of the aerospace sector, the commitment “Fly Net Zero.” This goal will be supported by accelerated efficiency measures, energy transition and innovation across the aviation sector and in partnership with governments around the world.
We have also committed to certain diversity, inclusion and education targets, such as having 50% diverse hires in all new entry level employee programs by 2025; securing access of more than 80% of the students from Embraer high schools to public universities and private universities with full-tuition scholarships; having 20% of women in senior leadership positions by 2025, among others.
12
Although we expect that our ESG commitments will improve our operational and financial performance on the long term, our targets may not materialize within the time frame we expect or at all, since they depend on several factors over which we have no control or influence.
COVID-19
COVID-19 has affected and may continue to affect us.
The COVID-19 pandemic and governmental responses thereto have had, and may continue to have, a severe impact on global and Brazilian macro-economic and financial conditions, including the disruption of supply chains and the closures or interruptions of many businesses, leading to losses of revenues, increased unemployment and economic stagnation and contraction. The COVID-19 pandemic has also resulted in materially increased volatility in both Brazilian and international financial markets and economic indicators, including exchange rates, interest rates and credit spreads. Furthermore, the COVID-19 pandemic has negatively affected the supply of pilots in the United States, many of which decided to change careers or retire as a result of the pandemic.
Measures taken by governmental authorities worldwide, including Brazil, to stabilize markets and support economic growth may not be sufficient to control future volatility or to prevent serious and prolonged reductions in economic activity. While many of the governmental imposed restrictions have since been lifted, there is no way to predict that these policies will not be tightened or that new and different restrictions will not be imposed.
The effects of the COVID-19 pandemic or the outbreak of similar communicable diseases on our business will depend on, among other factors, the ultimate geographic spread of the virus, the duration of the outbreak and the extent and overall economic effects of the governmental response to the pandemic.
For further information on the impact of COVID-19 pandemic on our segments, see Note 1.1.1 to our 2022 audited consolidated financial statements.
Geopolitical and Macroeconomic Risks
Brazilian political and economic conditions have a direct impact on our business and the trading price of our common shares and ADSs.
The Brazilian government has frequently intervened in the Brazilian economy and occasionally has made drastic changes in policy and regulations. The Brazilian government’s actions to control inflation and affect other policies and regulations have involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency exchange and remittance controls, devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and the trading price of the common shares and the ADSs may be adversely affected by changes in policy or regulations at the federal, state or municipal level involving or affecting factors, such as:
• | interest rates; |
• | currency fluctuations; |
• | monetary policies; |
• | inflation; |
• | liquidity of capital and lending markets; |
• | tax policies; |
• | labor regulations; |
• | energy and water shortages and rationing; and |
• | other political, social and economic developments in or affecting Brazil. |
13
Uncertainty over whether the Brazilian government would implement changes in policy, regulation or legislation creates instability in the Brazilian economy, increasing the volatility of the Brazilian securities markets. These uncertainties and other future developments in the Brazilian economy may adversely affect our activities, and consequently our operating results, and may also adversely affect the trading price of our common shares and ADSs. We cannot predict which policies the Brazilian government will adopt or if these policies or changes in current policies may have an adverse effect on us or the Brazilian economy. These factors are compounded as Brazil emerges from a prolonged recession after a period of a slow recovery, with GDP contraction in 2020 and small growth in 2021 and 2022.
The gross domestic product, or GDP, had a growth rate of 2.9% in 2022, compared to a growth rate of 4.6% in 2021 and a contraction rate of 4.1% in 2020, driven by the COVID-19 pandemic, compared to growth rates of 1.1% in 2019 and 2018, 1.3% in 2017 and contraction rates of 3.3% in 2016 and 3.5% in 2015. According to the Focus bulletin dated March 24, 2023, the consensus of Brazilian economists was for expectations of Brazilian GDP to increase 0.9% in 2023.
Our results of operations and financial condition have been, and will continue to be, affected by the growth rate of the Brazilian GDP. Developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the use of our products and services.
Political instability may adversely affect our business and results of operations, the price of our common shares and our debt instruments.
Brazil’s political environment has historically influenced, and continues to influence, the performance of the country’s economy. Political crises have affected, and continue to affect, the confidence of investors and that of the public in general, resulting in economic downturn and heightened volatility of securities issued by Brazilian companies.
For instance, in the past, Brazilian markets have experienced heightened volatility due to uncertainties derived from investigations on money laundering and corruption conducted by the Brazilian Federal Police and the Federal Prosecutor’s Office, and the impact of these investigations on the Brazilian economy and political environment. The ultimate outcome of these investigations is uncertain, but they had an adverse impact on the image and reputation of the implicated companies, and on the general market perception of the Brazilian economy. Political instability and uncertainty regarding political developments and the policies the Brazilian federal government may adopt or alter may have material adverse effects on the macroeconomic environment in Brazil, as well as on the operations and financial performance of businesses operating in Brazil, including ours.
Inflation and government efforts to curb inflation may contribute significantly to economic uncertainty and to heightened volatility in the Brazilian and international securities markets and, consequently, may adversely affect us.
Inflation and interest rate volatility have in the past caused material adverse effects in the Brazilian and global economy. Sudden increases in prices and long periods of high inflation may cause, among other effects, loss of purchasing power and distortions in the allocation of resources in the economy.
In Brazil, inflation and certain actions taken by the Central Bank to curb it have had significant negative effects on the Brazilian economy. Brazil’s General Price Index (Índice Geral de Preços – Mercado), or IGP-M index, recorded inflation of 5.5% in 2022, 17.8% in 2021, 23.1% in 2020 and 7.3% in 2019. Brazil’s National Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA index, recorded inflation of 5.8% in 2022, 10.1% in 2021, 4.5% in 2020 and 4.3% in 2019. Measures to curb high inflation rates include a tightening of monetary policy, with an increase in interest rates, resulting in restrictions on credit and short-term liquidity.
14
The Brazilian Central Bank’s Monetary Policy Committee, or COPOM, is responsible for setting the Brazilian official interest rate, or the SELIC rate. The COPOM frequently adjusts the official base interest rates in situations of economic uncertainty to meet the economic goals established by the Brazilian government. After reaching a historical low of 2.0% in August 2020, the COPOM began increasing interest rates in March 2021 and, as a result, the SELIC rate reached 9.25% in December 2021 and 13.75% in December 2022.
In the international scenario, inflation is reaching record highs; in the U.S. consumer inflation measured by the Consumer Price Index, or CPI, of the U.S. reached 7.1% in 2021 (the highest level since 1982) and 7.2 in 2022. In Europe, consumer inflation measured by the Harmonised Index of Consumer Prices, or HICP, varied from a negative inflation of 0.3% in 2020, to 5.0% in 2021, and 9.2% in 2022.
The rise in inflation in several developed economies has led the authorities of these countries to being reversing through the strongly stimulating policies implemented during the COVID-19 pandemic. The European Central Bank has increased interest rates from 0.0% in 2020 and (0.5)% in 2021 to 2.0% in 2022 and may reach its peak in 2023. The Fed has increased interest rates from 0.09% in 2020 and 0.08% in 2021 to 4.33% in 2022, and the Fed expects rates to rise closer to 5.00% in 2023.
Increases in interest rates could adversely affect our ability to incur additional debt and increase the cost of service of debt, resulting in an increase in our financial costs, which may reduce our liquidity, thereby adversely affecting our ability to meet our financial obligations. As of December 31, 2022, 5.2% of our consolidated cash and cash equivalents were indexed to the variation of the SELIC and CDI rates. Therefore, fluctuations in Brazilian interest rates and inflation may adversely affect us. On the other hand, a significant decrease in the CDI or inflation rates may adversely affect the revenue we receive from our financial investments.
Exchange rate volatility may adversely affect us.
The Brazilian currency has, during the last decades, experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. In 2020, the real depreciated against the U.S. dollar in comparison to December 31, 2019, reaching R$5.1967 per US$1.00 as of December 31, 2020. In 2021, the real depreciated against the U.S. dollar in comparison to December 31, 2020, reaching R$5.5805 per US$1.00 as of December 31, 2021. In 2022, the real depreciated against the U.S. dollar in comparison to December 31, 2021, reaching R$5.2177 per US$1.00 as of December 31, 2022. There can be no assurance that the real will not depreciate further against the U.S. dollar.
Depreciation of the real against the U.S. dollar creates inflationary pressures in Brazil and causes increases in interest rates, which negatively affects the growth of the Brazilian economy as a whole, curtails access to foreign financial markets and may prompt government intervention, including recessionary governmental policies. Depreciation of the real against the U.S. dollar has also, including in the context of an economic slowdown, led to decreased consumer spending, deflationary pressures and reduced growth of the economy as a whole. On the other hand, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real may materially and adversely affect us.
Although most of our revenue and debt is U.S. dollar-denominated, the relationship of the real to the value of the U.S. dollar, and the rate of depreciation of the real relative to the prevailing rate of inflation, may adversely affect us, mainly due to the following factors:
• | Approximately 11.0% of our total costs are incurred and denominated in reais. |
• | Because taxes on income are largely determined and paid in reais based on our Brazilian tax books, the income tax expense line item of our statements of income, which has the U.S. dollar as our functional currency, is significantly impacted by appreciation of the real relative to the U.S. dollar to the extent we must record deferred taxes resulting from exchange rate fluctuations on the reported |
15
basis of our nonmonetary assets (mainly property, plant and equipment and intangible assets). If the real had devalued or appreciated by 10% against the U.S. dollar in relation to the actual exchange rate as of December 31, 2022, the deferred income tax expense would have been higher or lower by US$153.0 million. For additional information on the effects of the variation of the real against the U.S. dollar, see Notes 23 and 33 to our 2022 audited consolidated financial statements.
• | Depreciation of the real against the U.S. dollar or other currencies would reduce our real-denominated revenues from our Defense & Security segment, when converted to the U.S. dollar as our functional currency. |
• | Appreciation of the real against the U.S. dollar or other currencies increases the costs of our products when measured in U.S. dollars, and may result in a decrease in our margins. |
Depreciations of the real relative to the U.S. dollar could also reduce the U.S. dollar value of distributions and dividends on our ADSs and may also reduce the market value of our common shares and ADSs. While our functional currency is the U.S. dollar our shareholders’ equity is required under Brazilian Corporate Law to be accounted and maintained in Brazilian reais, including amounts to be distributed to shareholders (dividends and interest on own capital). In 2022, while we had retained earnings recorded in U.S. dollars, the foreign exchange losses absorbed these earnings in Brazilian reais, causing a loss, which restricted our ability to pay dividends. For more information, see “8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends and Dividends Policy.”
Developments and the perception of risk in other countries, especially other emerging markets, may adversely affect the market price of Brazilian securities, including our ADSs, our common shares and our debt instruments.
The market value of securities of Brazilian issuers, including securities issued by us, may be affected by economic and market conditions in other countries, including the United States, European Union and Latin American countries and other emerging market countries. Although economic conditions in those countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises elsewhere may diminish investor interest in securities of Brazilian issuers, including ours. This could adversely affect the trading price of our securities and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms, or at all.
Any further downgrading of Brazil’s could adversely affect the market price of our common shares, ADSs and debt instruments.
Credit ratings affect investors’ perceptions of risk and, as a result, the yields required on debt issuances in the financial markets. Rating agencies regularly evaluate Brazil and its sovereign ratings, taking into account a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness and the prospect of change in these factors.
As of the date of this annual report, Brazil’s sovereign credit ratings were BB- with a stable outlook, Ba2 with a stable outlook and BB- with a stable outlook by S&P, Moody’s and Fitch, respectively, which is below investment grade.
We cannot assure you that rating agencies will maintain Brazil’s sovereign credit ratings. Any downgrading in Brazil’s sovereign credit ratings could increase the perception of risk of investors and, as a result, adversely affect the price of securities issued by Brazilian companies, including our ADSs.
Developments related to the conflict between Russia and Ukraine may adversely affect us.
The global developments relating to Russia’s invasion of Ukraine have generated uncertainty in the global economy. As soon as the war was declared, we have suspended parts, maintenance, and technical support services for certain customers to comply with the sanctions imposed on Russia, Belarus, and certain regions of Ukraine by laws of jurisdictions to which we are subject.
16
As a result of the conflict between Russia and Ukraine, inflation levels have raised and energy prices have also increased, mainly in Europe due to impact in the supply and gas prices. The conflict also had the effect of increasing costs of labor and caused a global shortage of components, affecting our supply chain cycle in 2022.
Russia is one of the largest titanium suppliers in the world, and titanium is a key element for the aircraft manufacturing process. Although there is no concern over the availability of titanium in our supply chain, considering our current inventory position and the existing alternative sources in other countries, we will continue to monitor our supply chain in order to identify any potential constraints. In addition, the conflict between Russia and Ukraine may adversely affect people’s safety and activities of our employees, especially those residing in Europe.
We cannot predict how the developments related to the conflict between Russia and Ukraine will evolve and/or to what extent they may affect us.
Risks Relating to Our Common Shares and ADSs
If holders of our ADSs exchange the ADSs for common shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages.
The Brazilian custodian for the common shares has obtained an electronic certificate of registration from the Central Bank permitting it to remit foreign currency abroad for payments of dividends and other distributions relating to the common shares or upon the disposition of the common shares. These remittances under an ADR program are subject to a specific tax treatment in Brazil that may be more favorable to a foreign investor if compared to remitting gains originated from securities directly acquired by the investor in the Brazilian regulated stock markets. Therefore, an investor who opts to surrender ADSs in exchange for the underlying common share may be subject to less favorable tax treatment on gains with respect to these investments.
Pursuant to CMN Resolution No. 4,373, in order for the investor to surrender ADSs for the purpose of withdrawing the common shares represented thereby, the investor is required to appoint a Brazilian financial institution duly authorized by the Central Bank of Brazil and CVM to act as its legal representative, who shall be responsible, among other things, for keeping and updating the investors’ certificates of registrations with the Central Bank of Brazil, which entitles registered foreign investors to buy and sell directly on the B3 – Brasil, Bolsa, Balcão, or B3. These arrangements may require additional expenses from the foreign investor. Moreover, if the representatives fail to obtain or update the relevant certificates of registration, investors may incur additional expenses or be subject to operational delays which could affect their ability to receive dividends or distributions relating to the common shares or the return of their capital in a timely manner.
The custodian’s certificate of registration or any foreign capital registration directly obtained by the holders may be affected by future legislative or regulatory changes, and we cannot assure the holders that additional restrictions applicable to them, the disposition of the underlying common or preferred shares, or the repatriation of the proceeds from the process will not be imposed in the future.
The Brazilian government has veto power over the change in our corporate control, and of our name, trademark or corporate purpose and over the creation or alteration of our Defense & Security programs, and its interests could conflict with the interests of the holders of our common shares and ADSs.
The Brazilian government holds one share of a special class of our common stock called a “golden share,” which carries veto power over certain matters such as change of control, name, trademark or corporate purpose and over the creation or alteration of our Defense & Security programs (whether or not the Brazilian
17
government participates in those programs). For example, in 2010, we changed our corporate name to Embraer S.A. and altered our bylaws to allow us to enter the defense and security market, which required the approval of the Brazilian government. The Brazilian government may veto transactions that may be in the interest of the holders of our common shares or ADSs. We cannot assure you that we will be able to obtain approvals from the Brazilian government in the future to effect important corporate changes or transactions, or other important corporate changes that may be required.
Our bylaws contain provisions that could discourage our acquisition or prevent or delay transactions that you may favor.
Our bylaws contain provisions that have the effect of avoiding the concentration of our common shares in the hands of a small group of investors to promote the dispersed ownership of those shares. These provisions require any shareholder or group of shareholders that acquires or becomes the holder of (i) 35% or more of the total shares issued by us or (ii) other rights over shares issued by us that represent more than 35% of our capital, to submit to the Brazilian government a request for making a public tender offer to purchase all of our shares on the terms specified in our bylaws. If the request is approved, the shareholder or group of shareholders must commence the public tender offer to purchase all of our shares within 60 days of the date of approval. If the request is refused, the shareholder or group of shareholders must sell all of their shares that exceed the 35% limit within 30 days, so that the holding of this shareholder or group of shareholders falls below 35% of our capital stock. These provisions may have anti-takeover effects and may discourage, delay or prevent a merger or acquisition, including transactions in which our shareholders might otherwise receive a premium for their common shares and ADSs. These provisions can only be altered or overridden with the approval of our board of directors and our shareholders in a shareholders’ meeting convened for this purpose and with the consent of the Brazilian government, as holder of the golden share.
Our bylaws contain provisions that limit the voting rights of certain shareholders, including non-Brazilian shareholders.
Our bylaws contain provisions that limit the rights of a shareholder or group of shareholders, including brokers acting on behalf of one or more holders of ADSs, to exercise voting rights in respect of more than 5% of the outstanding shares of our capital stock at any general meeting of shareholders. See “Item 10. Additional Information—B. Memorandum and Articles of Association—Voting Rights of Shares—Limitations on the Voting Rights of Certain Holders of Common Shares.”
Our bylaws also contain provisions that limit the right of non-Brazilian shareholders to exercise voting rights in respect of more than two-thirds of the voting rights that may be exercised by Brazilian shareholders present at any general meeting of shareholders. This limitation will effectively prevent our takeover by non-Brazilian shareholders and limit the ability of non-Brazilian shareholders to effect control over us. For additional information on our voting rights, see “Item 10. Additional Information—B. Memorandum and Articles of Association—Voting Rights of Shares—Limitation on the Voting Rights of Non-Brazilian Shareholders.”
The absence of a single, controlling shareholder or group of controlling shareholders may render us susceptible to shareholder disputes or other unanticipated developments.
The absence of a single, controlling shareholder or group of controlling shareholders may create difficulties for our shareholders to approve certain transactions, because, among other things, the minimum quorum required by law for the approval of certain matters may not be reached. We and our shareholders may not be afforded the same protections provided by the Brazilian Corporate Law against abusive measures taken by other shareholders and, as a result, may not be compensated for any losses incurred. Any sudden and unexpected changes in our management, changes in our corporate policies or strategic direction, takeover attempts or any disputes among shareholders regarding their respective rights may adversely affect our business and results of operations.
18
Holders of ADSs may not be able to exercise their voting rights.
Holders of ADSs may only exercise their voting rights with respect to the underlying common shares in accordance with the provisions of the deposit agreement governing our ADSs. Under the deposit agreement, ADS holders must vote the common shares underlying their ADSs by giving voting instructions to the depositary. Upon receipt of the voting instructions from the ADS holder, the depositary will vote the underlying common shares in accordance with these instructions. Otherwise, ADS holders will not be able to exercise their voting right unless they surrender the ADS for cancellation in exchange for the common shares.
Pursuant to our bylaws, the first call for a shareholders’ meeting must be published at least 30 days in advance of the meeting and the second call must be published at least 15 days in advance of the meeting. When a shareholders’ meeting is convened, holders of ADSs may not receive sufficient advance notice to surrender the ADSs in exchange for the underlying common shares to allow them to vote with respect to any specific matter. In addition, the depositary has no obligation to notify ADS holders of an upcoming vote or distribute voting cards and related materials to ADS holders, unless we specifically instruct the depositary to do so. If we ask the depositary to seek voting instructions from ADS holders, the depositary will notify ADS holders of the upcoming vote and will arrange to deliver proxy cards to those holders. We cannot assure you that ADS holders will receive proxy cards in time to allow them to instruct the depositary to vote the shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for an untimely solicitation of voting instructions. As a result, holders of ADSs may not be able to fully exercise their voting rights.
The relative illiquidity and volatility of the Brazilian securities markets may substantially limit the ability of holders of our common shares or the ADSs to sell the common shares underlying ADSs at the price and time they desire.
Investing in securities, including our common shares or the ADSs, of issuers from emerging market countries, including Brazil, involves a higher degree of risk than investing in securities of issuers from more developed countries.
The Brazilian securities markets are substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States and other jurisdictions and are not as highly regulated or supervised as some other markets. The relatively small market capitalization and illiquidity of the Brazilian equity markets may substantially limit the ability of holders of our common shares or ADSs to sell the common shares or the ADSs at the price and time desired. For additional information on the B3, see “Item 9. The Offer and Listing—C. Markets—Trading on the B3.”
Holders of our ADSs might be unable to exercise preemptive rights with respect to the common shares.
Holders of our ADSs may not be able to exercise the preemptive rights relating to the common shares underlying their ADSs unless a registration statement under the Securities Act is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares or other securities relating to these preemptive rights, and we cannot assure holders of our ADSs that we will file any registration statement. Unless we file a registration statement or an exemption from registration applies, holders of our ADSs may receive only the net proceeds from the sale of their preemptive rights by the depositary or, if the preemptive rights cannot be sold, the rights will lapse.
Judgments of Brazilian courts with respect to our common shares will be payable only in reais.
If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the common shares, we will not be required to discharge our obligations in a currency other than reais. Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and those amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange rate may not provide non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the common shares or the ADSs.
19
Item 4. | INFORMATION ON THE COMPANY |
A. History and Development of the Company
Corporate History
Embraer S.A. is a publicly held corporation duly incorporated under the laws of Brazil with an indefinite term of duration. Our principal executive office is located at Avenida Dra. Ruth Cardoso, No. 8,501 (formerly known as Avenida Nações Unidas, No. 8,501), 30th floor (part), Eldorado Business Tower, Pinheiros, ZIP Code 05425-070, city of São Paulo, state of São Paulo, Brazil. Our telephone number is 55-11- 3040-6874, and our internet address is ri.embraer.com.br. Our agent for service of process in the United States is National Registered Agents, Inc., with offices at 875 Avenue of the Americas, Suite 501, New York, New York 10001.
Originally formed in 1969 by the Brazilian government, we became a publicly held corporation in 1989 and were privatized in 1994. In the privatization process, the Brazilian government created the golden share, a special class of shares to ensure that the Brazilian government has certain veto rights, in particular regarding military programs.
In 2000, we registered with the SEC and listed our American Depositary Receipts in the New York Stock Exchange.
In 2006, we promoted a corporate restructuring process focused on simplifying our capital structure, which since then is comprised of only common shares, and we also joined a special listing segment of the B3 known as Novo Mercado, enhancing our corporate governance standards. Since then, we do not have a controlling shareholder or controlling shareholder group.
In 2010, our shareholders approved a change of our corporate name from “Embraer – Empresa Brasileira de Aeronáutica S.A.” to “Embraer S.A.,” as well as the addition of capabilities and the broadening of the scope of our Defense & Security segment to allow this segment to manufacture and trade equipment, materials, systems, software, accessories and components for the defense, security and energy industries, as well as to perform technical activities and services related to these areas. As a result, our bylaws were amended to reflect the addition of these activities to our corporate purposes.
In 2011 and 2012, we made acquisitions and entered into partnerships in the Defense & Security segment, including the acquisition of Atech Negócios em Tecnologias S.A. and Bradar Indústria S.A., or Bradar (which was merged into Embraer in 2018), Savis Tecnologia e Sistemas S.A. (which was merged into Embraer in 2021) and Visiona Tecnologia Espacial S.A.
In 2020, through our subsidiary Embraer Defesa e Segurança Participações S.A., we acquired 61% of Tempest Serviços de Informática S.A. and its subsidiaries, or Tempest, the largest cybersecurity company in Brazil.
On January 1, 2020, we implemented the internal carve-out of our Commercial Aviation segment by means of the contribution by Embraer to Yaborã Indústria Aeronáutica S.A. (“Yaborã”) of the net assets comprising assets, liabilities, properties, rights and obligations (subject to certain exceptions) related to our Commercial Aviation segment, through a capital increase. As a result of the wrongful termination of the Boeing Transaction by Boeing, we decided to reintegrate the Commercial Aviation segment and therefore, on October 28, 2021, our board of directors approved a partial spin-off of Yaborã, whereby Yaborã transferred substantially all of its assets back to Embraer, effective as of January 1, 2022.
20
In 2021, we, through our subsidiary Eve UAM, LLC, or EVE, entered into a business combination agreement with Zanite Acquisition Corp., or Zanite, to further develop EVE’s comprehensive, practical and capital efficient urban air mobility (“UAM”) solution, through design and production of eVTOL, service and support, fleet operations and urban air traffic management. The transaction closed on May 9, 2022 and Zanite changed its name to Eve Holding, Inc., or Eve Holding, and Eve Holding’s shares were listed on the New York Stock Exchange on May 10, 2022.
Business Development
We have grown from a government-controlled company, established to develop and produce aircraft for the Brazilian Air Force, into a publicly held company that produces aircraft for commercial and executive aviation and for defense and security purposes and related services.
As part of our evolution, we have obtained, developed and enhanced our engineering and technological capabilities through our own development of products for the Brazilian Air Force and through joint product development with foreign companies on specific projects. We have applied these capabilities that we gained from our Defense & Security segment to further develop our Commercial Aviation segment.
Our first regional aircraft was EMB-110 the Bandeirante, a 19-passenger twin-engine non-pressurized turboprop aircraft initially designed to service the transport needs of the Brazilian Air Force. This aircraft was certified in 1973. The Bandeirante was followed by the EMB 120 Brasília, which was certified in 1985. The EMB 120 Brasília is a high performance, pressurized turboprop commercial aircraft seating up to 30 passengers and was designed to serve the longer routes and higher passenger traffic of the growing regional aircraft market. Drawing upon the design of the EMB 120 Brasília and the jet technology acquired in our development of the AM-X, a jet strike bomber for the Brazilian Air Force, we developed the ERJ 145 regional aircraft family, our first jet product for commercial use. This family comprises three aircraft, which seat up to 37, 44 and 50 passengers. The first member of the ERJ family, the ERJ 145, was certified in 1996. We have expanded our jet product line with the development of the EMBRAER 170/190 jet family, which has the capacity to seat between 70 and 118 passengers and was designed to serve the aircraft market’s trend towards larger, higher volume and longer-range jets. The first member of this family, the EMBRAER 170, was certified in February 2004, and its derivatives, the EMBRAER 175 and the EMBRAER 190, were certified in December 2004 and August 2005, respectively. The certification of the EMBRAER 195 was granted in June 2006. In June 2013, Embraer launched the second generation of its E-Jets family of commercial aircraft, the E-Jets E2, comprising three new aircraft, the, E190-E2 and E195-E2. The E190-E2 and the E195-E2 entered service in April of 2018 and September of 2019, respectively. Our Commercial Aviation segment accounted for 34.0%, 31.4% and 29.6% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
We developed a line of executive jets throughout time, first the Legacy 600, which was discontinued in 2016 to focus on the success of its longer-range successor, the Legacy 650, followed by the Phenom 100, an entry-level jet, and the Phenom 300, a light jet, both launched in 2005. The Lineage 1000, an ultra-large jet, was added in 2006 as the largest executive jet in our executive jets portfolio and an enhanced version was introduced in 2013, the Lineage 1000E. In 2008, we launched the Legacy 450 and Legacy 500, both medium cabin jets. In 2009, we presented the Legacy 650, a large executive jet that is positioned in our portfolio between the Legacy 500 and the Lineage 1000E. The Legacy 500 and the Legacy 450 entered into service in October of 2014 and December 2015, respectively. In 2016, we launched the Phenom 100EV and the Legacy 650E. In 2017, the Phenom 100EV entered into service and we also launched the Phenom 300E, an enhanced version of our Phenom 300, with a revolutionary interior design, which entered into service in October 2017 with a demonstration aircraft. In our latest development, we introduced the new Praetor 500 midsize and Praetor 600 super-midsize business jets in 2018, during a company event in the Orlando Executive Airport. The Praetor 600 and Praetor 500 entered into service in June and in December 2019, respectively. In 2019, we successfully implemented the sunset strategy of the Legacy 650 and Lineage 1000E. In 2020 we concentrated our business efforts on the renewed and highly competitive Phenom and Praetor product lines, sunsetting the Legacy 450 and 500 models. Our Executive Aviation segment accounted for 27.4%, 26.9% and 28.4% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
21
In the defense and security industry, after the success of our first products Bandeirante and Brasília, we entered the military aviation segment with various products for the Brazilian Armed Forces. The first of this group of products were the EMB-312 Tucano, a basic trainer, and the EMB-111 Banderulha, for maritime patrol, both of which have also been exported. During the 1980’s, Embraer and Aermacchi jointly developed the AMX, or A-1 attack fighter-bomber aircraft, and on early 2000’s we started the production of the newly developed A-29 Super Tucano, or Super Tucano, an advanced training aircraft that entered into service in 2004 and is still under production, with more than 264 units sold to more than 16 countries. Throughout the years, we have developed several other aircraft tailored to our costumers’ missions, in particular the C-390 Millennium, the largest aircraft ever manufactured in Brazil. We also entered the market of radars and land systems with the acquisition of Bradar in 2011, which was fully incorporated into Embraer in 2018.
Moreover, we have invested in various companies in the defense and security industry, expanding our portfolio to offer to our customers around the globe a broad line of intelligence, surveillance and reconnaissance aircraft, services, systems and solutions, ground radar, transportation of authorities, tactical military transport and aerial refueling, basic and advanced training and advanced training and training aircraft, satellite and cyber security solutions. Through our wholly-owned subsidiary Atech, we have been producing complex systems for critical missions, in the area of command and control, communications, computer intelligence, cyber defense, air defense and air traffic control for defense, security and other civil applications. With a 51% equity interest in Visiona Technologia Espacial S.A., we also operate in the satellite development, production and support services market, in partnership with relevant private and public institutions in Brazil.
In 2018, Embraer formed the consortium Águas Azuis, with Thyssenkrupp Marine Systems, and our subsidiary Atech. In 2019, this consortium was chosen as the preferred supplier to build four new Tamandaré Class Frigates for the Brazilian Navy. In 2020, we became the majority shareholder of Tempest Security Intelligence, the largest cybersecurity company in Brazil, with local and abroad operations. In 2021, we incorporated Savis Tecnologia e Sistemas S.A., a company focused on the development and production of various land systems, including SENTIR M20, the SABER M60 and the SABER M200 VIGILANTE radars, mockups, anti-aircraft operation centers, as well as on the integration of the Brazilian Army’s Integrated Border Monitoring System, or SISFRON program.
As of the date of this annual report, we continue to be the leading supplier of defense aircraft for the Brazilian Air Force, based on number of aircraft sold, and have sold aircraft to armed forces in the United States, Europe, Asia and Latin America. Our Defense & Security segment accounted for 9.9%, 14.2% and 17.3% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively. Revenues from sales to the Brazilian government accounted for 42.5%, 40.7% and 44.5% of this business segment’s revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
Embraer Services & Support is a segment focused on providing parts, flight hour solutions, maintenance, training, and engineering products and services for Embraer operators in the Commercial, Executive, Defense & Security segments. Accompanied with OGMA, Embraer’s subsidiary in Portugal, which provides agnostic services, and Embraer CAE Training Services (ECTS). With a network of over 76 owned and authorized service centers spread around the world, contact centers dedicated to each market, and a team with more than 4,300 employees overseeing support of over 4,580 Embraer Commercial, Executive and Defense aircraft as well as other OEM aircraft, engines, radars, our Services & Support segment accounted for 27.9%, 27.0% and 24.4% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
We also provide fuel systems, structural parts, and mechanical and hydraulic systems to Sikorsky Aircraft Corporation, or Sikorsky, a Lockheed Martin Company, for its production of helicopters. We provide to Sikorsky the services of development and manufacture of the landing gear, fuel system and fuel tanks for the S-92 and H-92 Helibus helicopters. In addition, we developed the Ipanema, a crop duster aircraft pursuant to specifications of the Brazilian Ministry of Agriculture. These aircraft are produced only on demand. Through December 31, 2022, we had delivered a total of 1,541 of these aircraft. Our Other segments accounted for 0.8%, 0.6% and 0.3% of our revenue for the years ended December 31, 2022, 2021 and 2020 respectively.
22
For additional information on our Other segments, see Note 36.5 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
B. Business Overview
We are the leading manufacturer of jets with up to 150 seats in the world, based on the number of jets delivered over the last decade, and we have a franchise footprint represented by our global customer base, according to Cirium. Our focus is to achieve customer satisfaction with a range of products and services addressing the commercial airline, executive jets and defense and security markets. We have developed a customer-centric technology-driven portfolio of commercial aviation products and services that allows us to build long-term relationships with our clients in the commercial aviation, executive jets and defense and security markets. We grew from a government-controlled company that developed and produced products for the Brazilian Armed Forces to a publicly held company that produces aircraft for and provides related services to commercial and executive aviation, as well as for defense and security purposes. Providing high quality customer support is a key element of our customer focus and is critical to our ability to maintain customers with whom we have a long-term relationship.
We have weathered challenges posed by developments relating to the COVID-19 pandemic through our near-term strategy of maintaining lean organization, updating our business plan to adapt to changing conditions, prioritizing health and safety and implementing cash preservation measures.
We are in a position to embark on our long-term strategy of focusing on consistent execution of our strategic business plan and continuous efficiency programs with lean concepts, seeking partnership opportunities to drive growth, investing in innovation as a primary source of future growth and further developing our environmental, social and governance, or ESG program, reinforcing our commitment toward:
(i) | carbon reduction: we expect to reach carbon neutral grown from 2022 onwards, carbon neutrality in our operations by 2040, use 100% renewable electricity by 2030 and produce products to support zero emissions aviation by 2050; |
(ii) | social responsibility: we expect to reach 50% of diversity hiring in our entry level programs and 20% of women in senior leadership positions by 2025. We also aim to maintain the approval of more than 80% of Embraer schools’ students into public universities or private universities with full-tuition scholarships; and |
(iii) | corporate governance standards: we aim to maintain the highest international governance standards and robust ethics and compliance programs. |
Our main market opportunities lie in direct product replacement, the development of regional aviation in select markets, including India, Brazil and Turkey, and in the growth on a global scale of the sub 150 seat segment as a result of airlines rightsizing their fleet.
For the year ended December 31, 2022, we generated revenue of US$4,540.4 million, of which 92.4% was U.S. dollar denominated. Of our revenue in 2022, 34.0% was from our Commercial Aviation segment, 27.4% was from our Executive Aviation segment, 9.9% was from our Defense & Security segment, 27.9% was from Services & Support segment and 0.8% was from our Other segments.
In the year ended December 31, 2022, 62.9% of our revenue was from clients in North America, followed by clients in Europe (19.5%), Brazil (11.1%), Asia Pacific (2.2%), Latin America (except Brazil) (1.2%) and others (3.1%). As of December 31, 2022 and December 31, 2021, we had a total firm order backlog of US$17.5 billion and US$17.0 billion, respectively.
23
Our Strengths
We believe that our primary strengths are:
Aircraft design and technology; cost and operating efficiency. We conceive, develop and manufacture clean sheet design aircraft with cutting edge technology that reduce our customers’ operating, maintenance and training costs because of the efficient design of our parts. Within a jet family the parts share similar technology and features, which reduces our design, development and production costs and allow us to offer competitive prices to our customers. For example, the Praetor 500 and Praetor 600 jets have similar characteristics and technologies that enhance our value proposition for the midsize and super-midsize business segments. Our investments in innovative technologies, such as automation design, enable us to increase operational efficiency by reducing engineering, production costs and lowering customers’ maintenance costs. For example, we have invested in cybersecurity solutions by acquiring Tempest in 2020 and using Beacon, which is an innovative platform designed to connect the aviation maintenance system.
Leading commercial aircraft manufacturer with a global customer base. Based on the number of aircraft delivered, we are the leading manufacturer of jets with up to 150 seats and have a strong global customer base, according to Cirium. As of the date of this annual report, more than 170 airlines from over 90 countries use our commercial aircraft on five continents. Our customers include some of the largest and most significant network, regional and low-cost carriers in the world.
Strategic risk-sharing partners. With respect to our commercial and business aircraft, we developed strategic relationships with key risk-sharing partners. These risk-sharing partners develop and manufacture significant portions of our aircraft’s systems and components with their own funds, thereby reducing our development expenses. These risk-sharing partners also fund a portion of our research and development expenses through direct contributions of cash or materials. These strategic relationships enable us to reduce our development expenses and risks, improve our operating efficiency, enhance the quality of our products and reduce the number of our suppliers, thereby providing us with flexibility in our production process.
Experienced and highly skilled workforce. Our employees are experienced and highly skilled. As of December 31, 2022, engineers comprised approximately one-fifth of our workforce. Our employees’ high skill and knowledge levels and our continuous training and incentive programs allow us to efficiently pursue new programs and offer high technical expertise and guidance to our customers.
Flexibility of production to meet market demands. We believe the flexibility of our production processes and our operating structure, including our risk-sharing partnerships, allow us to adjust our production in response to market demand.
Funded development of defense products. Historically, development expenditures related to defense aircraft have been funded in large part by our Defense & Security segment customers, which mainly comprise governments. These customers have had an important role in our engineering and industrial development. In addition, we use proven civil platforms as a solution for certain defense products.
High ESG standards. ESG has been part of our strategy, including in the development of increasingly more eco-efficient aircraft and in the adoption of more sustainable production processes and management of natural resources. We are embedding our business strategy with social responsibility and environmental impacts in everything we do, from our processes and facilities to product development and our supply chain. We work across all our key stakeholder audiences to develop sound strategies, define indicators, and establish targets that are integrated into our corporate sustainability plan. Some of our long-term ESG commitments are: (i) achieve carbon neutrality in operations by 2040, through the acquisition of electricity 100% from renewable sources, the increasing use of sustainable aviation fuel (SAF) and the compensation of residual emissions that are not reduced through efficiency projects, alternative energy available or new technologies, (ii) develop sustainable disruptive products, services and technologies, including electrification, hybrids, biofuels, including SAF and other innovative alternative energies; (iii) launch “eVTOL” aircraft with zero emission by 2026; and (iv) leverage diversity in the hiring of gateway programs, in leadership positions and in the aeronautical specialization program maintained by us
Highly skilled engineering for defense application and development of market leading products for our Defense & Security segment. As of December 31, 2022, we had sold more than 1,400 defense aircraft, including government transport aircraft, to more than 60 armed forces and operators worldwide. The
24
A-29 Super Tucano and the C-390 Millennium are the main products of our Defense & Security segment. We believe the A-29 Super Tucano is the market benchmark in its class because it combines a rugged and reliable turboprop platform with a high-precision-class payloads delivery system. It is the only combat-proven close air support aircraft currently in production. The C-390 Millennium is a multi-role military transport aircraft developed to become a market leader in its category. It has several functions and may be used in adverse situations, such as firefighting and aerial refueling, (KC-390 Millennium version). The C-390 Millennium has flexibility, strength, mobility, easy maintenance and the latest technology. Our workforce is highly capable of understanding our customers’ operational needs and their requirements regarding our defense products and services portfolio. Our team offers capable, flexible and low lifecycle cost products with global applications to our customers. We also have a strong ability to engage with several stakeholders in partnerships, enabling the development of state-of-the-art defense and space solutions within reduced time cycles.
Business Strategies
With a view to continue growth of our business and increasing our profitability, we intend to continue to offer our customers cost-effective, high quality, and reliable aircraft and services. The key elements of our strategy are the following:
Market our commercial aircraft. We are fully committed to marketing our jets of up to 150 seats. As of December 31, 2022, we had approximately 330 units in the ERJ family and approximately 1,300 units in the EMBRAER170/190 jet family and around 49 units in the E2 generation in active service, according to Cirium. As of December 31, 2022, 69 units of E190/E195 E2 had been delivered to customers worldwide. In February 2022, we announced three-year pause in its E175-E2 jet development program. For more information, see “—Products.” We believe there are market opportunities for the 170/190 jet family and for the E2 generation, especially for airlines seeking to expand their fleet in the mid-density segment and substitute aging aircraft in the below-150 seat category. Additionally, commercial jets will have opportunities with mainline and low-cost carriers that are right sizing their fleets to adjust capacity and will provide us with significant opportunities to increase our competitiveness by offering a full range of jets of up to 150 seats to our customers.
Maintain the market leadership of our commercial jets up to 150 seats. Our new generation of commercial aircraft, the E-Jet E2, reinforces our commitment to maintain our market leadership in the segment of commercial jets up to 150 seats. Our commercial aircraft have state-of-the-art engines, aerodynamically advanced wings, full fly-by-wire flight controls and improvements to other systems, which increase efficiency by reducing fuel consumption, maintenance costs, emissions and external noise significantly.
Develop innovative and sustainable solutions. To further nurture the future of regional air mobility while also complying with industry-wide sustainable goals, we have announced the Energia Family of aircraft concepts. These four innovative concepts, destined to the 9 to 50 seats market, we believe it will allow the company to further study, explore, and potentially commercialize the cutting-edge technologies that will define the industry of tomorrow through advanced designs and new propulsion systems, while also fostering discussions related to airport infrastructures, passenger convenience, and seamless journeys opportunities.
Strengthen our position in the executive aviation market. We believe we are well positioned to grow in the small and medium cabin jet classes. We have streamlined our portfolio to feature the Phenom 100EV, an entry-level jet, the Phenom 300E, a light jet, and the Praetor 500 and Praetor 600, midsize and super-midsize jets, respectively. This renewed portfolio is industry-leading in performance, comfort and technology. We are committed to understanding and responding to market and customer needs and continuously improving our product and customer support for our executive jets. For over a decade, we have introduced disruptive clean sheet design aircraft to the market. In 2022, the Phenom 300E was the most delivered light jet for the eleventh consecutive year and the most delivered twinjet in whole executive jets industry for the third consecutive year.
Provide complete and integrated solutions to the customers of our Defense & Security segment. In our Defense & Security segment, we offer a broad range of solutions covering air, land, sea, space and cyber security environments. We are constantly evaluating, developing and efficiently integrating new opportunities to meet our customers’ needs.
25
Continue to pursue niche market opportunities in the defense and security market. We offer solutions for transportation, close air support, tactical, training, intelligence, surveillance, reconnaissance and cybersecurity, among others. With our products, we provide enhanced capabilities through a defense-integrated portfolio that meets the needs of a wide range of governments’ military needs. This is only possible due to our culture of continuously pursuing market opportunities with our existing and potential customers with whom we work to develop innovative and tailored solutions throughout time.
Expanding our international sales, while continuing our partnership with the Brazilian Armed Forces in our Defense & Security segment. Historically, the Brazilian Armed Forces have been our key partner on the development and acquisition of aircraft and land systems. Since our foundation in 1969, we have developed a state-of-art engineering, operations capability and supply chain management expertise at a level that allows us to not only continue addressing the needs of our Brazilian customers, but also of international customers, providing them with tailored solutions. We are fully committed to expanding our international sales, while consolidating our position as a key partner of the Brazilian Armed Forces.
Focus on customer satisfaction through established and respected services and support solutions. We believe that our focus on customer satisfaction is essential to our entrepreneurial success and our business strategy. Our philosophy is to offer and deliver a comprehensive portfolio of services and support solutions to all customers ensuring best product availability with competitive operational costs. Our high-quality customer service and support is key to our customer focus, as it allows us to maintain long-term relationships with our customers and increase the competitiveness of our products. As the number of our aircraft in operation continues to grow and our business expands, we have increased our commitment to provide quality after-sale support to our customers, including technical assistance, training, maintenance, spare parts, product modifications and other related services. We own and manage over 80 several service centers around the world, strategically located to support our operations with effective, reliable and efficient customized solutions. In addition, our customers may rely on authorized third-party maintenance service centers around the world to comply with their maintenance needs.
Motivate our employees and improve our production processes and managerial practices. We constantly seek to exceed our customers’ expectations. To achieve this goal, we commit to efficient production processes and best managerial practices. The success of our products and services is ultimately a combination of the contribution of our employees and the production processes we have developed over the years. We strive to motivate our employees and refine our production processes. We implement and develop corporate programs, including our Embraer Enterprise Excellence Program, or P3E, based on lean manufacturing philosophy, which consists of reducing production and response times from suppliers to customers.
Commercial Aviation Segment
We design, develop and manufacture a variety of commercial aircraft. Our Commercial Aviation segment accounted for 34.0%, 31.4% and 29.6% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively. On December 31, 2022, our firm orders in backlog for our commercial aviation aircraft totaled US$8.6 billion as compared to US$9.0 billion on December 31, 2021.
Products
ERJ Jet Family
We developed the ERJ family, our 37-50-passenger twin jet-powered regional jet, introduced in 1996, to address the growing demand among regional airlines for medium-range, jet-powered aircraft. Until the launch of the EMBRAER 170/190 Jet Family, the ERJ was our most important product, achieving great results and being responsible for consolidating our presence in the United States regional market. As of December 31, 2022, 330 ERJ aircraft remained in service around the world.
26
EMBRAER 170/190 Jet Family
The EMBRAER 170/190 jet family provides our customers four aircraft models in the regional passenger jet range. The EMBRAER 170 is a 66-78 seat jet and the EMBRAER 175 is a 76-88 seat jet, while the EMBRAER 190 is a 98-114 seat jet and the EMBRAER 195 is a 100-124 seat jet. The EMBRAER 170 was certified by the Brazilian Aviation Authority, the FAA, the Joint Aviation Authority of Europe (the former advisory organization that made certification recommendations to non-European Union national authorities), or the JAA, and the EASA in February 2004, and deliveries of the EMBRAER 170 began in March 2004. The EMBRAER 175 was certified by the Brazilian Aviation Authority in December 2004, by the EASA in January 2005 and by the FAA in August 2006. The EMBRAER 190 was certified by the Brazilian Aviation Authority in August 2005, by the FAA in September 2005 and by the EASA in June 2006. The EMBRAER 195 was certified by the Brazilian Aviation Authority in June 2006, by the EASA in July 2006 and by the FAA in June 2007.
We designed the EMBRAER 170/190 jet family to maximize the benefits of commonality. Aircraft in the family share approximately 86% of the same components. The high level of commonality in this jet family lowered our development expenses and shortened our development period. We believe that this commonality leads to significant savings to our customers in the form of easier training, less expensive parts and maintenance and lower operational costs. Due to differences in size and weight, the EMBRAER 170/190 jet family does not share the same wing design. This new regional jet family has engines fixed under its main wings—a design intended to enhance power, improve fuel economy and minimize turnaround times. All of the aircraft models of this family are powered by engines manufactured by General Electric Aircraft Engines and contain state-of-the-art avionics manufactured by Honeywell International Inc. (Aerospace).
The EMBRAER 170/190 jet family’s principal features are:
• | Performance. All four jets in the EMBRAER 170/190 jet family have a maximum cruising speed of Mach .82. The EMBRAER 170 and the EMBRAER 175 with all passengers on board have maximum ranges of 1,800 and 1,750 nautical miles, respectively, and each is available in the advanced-range version, with maximum ranges of 2,150 and 2,250 nautical miles, respectively. The EMBRAER 190 and EMBRAER 195 with all passengers on board have maximum ranges of 1,850 and 1,600 nautical miles, respectively, and each is available in the advanced-range version with maximum ranges of 2,450 and 2,300 nautical miles, respectively. |
• | Ground servicing. The underwing engine design and the existence of four doors, two in the front and two in the back, provide for enhanced accessibility and efficiency of ground services. |
• | Cabin and cargo space. We have enhanced passenger safety and comfort in the EMBRAER 170/190 jet family. The aircraft’s “double-bubble” design enables a four-abreast cabin, a wide aisle, greater interior space and headroom, and a larger baggage compartment than the regional jets of our competitors, including those regional jets that are in the development stage. |
On September 29, 2022, we reached a new milestone on the E-Jet program, the delivery of the 1700th serial number production aircraft. The Aircastle leased E195- E2 was handed over to KLM Cityhopper at a ceremony at Embraer’s facility in São José dos Campos.
As of December 31, 2022, the EMBRAER 170/190 jet family has 90 orders in backlog and more than 1,650 aircraft have already been delivered to customers worldwide.
27
E-Jets E2Family
In June 2013, we launched the second generation of our E-Jets family of commercial aircraft, named the E-Jets E2, comprising three new aircraft, the E175-E2, E190-E2, and E195-E2. The E190-E2 and E195-E2 entered service in April of 2018 and September of 2019, respectively.
The launch of the E2 advances our vision of offering leading-edge commercial aircraft with a capacity for 70 to 150 seats, seamless mainline comfort, and performance for flexible and efficient utilization by regional, low-cost and network carriers. Our strategy is to offer all the benefits of a new design, but with the reliability of an updated platform and commonality with current generation E-Jets. We have continually invested in the E-Jets program, so that our customers can stay competitive with aircraft that have the lowest operating costs and the highest passenger appeal.
In a typical single-class layout, the E175-E2 was extended by one seat row, compared to the current generation E175, and will seat up to 90 passengers, while the E190-E2 is the same size as the E190, with up to 114 seats. The E195-E2, compared to the current E195, has grown by three seat rows and will accommodate up to 132 seats in a typical single class configuration or up to 144 seats in a high-density configuration.
In June 2015, two years after the launch of the program, we began to assemble the first of the E-Jets E2 family, an E190-E2, at our factory in São José dos Campos.
In November 2015, the Pratt &Whitney PW1900G PurePower® Geared Turbofan™ (GTF) engine for the Embraer E190-E2 and E195-E2 aircraft successfully completed its first flight initiating the engine’s flight test program.
In February 2016, in a ceremony held at our plant in São José dos Campos, we presented the E190-E2, which made its first flight in May 2016. In March 2017, in a ceremony held at our plant in São José dos Campos, we presented the second model of the E2 generation. In March 2017, we announced that Azul, the largest operator of the current generation E195s in the world, would be the launch operator of the E195-E2.
On February 28, 2018, we received a Type Certificate from the National Civil Aviation Agency, the FAA and EASA for the E190-E2, the first member of the E-Jets E2 family of commercial aircraft. It was the first time that an aircraft program with the level of complexity of the E2 received a type certificate from three major worldwide certification authorities simultaneously.
On April 4, 2018, in a ceremony held in São José dos Campos, we celebrated the delivery of the first aircraft E190-E2 aircraft to Widerøe, the largest regional airline of Scandinavia. The aircraft entered into service in the same month and performed a sold-out flight between Bergen and Tromsø in Norway.
In April 2019, the E195-E2 received simultaneous approval and was certified by the Brazilian Aviation Authority, the FAA and EASA.
On September 12, 2019, in a ceremony held at our plant in São José dos Campos, we delivered the first E195-E2, the largest of the three members of the E-Jets E2 family of commercial aircraft. The recipients were AerCap, the world’s largest aircraft leasing company, and Azul Linhas Aéreas Brasileiras S.A., or Azul, which is the global launch operator for the E195-E2. On December 12, 2019, the Embraer E175-E2 made its inaugural flight from our facility in São José dos Campos. We believe in the E175-E2 market potential, being the most efficient and comfortable commercial aircraft in the market for the 76-seat category, whether to substitute the E175-E1 or to enhance the regional air mobility through new markets. Nevertheless, we intend to keep offering the E175-E1 with all the improvements made to the platform throughout the years of operation and feedback of our customers. If further developments are made into the scope clause, the E175-E2 will be the right and quickly ready product for the future, due to its optimized fuel consumption, maintenance cost, level of emissions and noise metrics.
28
On February 18, 2022, we announced a three-year pause on the development of the E175-E2 jet which is expected to entry into service between 2027 and 2028. Although US mainlines’ scope clauses are not expected to change in the next three years, we will keep monitoring discussions with the pilot unions regarding the maximum take-off weight (MTOW) limitation for aircraft with up to 76 seats, together with current global market conditions for commercial aviation and the continuing interest in the current E175 jet in the US market. Until then, the current generation E175 jet will continue to be the best solution available to this market segment.
On March 7, 2022, we announced the launch of the E190F and E195F Passenger to Freight Conversions (P2F), designed to meet the changing demands of e-commerce and modern trade that require fast deliveries and decentralized operations. The full freighter conversion is available for all pre-owned E190 and E195 aircraft, with entry into service expected in early 2024.
On November 10, 2022, the Embraer E190-E2 was granted the Type Certificate by the Civil Aviation Administration of China (CAAC). On December 15, 2022, the Embraer E195-E2 and E190-E2 were granted the Type Certification from Transport Canada Civil Aviation (TCCA), following certification from ANAC, the FAA (United States), and EASA (Europe) in 2019 and 2018 respectively.
In December, 2022, the first five of 50 Embraer E195-E2 ordered by Canadian company Porter Airlines were delivered. Porter was the North America entry customer for Embraer’s E195-E2 and opened up operations in the region.
As of December 31, 2022, the E-Jets E2 had 201 orders in backlog and 69 aircraft have already been delivered to customers worldwide. Operators include airlines in various regions, such as Azul Linhas Aéreas (Latin America), Widerøe (Europe), Helvetic (Europe), KLM (Europe), Binter (Europe), Air Kiribati (Asia Pacific), Bevalia (CIS), Air Peace (Africa) and Congo Airways (Africa) and the most recent Porter Airlines (North America).
Customers
We have a diverse, global customer base, and our major operators for commercial aircraft include some of the largest regional, low-cost and mainline airlines in the world. As of December 31, 2022, our largest E-Jet customers by number of aircraft in service were SkyWest, Republic, Envoy Air, Azul, Mesa, KLM, JetBlue, Aeromexico, LOT Polish, Tianjin and Horizon Air. In addition, as of December 31, 2022, 88.9% of our firm orders in backlog for the current EMBRAER 170/190 jet family are from the airlines Republic Airlines and Horizon Air / Alaska . Moreover, our E-Jets E2 family backlog mainly comprises orders from the companies Azul, AerCap, AirCastle, AirPeace, Porter, and Azorra which represent 83.1% of our E-Jets E2 family orders
We generally sell our commercial aircraft pursuant to contracts with our customers on a fixed-price basis, adjusted by an escalation formula. Our contracts generally include an option for our customers to purchase additional aircraft at a fixed-price option, subject to the same escalation formula. In addition, our contracts include a product support package to cover the entry into service of our aircraft, as well as a general warranty for such aircraft. Other provisions for specific aircraft performance and design requirements are negotiated with our customers. In addition, some of our contracts contain cancellation provisions and trade-in options and financial and residual value guarantees. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Embraer—Some of our aircraft sales may be subject to financial and residual value guarantees and trade-in options that may require us to make significant cash disbursements” for a more detailed discussion of these provisions.
Sales and Marketing
Our current marketing strategy is based upon our assessments of the worldwide commercial airline market and of the needs of our customers. We actively market our aircraft to international airlines and regional affiliates of major global airlines through our regional offices in the United States, Europe and Asia.
29
Our success depends, to a significant extent, on our ability to discern our customers’ needs, including needs for customer service and product support, and to fill those needs in a timely and efficient manner while maintaining the high quality of our products. Our market and airline analysts focus on the long-term trends of the market, competitive analysis, product-enhancement planning, and airline analysis. In terms of direct marketing to our customers, we rely on relationship development, social media, and professional network. As a way to keep our customers informed and enhance awareness and brand recognition, we participate at air shows and events, webinars and other forums. Besides São José dos Campos in Brazil, we have regional sales offices in Amsterdam, Holland; Fort Lauderdale, Florida, United States; Beijing, China; and Singapore.
Production, New Orders and Options
Prior to starting production or development of a new project, we secure letters of intent for future orders of a significant number of aircraft. We typically begin taking orders and building a backlog two years before we begin producing a new aircraft model, aiming to receive a significant number of orders before we deliver the initial aircraft. Once an order is taken, we reserve a place for that order on the production line, ensuring that we will maintain production sufficient to meet demand. Once a place is reserved on the production line, we are able to give customers delivery dates for their orders.
We include an order in backlog once we have received a firm commitment, represented by a signed contract. Our backlog does not include options and letters of intent for which definitive contracts have not been entered into.
Our options generally provide our customers the right to purchase an aircraft at a fixed price and on a specified delivery date, subject to escalation provisions, under a purchase agreement. Once a customer decides to exercise an option, we account for it as a firm order. Occasionally, we have extended the exercise date for our options and renegotiated the delivery schedule of firm orders, as well as allowed customers to convert their firm orders or options for one aircraft into firm orders or options for another aircraft within the same commercial aircraft family.
Competition
We generally face competition from major manufacturers in the international aircraft market. Each category of our products faces competition of a different nature and generally from different companies. Some of our competitors have greater financial, marketing, and other resources than we do.
We currently face the strongest competition from the following aircraft:
• | A220, former CSeries, 110 to 150-seat jets acquired by Airbus from Bombardier, which entered into service in 2016; |
• | ARJ21, a 90-seat regional jet produced by the Commercial Aircraft Corporation of China, or COMAC; |
• | SSJ100, a 103-seat regional jet produced by JSC Sukhoi Company; |
• | SpaceJet (former MRJ), a 76 to 88-seat jet which was under development by Mitsubishi Aircraft Corporation, but had its development suspended in 2020 and officially cancelled in 2023; |
• | CRJ-700, CRJ-900 and CRJ-1000, 70-seat, 86-seat and 98-seat regional jets, respectively, formerly produced by Bombardier, acquired by Mitsubishi Heavy Industries (MHI); |
• | Dash 8-400 (former Q-400) a 72-seat turboprop program from Bombardier acquired by Havilland Canada which belongs to Viking Air; |
• | ATR-72, a 68-seat turboprop produced by ATR Aircraft. |
30
We are the leading manufacturer in the market for jets up to 150 seats in the world, with 29% market share in terms of accumulated deliveries, since 2004, according to Cirium.
The key competitive factors in the markets in which we participate include design and technological strength, aircraft operational costs, aircraft price, including financing costs, customer service and manufacturing efficiency. We believe that we will be able to compete favorably based on our aircraft performance, efficiency, low operating costs, product development experience, global customer base, market acceptance, cabin design and aircraft price. In addition, while the competitive landscape has become increasingly aggressive, deals such as the Airbus acquisition of a majority stake in Bombardier’s C-Series Program, rebranded as A220, are evidence of the opportunities in the 100-150 seats market. With the Airbus sales team marketing the A220 Program, we believe customers who would not have previously considered aircraft of this size may seek our E190/E195-E2 as a comparable alternative.
Executive Aviation Segment
We design, develop and manufacture a variety of executive jets within our Executive Aviation segment. Our current portfolio of executive jets comprises the entry-level Phenom 100 EV, the light Phenom 300E the midsize Praetor 500 and the super-midsize Praetor 600.
We market our executive jets to companies, including fractional ownership companies, charter and air-taxi companies, high-net-worth individuals and flight academies, including independent, commercial airline and military flight academies. Our Executive Aviation segment accounted for 27.4%, 26.9% and 28.4% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively. On December 31, 2022, our firm orders in backlog for our executive jets totaled US$3.9 billion as compared to US$2.9 billion on December 31, 2021.
In May 2005, we launched the Phenom 100 and Phenom 300, which are executive jets in the entry-level and light jet categories, respectively. The Phenom 100 jet, which carries six to eight people, received the Brazilian Aviation Authority and FAA certification in December 2008, the same month of its entry into service. The Phenom 300 carries up to ten people and has a larger fuselage and wingspan and longer range than the Phenom 100. It received the Brazilian Aviation Authority and FAA certification and entered service one year after the Phenom 100. By the end of 2022, the Phenom 100 series fleet comprised nearly 400 aircraft distributed in 30 countries and the Phenom 300 fleet comprised over 700 jets distributed in 60 countries. Focused on constant improvement, we launched the Phenom 100EV and the Phenom 300E in 2016 and 2017, respectively. In 2020, we introduced the new Phenom 300E, featuring enhancements in performance, comfort and on-board technology. The new Phenom 300E is currently the only in-production single-pilot jet to reach Mach 0.80, offering a quieter cabin and upgrades to its avionics suite. These features include predictive windshear and a runway overrun awareness and alerting system, which are our exclusive intellectual property and the first technology of its kind to be developed and certified in business aviation. The model was already granted its certification by the Brazilian Aviation Authority, EASA and the FAA.
In August 2020, we announced the Phenom 300MED, a unique medical evacuation (MEDEVAC) transportation solution suitable to Phenom 300 model series, which is also available for retrofit, through a partnership with the companies umlaut and Aerolite AG (Aerolite). Embraer and umlaut have jointly developed and certified a new supplemental type certificate (STC) utilizing Aerolite equipment in 2021 and 2022. Aircraft STC is available for national aviation agencies such as EASA (Europe), FAA (United States) and ANAC (Brazil). Designed as an ideal solution for both civil and government applications, the MEDEVAC solution will be installed exclusively by Embraer’s award-winning Services & Support organization, ensuring the highest quality, reliability, and service experience, direct from the manufacturer.
In November 2020, Embraer and Porsche announced that they have collaborated to create a limited-edition, limited-quantity Embraer Phenom 300E aircraft and Porsche 911 Turbo S-car pairing called Duet. Embraer and Porsche ceased Duet offering in 2022.
31
In May 2006, we launched the Lineage 1000, an ultra-large executive jet based on the EMBRAER 190 commercial jet platform. The Lineage 1000 is configured to accommodate up to 19 passengers in a total cabin area of 750 square feet (70 square meters). The Lineage 1000 was certified by the Brazilian Aviation Authority in December 2008 and by the FAA in January 2009 and entered service in the first half of 2009. Continued investments in the Lineage 1000 resulted in the introduction of the Lineage 1000E, in 2013, enhancing the customer experience by extending its range capability and offering new interior amenities. In 2019, we successfully implemented the sunset strategy of the Lineage 1000E. As of December 31, 2022, the Lineage 1000 fleet comprised 26 units distributed in 11 countries.
In April 2008, we formally launched two new programs in the medium cabin category, the medium-cabin jet Legacy 450 , with a 2,575 nautical mile range and a capacity for up to nine passengers, and the supermidsize jet Legacy 500 , with a 3,125 nautical mile range and a capacity for up to 12 passengers. The Legacy 500 was certified by the Brazilian Aviation Authority and the FAA in 2014, the same year that it entered service. The Legacy 450 was certified by the Brazilian Aviation Authority and the FAA in August 2015 and by the EASA in September 2015. In November of the same year, we announced an increase of the Legacy 450’s range in 2,900 nautical miles, and it entered service in December. In November 2017, we introduced the best-in-class 5,800-foot cabin altitude for the Legacy 450/500 jets, which further enhanced customer experience. These two aircraft programs have helped strengthen our position in the market and establish our portfolio as one of the broadest in the executive aviation industry. Both the Legacy 450 and 500 had their final deliveries to customers in 2020.
In October 2009, we introduced the Legacy 650 jet, a large jet based on the Legacy 600 platform, with a longer range for up to 14 passengers. The Legacy 650 received the Brazilian Aviation Authority and FAA certification in October 2010 and February 2011, respectively, and entered service in November 2010. The latest evolution of the aircraft that started our Executive Aviation segment is the Legacy 650E, which introduces auto-throttle and interior enhancements, in addition to a ten-year warranty, which set a new industry standard for performance and reliability. In 2019, we successfully implemented the Legacy 650 series sunset strategy. As of December 31, 2022, the Legacy 650 fleet comprised 109 units distributed in 31 countries.
In October 2018, we launched the new Praetor 500 and Praetor 600, the most disruptive and technologically advanced midsize and super-midsize jets, respectively, introducing unprecedented range into their categories. The Praetor 600 is the farthest-flying super-midsize business jet, which allows nonstop flights between London and New York. The Praetor 500 is the fastest midsize aircraft, capable of reaching Europe from the west coast of the US with a single stop. The Praetor 600 was certified and entered service in June of 2019 and in December of 2019, respectively. The Praetor 500 is the successor of the Legacy 450 in the midsize class as the Praetor 600 is for the Legacy 500 in the super midsize class. In 2020, we announced a series of breakthrough cabin enhancements for the Praetor 500 and Praetor 600. In addition to the lowest cabin internal atmospheric pressure in the class (equivalent to an altitude of 5,800 feet) and 100% fresh air capability, Embraer is now offering the HEPA filter as a standard feature on all Praetor aircraft and announced the certification of a new electric lavatory pocket door. In 2020, we announced the completion of the first European conversion of a Legacy 450 to a Praetor 500. The conversion was performed at the Embraer Executive Aviation Service Center at Le Bourget International Airport, in Paris, France. As of December 31, 2022, the Praetor 500 fleet comprised 42 units distributed in five countries and Praetor 600 fleet accumulated 69 units in 13 countries.
As of December 31, 2022, we have delivered more than 1,650 executive jets and our fleet had served over 1,000 customers in more than 65 countries.
Competition
Phenom 100EV and Phenom 300E competitors in the entry-level and light jet categories include Textron, Honda and Pilatus. In the medium cabin category, the Praetor 600 compete with Textron, Dassault and Gulfstream aircraft, while the Praetor 500 compete largely with aircraft produced by Textron.
32
Continuing Internationalization
In October 2014, we announced the opening of our Legacy 500 and Legacy 450 assembly complex in Melbourne, Florida, more than doubling the size of our campus at Melbourne International Airport. Since then, we have continued to expand our footprint into the complex, with delivery centers, assembly hangars, and paint and flight preparation facilities. As of December 31, 2022, our Melbourne campus had a constructed area of approximately 484,000 square feet.
Defense & Security Segment
We conceive, design, develop, manufacture and support a wide range of integrated solutions for the defense and security market. Our products include training, advanced training aircraft, aerial surveillance platforms, military transport aircraft, government transport aircraft and command, control, communications, computer, intelligence, surveillance and reconnaissance systems, border surveillance and security, and cybersecurity. We offer a complete portfolio of customer services, ranging from maintenance and material solutions to complete Contractor Logistical Support programs. Using our commercial platforms and executive jets, we also offer a comprehensive range of aircraft dedicated to transportation of authorities, medical evacuation and general transportation missions for the defense and security market.
As of December 31, 2022, we had sold more than 1,400 defense aircraft, including government transport aircraft, to more than 60 armed forces and operators worldwide. We are also the leading supplier of defense aircraft to the Brazilian Air Force based on the total number of aircraft in its fleet. Our Defense & Security accounted for 9.9%, 14.2% and 17.3% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, our firm orders backlog for our Defense & Security segment was US$2.4 billion, reflecting the effect of our negotiation processes with the Brazilian Air Force, in 2022, in order to reduce from 28 to 19 the total number of KC390 Millennium aircraft to be delivered until 2034 under the terms of the agreements entered into with the Brazilian Air Force, with no possibility of further reduction.
Products
Military Transport – C-390 Millennium
After its rebranding in 2019, our multi-mission aircraft C-390 Millennium maintained its features, per the certifications by ANAC and the Military Aviation Certification Authorities (the Department of Aeronautical Science and Technology, or DCTA, and the Industrial Development and Coordination Institute, or IFI).
The C-390 Millennium is a multi-role military transport aircraft developed to set higher standards in its class. The C-390 Millennium is efficient for cargo and troop transport, aerial resupply and humanitarian missions, among other uses, as well as for uses in adverse situations, evacuations, firefighting and aerial refueling (KC-390 Millennium version). Designed with modern engineering solutions, this new aircraft is an innovation in military transport aviation. The C-390 Millennium features flexibility, strength, mobility, easy maintenance and advanced technology.
In 2019, Embraer delivered the first two KC-390 Millennium multi-mission transport aircraft (the “K” denotes that these C-390 aircraft will also have aerial refueling capabilities) to the Brazilian Air Force. In addition, the Portuguese government signed the first export contract of KC-390 Millennium aircraft, including the acquisition of five aircraft and one flight simulator, together with a 12-year contract of services to support the fleet. The first delivery is planned for 2023, and the aircraft will be used for military transport.
In 2020, Embraer delivered the third and fourth KC-390 Millennium multi-mission transport aircraft to the Brazilian Air Force. Since the beginning of the COVID-19 pandemic, the Brazilian Air Force has operated the KC-390 in logistics transport operations, carrying essential supplies to combat the pandemic in Brazil. Furthermore, in November 2020, we entered into an export agreement with the Hungarian government for the acquisition of two aircraft in its KC-390 Millennium version, with the capacity to carry out in-flight refueling missions.
33
During 2021, the Brazilian Air Force had four KC-390 Millennium multi-mission transport aircraft operating in logistics transport operations. The development of the version of the KC-390 Millennium, tailored for Portugal, advanced as expected, and the version of the KC-390 Millennium intended for Hungary also showed significant progress in its development. In 2022, the Brazilian Air Force took delivery of its fifth KC-390 Millennium. As of December 31, 2022, the fleet has accomplished approximately 8,000 flight hours and around 6,000 flight cycles.
In June 2022, the Ministry of Defense of The Netherlands announced the decision to acquire five C-390 Millennium aircraft to substitute its fleet of C-130H Hercules. As of the date of this annual report, the procurement process is under the proposal analysis phase.
In February 2022, we and the Brazilian Air Force engaged in negotiations, which resulted, among other matters, in the reduction of the total number of KC-390 Millennium aircraft to be delivered under the terms of the agreement from 28 to 22. In October 2022, we and the Brazilian government engaged in further negotiations which resulted, among other matters, in the reduction of the total number of KC-390 Millennium aircraft to be delivered under the terms of the Contracts from 22 to 19, with no possibility of unilateral reductions. Deliveries related to these aircraft are scheduled to occur by 2034. For further information, see Note 1.1.1 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
Close Air Support and Advanced Training – A-29 Super Tucano
The A-29 Super Tucano is an aircraft equipped for close air support and counter-insurgency scenarios, containing integrated sensors, datalink, cockpit protection and multiple payload configurations. We believe that the Super Tucano is the market benchmark in its class, as it combines a rugged and reliable turboprop platform with a delivery system of high-precision class payloads. It is the only combat-proven close air support aircraft currently in production. The A-29 Super Tucano is also a full-fledged tactical trainer due to its handling features, low operational cost, and state of the art avionics systems. Since its entry into service in 2004, a total of more than 260 units have been sold to 16 different countries by the end of 2022.
We have been acting as a subcontractor for the United States Government (“USG”), and have delivered to Sierra Nevada Corporation (“SNC”), a USG prime contractor, 47 A-29 Super Tucano aircraft to different countries. In 2021, we delivered nine aircraft to SNC, three of them for the AFSOC (Air Force Special Operations Command) Program of the United States Air Force, and six through the Foreign Military Sales program to the Nigeria Air Force Program. In addition, through our Gavião Peixoto unit, we delivered five more aircraft to an undisclosed customer, together with advanced training systems, mission planning and debriefing stations, optional equipment and logistics package.
In 2022, we entered into a new sales contract of A-29 Super Tucano aircraft to an undisclosed customer.
Fighter –F-39 Gripen Program
In July 2014, we entered into an agreement with Saab AB (Saab) to collaborate in a joint management program for the F-X2 Project, currently called F-39 Gripen Program, pursuant to the selection of the Gripen NG as Brazil’s next generation fighter jet. Under this agreement, we have performed a material role in the overall program, and we have also taken an extensive share of work in systems development, integration, flight testing, final assembly and aircraft deliveries of both the single and the two-seat version of the state-of-the-art Gripen NG aircraft for the Brazilian Air Force.
In 2022, multiple milestones in the F-39 Gripen development Program have been accomplished, such as (i) Embraer’s support to the delivery of the first two aircraft assembled in Sweden to the Brazilian Air Force; and (ii) the set-up procedures of the F-39 Gripen final assembly line in Brazil, planned to start in 2023.
34
Special Transport Aircraft
In 2021, we have entered an agreement with Aerodata AG for the sale of a Praetor 600 jet to be converted into an aircraft to fulfill a variety of different in-flight inspection missions. In 2022, this aircraft was completed and delivered to Aerodata for integration of mission equipment and systems.
Modernization Programs
We offer military aircraft modernization services and currently have three ongoing programs under contract, two of them with the Brazilian Air Force and one with the Brazilian Navy.
The A-1M modernization program focuses on modernizing the AM-X aircraft, which is an aircraft developed by us and sold to the Brazilian Air Force approximately 20 years ago, and the platform naturally became technologically outdated overtime. From 2013 through 2021, we delivered 11 modernized aircraft and the program was completed with the Verification Plan by the Brazilian Air Force in 2021.In 2022, Embraer completed some remaining milestones in the program, after the final aircraft delivery the year before, and started demobilizing the production line and testing equipment, expected to be completed by 2023.
The other program with the Brazilian Air Force relates to the modernization of five E-99M Airborne Early Warning and Control (AEW&C) aircraft. The agreement also accounts for six mission planning and analysis stations, which will be employed for training and crew development. In 2020, the first two units were delivered and, in 2022, we delivered the fourth modernized aircraft to Brazilian Air Force. The last aircraft is planned to be delivered in 2023.
The modernization program with the Brazilian Navy is the upgrade of A-4 Skyhawk fighter jets (AF-1 per the Brazilian Navy´s Designation), with the purpose of incorporating new technology, including new avionics, radar, power generation and independent oxygen generating systems. By 2021, six out of seven modernized AF-1 (AF-1B) fighter jets were delivered to the Brazilian Navy. In 2022, we delivered our last modernized AF-1, as well as the fixed-base simulator AATD (Advanced Aircraft Training Device) to the Brazilian Navy.
Radars and Land Systems Programs
Our portfolio of capabilities with respect to radars and land systems includes the development, integration, project management, sourcing, manufacturing, implementation, deployment and life cycle support of radars and land systems for multiple applications, including: low-altitude air defense, surface surveillance, air traffic control, identification friend or foe (IFF), medium-range air defense, surveillance and early warning, monitoring and protection of borders, protection of critical infrastructures, among others. Our products include both fixed, modular, and transportable solutions. Our line comprises a comprehensive range of products, namely the SENTIR M20 ground surveillance radar, the SABER M60 short-range air defense radar, the S200R air traffic control and air defense radar, the SABER M200 VIGILANTE medium-range air defense radar, among other integrated solutions.
In 2020, we entered into an agreement with the Brazilian Army for the supply of two SABER M60 v2 radars to support its anti-aircraft artillery units. These radars have been timely delivered in 2022 and complemented more than 30 other SABER M60 radars delivered to the Brazilian Army in prior years. Also in 2022, we entered into an agreement with the Brazilian Army for the supply of four additional SABER M60 v2 radars.
In 2022, we signed a contract with the Brazilian Army for the development of a counter battery radar, which will count on the same knowledge and technology applied to the SABER M200 radars.
In 2022, the Brazilian Army completed the first phase of its Integrated Border Monitoring System (SISFRON) program, which largely strengthened the presence and the action of the Brazilian Armed Forces along the western borders of Mato Grosso and Mato Grosso do Sul states. Further to the development of the program, we entered into a new agreement with the same customer for the development and implementation of the second phase of the SISFRON program, which will add operational capabilities and expand the coverage of Brazilian western borders monitoring and protection system.
35
Principal Defense & Security Subsidiaries and Joint Ventures
Atech
Since 2013, Atech has worked in many strategic projects for the Brazilian Government, including our nuclear-electric generation laboratory (LABGENE program, which has the purpose of developing a protection and control system for the nuclear reactors) and the Brazilian air defense systems. It is also responsible for the development, implementation and modernization of the Brazilian air traffic control centers. The LABGENE program continued to advance, and completed the factory acceptance tests (FAT) in 2022, as well as the integration of the data control system (DCS). In 2022, Atech entered into new agreements with the Brazilian Air Force, and a new agreement with the Brazilian Navy to implement the Advanced System for Managing Air Traffic Information and Operational Interest Reports (Sistema Avançado de Gerenciamento de Informações de Tráfego Aéreo e Relatório de Interesse Operacional, or SAGITARIO), which is located at the Naval Air Base in São Pedro d’Aldeia. Atech also delivered the new version of the Electronic Flight Bag app (FPL BR – EFB), and completed the conceptual phase of the Urban Air Traffic Mobility system (UATM) for EVE Air Mobility.
In 2022, Atech has satisfactorily completed several relevant deployments with respect to its various products and services, including the completion of important milestones related to the F-X2 Gripen program and the Tamandaré Class Frigates Program. Also, in 2022, Atech received the Pro-Ethics Seal promoted by CGU and the Ethos Institute and was considered, for the fourth consecutive year, as a great company to work for the GPTW institute.
In 2022, Atech had also a distinct presence at Locked Shields, the world’s largest cybersecurity defense exercise, according to the NATO, and took part in the Guardião Cibernético 4.0 exercise. In the C3I systems area, Atech successfully finalized the integration tests of the command, control, communications and intelligence center in Mauritania.
Visiona Tecnologia Espacial S.A.
Embraer and Telecomunicações Brasileiras S.A., or Telebras, formed Visiona Tecnologia Espacial S.A., or Visiona, of which Embraer holds a 51% stake and Telebras 49%. Through this joint venture, Visiona became the prime contractor for the Brazilian Strategic and Defense Communications Geostationary Satellite (SGDC), with responsibility for the system integration.
In 2022, the VCUB-1 Nano Satellite program advanced to the environmental and integration tests, the last phase before the actual launch, which is expected to take place in 2023. With respect to the remote sensing services, Visiona entered into an agreement with a non-disclosed customer that is a market leader in agricultural insurance. Visiona also won a public bid carried out by FINEP (a Brazilian Government research and innovation fund) to develop the technology of a small-size and high-resolution satellite, and will lead a group of five companies and five science & technology institutes from the main space technology hubs in Brazil.
Tempest Security Intelligence
Founded in 2000, Tempest Security Intelligence, or Tempest, is the largest cybersecurity company in Brazil, providing complete solutions for business protection in the digital world. The portfolio of products and services provided by Tempest is aligned with the framework of the National Institute of Standards and Technology (NIST), a non-regulatory government agency linked to the Technology Administration of the United States Department of Commerce. With more than 450 professionals and offices in Recife, São Paulo and London, Tempest has ensured the protection of more than 500 companies of all sizes and industries providing a portfolio with more than 70 solutions which include consulting, digital identity, managed security and integration services.
36
In 2020, we became the majority shareholder of Tempest, which in 2021 broke its revenue records, registering a 40% growth compared to 2020. In 2022, Tempest launched the Prospero Suite, a new integrated management platform dedicated to cybersecurity services and solutions. The platform, which was being used by 61 customers as of December 31, 2022, provides support and analysis for its users’ at all levels, including operational processes such as data management and consumption, and also strategic decisions.
In 2022, Tempest also developed the Allow-Me Bio, which is an identity monitoring tool that represents an evolution of facial biometrics that includes behavior analysis expertise. Created on the security by design concept, it guarantees security without impacting the user experience.
Águas Azuis
Founded in 2018, and awarded its first contract in 2019, Águas Azuis is a consortium between Embraer, Atech and Thyssenkrupp Marine Systems that was selected as the preferred supplier to build four new Tamandaré Class Frigates for the Brazilian Navy. In 2022, Águas Azuis started the construction of the first frigate. The program in advancing and its first delivery is scheduled for 2025.
Competition
Our military aircraft faces competition from various manufacturers in different countries in each market segment. The A-29 Super Tucano competes in the advanced training market with the Textron AT-6 (United States), L3 Harris’ SkyWard (United States), Textron Scorpion (United States), Leonardo M-345 (Italy), Aero Vodochody L-159 (Czech Republic), among others. In the flight training market, it competes with the Pilatus PC-21 (Switzerland), Textron T-6A/B (United States), Aero Vodochody L-39NG (Czech Republic), among others.
In the military transportation segment, the C-390 Millennium operates in the medium airlift segment in the 20-ton category. Its main competitor is the Lockheed Martin C-130J (United States). Due to the multi-mission design of the C-390 Millennium, including medical evacuation, search & rescue, firefighting, air-to-air refueling, transport of troops and aerial resupply, we expect specific competition in each segment: Airbus A400M and Kawasaki C-2, in the air-to-air refueling segment;, Airbus C-295 search and rescue segment, Leonardo C-27J in the passenger aircraft convertible into troop transportation aircraft segment, Ilyushin IL-76 in the firefighting aircraft segment, as well as C-130J, which is our biggest competitor in all of these categories.
In the VIP transportation segment, which comprises the aircraft that will be used by government officials and authorities, our business jets face competition from the main manufacturers of business jets, such as Textron and Gulfstream in the United States, Bombardier in Canada, and Dassault in France.
Services & Support Segment
On December 20, 2016, we announced the creation of Embraer Services & Support, a focused on services and customer support, which brings together capabilities that were previously allocated to each business segment and is responsible for developing solutions in support of current and new products and services, as well as for managing the associated processes and resources.
Embraer Services & Support is a segment focused on providing parts, flight hour solutions, maintenance, training, and engineering products and services for Embraer operators in the Commercial, Executive, Defense & Security segments. Accompanied with OGMA, Embraer’s subsidiary in Portugal, which provides agnostic services, and Embraer CAE Training Services (ECTS). With a network of over 76 owned and authorized service centers spread around the world, contact centers dedicated to each market, and a team with more than 4,300 employees overseeing support of over 4,580 Embraer Commercial, Executive and Defense aircraft as well as other original equipment manufacturers, or OEMs, aircraft, engines and radars.
37
In January 2022, Embraer and AVIAN Inventory Management, LLC (“AVIAN”), together with York Aerospace Solutions III (“YAS”), as AVIAN’s sole capital partner, entered into an agreement for purchasing, marketing and distribution of spare parts of Embraer commercial and business jet aircraft. Designed to promote accessibility and speed to market, AVIAN’s distribution center will deliver unparalleled product availability to all aircraft operators and maintenance and repair stations around the world providing a one-stop, go-to access point.
In March 2022, we also announced our entrance in the air freight market with the launch of the E190F and E195F Passenger to Freight Conversions (P2F). The E-Jets freighters are designed to meet the changing demands of e-commerce and modern trade that require fast deliveries and decentralized operations. Embraer is offering the unbeatable cargo economics and flexibility that rightsized jets provide. The full freighter conversion is available for all pre-owned E190 and E195 aircraft.
We launched, in 2022, new hangars at our service center located in Sorocaba, state of São Paulo, doubling its useful area from 20,000 m² to 40,000 m². As of December 31, 2022, the Sorocaba service center had four hangars, three of which are dedicated to maintenance, repair, and component overhaul (MRO) services and one to support fixed-base operator (FBO) operations.
Our Services & Support segment accounted for 27.9%, 27.0% and 24.4% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, our firm orders in backlog for our Services & Support segment were US$ 2.6 billion.
Services & Support related to the Commercial Aviation Industry
We are working on further developing our portfolio of services for our Commercial Aviation customers, which comprises the following areas:
• | field support, which provides convenient, accessible, on-site or remote assistance for all operational and technical issues in order to maximize customer performance; |
• | technical support, which serves technical needs through analytics, engineering expertise, and real-time fleet monitoring; |
• | flight operations, which supports the efficiency and safety of airline operations through tailored solutions, consulting, supervision and training resources; |
• | aircraft modification, which provides execution and coordination of system upgrades for improved fleet performance and cabin modifications for enhanced onboard amenities; |
• | materials, which ensures parts availability and materials management for both scheduled and unscheduled maintenance; |
• | maintenance, which provides optimized maintenance solutions based on best practices for efficiency and safety; |
• | training, which prepares flight crew, maintenance technicians and operations personnel for the highest levels of competence; and |
• | digital solutions, which deploys the internet as the core communication channel for 24 hours a day, seven days a week collaboration and information exchange. |
38
We have a worldwide presence, with five regional units strategically positioned around the globe in order to provide us with greater agility in understanding the needs and desires of our customers and respecting the cultural diversity of the different regions where our customers are based. Our regional units are located as follows:
• | Fort Lauderdale, Florida, United States, which supports our customers in North America; |
• | Amsterdam, Netherlands, and Paris, France, which supports our customers in Europe, Africa, the Middle East and Central Asia; |
• | Singapore, which supports our customers in the Asia Pacific region; |
• | Beijing, China, which supports our customers in China; and |
• | São José dos Campos, Brazil, which supports our customers in Latin America. |
All regions mentioned above have the following infrastructure:
• | a spare parts distribution center; |
• | technical and material field support teams with field engineers and customer account managers; |
• | warranty and repair administration offices; and |
• | services sales managers. |
In São José dos Campos, we also offer the following services:
• | Customer Care Center, providing an integrated solution of technical and spare parts support available 24 hours a day, seven days a week; |
• | spare parts planning and material engineering; |
• | technical support; |
• | flight operations support; |
• | maintenance support engineering; |
• | maintenance Repair and Overhaul, or MRO, network management strategy and policy; |
• | business development support; |
• | technical publications development; and |
• | technical services, such as: maintenance training, Digital Solutions, engineering services, pilot services and aircraft modifications. |
Beyond parts fulfillment and simple rental plans, we also provide innovative programs for material planning, logistics, and acquisitions, such as our:
• | Flight-Hour Pool Program; |
• | Parts Consignment Program; |
• | Embraer Collaborative Inventory Plan; |
• | Embraer Parts Exchange Program; and |
• | Customer Stock Optimization. |
39
We have a full flight simulator located at the Embraer Training Center in Johannesburg, South Africa, supporting our fleet growth in the African market.
Our MRO network includes facilities in Nashville, La Vergne, and Macon, United States, where we have Embraer Aircraft Maintenance Services, a dedicated service center for commercial aviation. We also count on Embraer Service Center in Gavião Peixoto, state of São Paulo, Brazil and OGMA (Indústria Aeronáutica de Portugal S.A), an Embraer subsidiary in Alverca, Portugal, which are dedicated to provide maintenance services to both commercial and defense customers.
Our MRO network supporting our commercial aviation aircraft fleet is also expanding with our third-party maintenance service centers. As of December 31, 2022, these centers are:
• | STAECO, in Jinan, China; |
• | HNA Technik, in Tianjin, China; |
• | SIA Engineering Company, in Angeles City, Philippines; |
• | LOT AMS, Warszawa, Poland; |
• | Aspire in Lanseria, South Africa; and |
• | Kenya Airways, in Embakasi, Kenya. |
We seek to maintain our leading position in the services and support market by continuing to provide the best support anytime and anywhere in the world, relying on our strong MRO network, to exceed customers’ expectations of quality, lead time, affordability, capability and global coverage.
We constantly monitor customer satisfaction levels and keep open communication channels with them to understand customer needs and define the most appropriate actions for the continuous improvement of our support. To do so, we use the following tools and forums:
• | annual customer support satisfaction survey to identify our competitive position; |
• | specific action plans and commitments with each customer, known as Customer Integrated Action Plans; |
• | teamwork and systematic identification and integrated action plans to solve problems affecting us, our suppliers and customers; |
• | periodic dedicated meetings at the customer’s headquarters; |
• | Embraer Operators’ Conferences, which are held once a year and in different regions of the world, with the presence of all operators of E-Jets and E2s, as well as suppliers and partners; |
• | Maintenance Cost Workshop, a yearly event held to share best maintenance practices and discuss cost reduction initiatives among operators and the Embraer team; |
• | eTalks, which is a series of monthly lives created to keep customers informed and updated about different subjects related to Embraer Services & Support; |
• | interactive forums for discussions in the web portal FlyEmbraer, fostering the exchange of experiences among operators and Embraer; |
40
• | participation in international fairs related to maintenance, technology, customer relationship management and others; and |
• | an internal program, Embraer Excellence in Customer Experience, which aims to address changes in the Services & Support area of the commercial aviation division, in order to elevate the performance of our Commercial Aviation segment, covering current and future market needs, with the purpose of obtaining the highest levels of customer satisfaction based on their experience in the commercial aviation industry. |
Services & Support related to the Executive Aviation Industry
Our executive jets customer fleet has expanded globally and has a strong presence in major markets. Between 2008 and 2010, we added seven owned service centers to support our executive and defense aircraft in Fort Lauderdale, Florida, United States: Melbourne, Florida, United States; Mesa, Arizona, United States; Bradley, Connecticut, United States; Le Bourget, France; Gavião Peixoto and Sorocaba, São Paulo, Brazil. In 2021, our facility in Bradley, Connecticut ceased its operations, so in the end of the year we had six service centers to support our executive and defense jets fleet; including OGMA in Lisbon, Portugal, and 69 authorized service centers around the world. In addition, in order to ensure customer satisfaction, we implemented a new spare parts system and planning policy to generate synergies among business segments. Our new planning policy will further enhance stock optimization and service levels, offering customers a high availability for our spare parts items.
Services and support provided to Executive Aviation aircraft continue to be strong, mostly driven by the high volume of aftermarket aircraft transactions and the addition of new customers to our Executive Care program, which is a comprehensive airframe maintenance program carefully designed and managed by Embraer to provide a simple and predictable way for budget aircraft’s maintenance costs. We have also improved our services and support structure to enhance our customers’ experience. To measure our customers’ satisfaction, we implemented the Customer Experience Program, supported by a marketing tool that measures customer satisfaction based on the customer’s experience. The score and feedbacks received allow us to be more responsive on developing initiatives and well as predict their needs. Our Customer Care Center has a team of specialists dedicated to support all Embraer Executive Aviation and offers complete and timely assistance for their operational, technical and maintenance needs. It operates 24 hours a day, seven days a week, and is based at Embraer’s headquarters in São José dos Campos. Its priority is to minimize downtime from the customer’s first contact to final completion, by quickly and efficiently applying appropriate resources to critical needs, assuring that customers have expert assistance anywhere in the world.
Since 2014, our product support has been top ranked in industry surveys. In 2016, for the first time we were number one in both the AIN and Pro Pilot Product Support Surveys. In 2017, AIN ranked us first for product support. In 2018, we were ranked number one in the Pro Pilot Product Support Survey and number two in AIN’s Product Support Survey. In 2020, we were top ranked in Pro Pilot’s Product Support Survey 2020, in all categories of the survey. In 2021, we were ranked third place in the AIN’s Product Support Survey with Phenom, Legacy, Praetor, and Lineage jets. In Pro Pilots Product Support Survey, we were ranked first for the second consecutive year. We were ranked first in our cost of parts, tech manuals, tech reps, and service satisfaction categories. In 2022, we moved up to hold the first place in the AIN’s Product Support Survey, and second place on Pro Pilots Product Support Survey.
In 2021, our four service centers in the United States received for the eleventh time the FAA Diamond award, a certificate of excellence related to maintenance technician training. In 2022, all of our services centers in the United States received the FAA Diamond Award for the twelfth time
In 2022, we and FlightSafety International announced that FlightSafety would offer a new full-flight simulator (FFS) for the Praetor 500 and Praetor 600 jets to meet the growing demand for these models’ training. The simulator, which is the third for the Praetor 500 and Praetor 600 established by FlightSafety International, will be located in Orlando, Florida to serve the growing fleet of over 200 aircraft in the Praetor platform. These operations will begin in the second quarter of 2023.
41
Services & Support related to the Defense & Security Industry
The Services & Support segment provides solutions to several air forces and government entities through our comprehensive portfolio. These solutions are tailored to our customer needs and may include provision of material, training, maintenance, engineering and other aspects that will enhance fleet availability and mission readiness.
Our support services may range from simple transactional sales to integrated support programs. We assess our customer capabilities and requirements in order to define the integrated solution that will keep the fleet operating in the most effective way.
The multi-mission C-390 Millennium has a dedicated team to design and implement the most effective entry into service solution. The customer participates directly in the process, alongside the Embraer team, encompassing overall strategy as well as specific details, assuring a reliable and smooth operation from the beginning of the process.
As part of the integrated support program, we also provide services to new and existing customers of our Super Tucano, which is an aircraft used by several air forces around the world.
Additionally, we also provide support aircraft services to passenger carriers from several government organizations. For instance, we have support services designed to fulfill requirements, including sale of spare parts, maintenance, training and technical support, among others, relating to (i) recent aircraft Phenom 100, Phenom 300, Legacy 450; (ii) older aircraft, including Legacy 600 and ERJ-145, and (iii) legacy aircraft, including Bandeirantes (EMB-110) and Brasília (EMB-120). Through the support services we provide to our customers, we can complement commercial or business aircraft with equipment and sensors, thereby making our customers’ fleet available for different types of missions.
We provide a full range of services in different countries, often operating together with our customers’ teams in their own bases. In order to provide specific activities and comprehensive maintenance solutions, we own and operate maintenance, repair and overhaul, or MRO, service centers as follows:
• | Alverca, Portugal, which we refer to as OGMA, which became operational in March 2005 and provides services to our commercial aviation, executive aviation and defense and security customers; and |
• | Gavião Peixoto, in the State of São Paulo, Brazil, where we have a dedicated service center for defense and security customers. |
These MRO service centers are adapting their capabilities for purposes of providing C-390 Millennium maintenance services.
In 2022, Embraer Services & Support for the Defense Market also achieved important milestones, as the second phase of the SISFRON program, which started in the first quarter of 2022.
During the same year, new temporary support contracts were signed with the Brazilian Federal Police for two E175s and with SATENA, which represented new revenue to Embraer Services & Support. New agreements also include sustainment engineering (aircraft support and maintenance); pilot training; M60 radars on demand and technical representative contract for the Legacy 500 fleet.
Also in 2022, the Services & Support team supported the preparation for entry into service of the C-390 fleet of the Portuguese Air Force and the Hungarian Defense Force and the operation of 100% of the Super Tucano fleet in the Philippines. In training, the team assisted in the first and successful operation of the KC-390 to airdrop cargo supplies at the Brazilian Research Base in Antarctica, in addition to completing pilot training in the Turkmen Air.
42
OGMA
OGMA, an Embraer subsidiary located in Alverca, Portugal, combines the accumulated know-how as an aircraft manufacturer and maintenance service provider. It offers worldwide MRO services, for defense, commercial and executive aviation as well for aircraft engines and components. Furthermore, OGMA plays an important role as a major aerostructures supplier of integrated solutions to OEMs and first tier suppliers. OGMA delivers assemblies and sub-assemblies of both metallic and composite materials. Embraer owns 65% of the voting capital of OGMA and the Portuguese State owns the remaining 35%.
In 2018, OGMA celebrated 100 years of activity in the aeronautical market. Since its formation, OGMA has been investing in the areas of MRO and manufacturing of aerostructures. In 2018, it also entered into an agreement for the maintenance and management of the Brazilian Air Force’s C-130 aircraft fleet, strengthening OGMA’s position in this market. OGMA further extended the MRO spectrum, obtaining certification for maintenance of the Rolls-Royce AE1107 engine. In addition, it also entered into a pylon manufacturing agreement with one of the largest manufacturers of executive aircraft.
Additionally, as of the date of this annual report, OGMA is developing the Supplementary Type Certificate (STCs) to integrate additional functionalities and certify the C-390 Millennium according to NATO requirements in the scope of the agreement entered into with the Portuguese Air Force (FAP) for five KC-390s. Pursuant to the terms of subcontracting agreement we have with OGMA, OGMA is also responsible to perform the maintenance activities related to the delivery of the KC-390 Millennium aircraft to the FAP from March 2023 until March 2027.
In 2020, OGMA entered into 12 new contracts to provide MRO services to defense and security and commercial aviation segments, and repair of maintenance components, such as those related to hydraulic, pneumatic, fuel, electrical and avionics systems. Still in 2020, OGMA became a new authorized maintenance center for Pratt & Whitney engines, as a result of a project developed by OGMA, with the support of Embraer, over the prior 12 months, allowing the expansion of its scope of services in the area of engine maintenance, and marking the entry of Pratt & Whitney maintenance, repair and overhaul in Portugal.
In 2021, OGMA had major achievements such as: Pratt & Whitney signed agreement for PW GTF Engines, the Rolls-Royce AE 2100 Program: Delivery of the 1st Nacelle within the contracted TAT, and an agreement for OGMA Aeronautical Academy. Also, featured in Aerospace & Defense Review, OGMA has been ranked as one of the “Top 10 MRO Service Companies in Europe 2021.”
In 2022, OGMA delivered the last F-16 to the Royal Netherlands Air Force Royal Netherlands Air Force (RNLAF); the second ERJ-175 for the Brazilian Federal Police; and also delivered C-130 for the Portuguese Air Force.
OGMA has also achieved two important market recognitions, being ranked as one of the “Top 10 MRO Service Companies in Europe in 2022”by Aerospace & Defense Review. OGMA was also named as one of the best places to work, ranking first in the aviation industry, according to the employer branding study developed by Randstad Portugal.
We also have highlights such as the celebration of the delivery of the 100th Rolls-Royce AE 1107C engine, the implementation of the Safety Management System (SMS) in the organization and the Military Design Organization Approval (MDOA) certification granted to the company that gives it authority to design changes / repairs to military aircraft under AAN supervision.
OGMA reached a historic milestone by becoming the first Authorized Maintenance Center certified by the Portuguese Aeronautical Authority to carry out heavy maintenance of commercial aircraft of the Embraer E-Jets E2 family in Europe, Middle East and Africa (EMEA).
43
Other Segments
We provide fuel systems, structural parts, and mechanical and hydraulic systems to Sikorsky Aircraft Corporation, a Lockheed Martin Company, for its production of helicopters. We also manufacture general aviation propeller aircraft, also known as light aircraft, such as crop dusters.
We provide Sikorsky Corporation with the development and manufacture of landing gear, fuel systems and fuel tanks for the S-92 and H-92 Helibus helicopters. We also have Ipanema in our Other segments pipeline, which is a crop duster aircraft developed pursuant to the specifications of the Brazilian Ministry of Agriculture. These aircraft are produced only on demand. As of December 31, 2022, we have delivered a total of 1,541 of these aircraft, including 55 in 2022.
Our Other segments also include services related to the development and certification of eVTOLs, including the creation of a maintenance and services network for eVTOLs and the creation of an air traffic management system for eVTOLs (urban air mobility, or UAM business). The operating income (expenses) presented in our Other segments refers substantially to expenses incurred in the business combination with Zanite. For more information, see Note 12.3 to our 2022 audited consolidated financial statements.
Our Other segments accounted for 0.8%, 0.6% and 0.3% of our revenue for the years ended December 31, 2022, 2021 and 2020, respectively.
Aircraft Operating Lease Activities
In order to provide better financial support to our commercial activities, as well as to manage and reduce financial risks related to the marketing of aircraft, we created ECC Leasing in September 2002. ECC Leasing has been able to remarket aircraft in its portfolio with conditions and at values similar to market conditions and without any guarantee from Embraer. All sale and leasing transactions were entered into based on market rates, helping to sustain the present and future value of our products.
In January 2017, ECC Leasing merged with Embraer Netherlands, with its assets and activities incorporated under Embraer Netherlands. The mission of Embraer Netherlands, as our company responsible for aircraft operating lease activities, is to manage and remarket Embraer’s aircraft portfolio, which as a result of contractual obligations, may be acquired by us via trade-in transactions. We also provide remarketing services to third parties looking to sell their Embraer manufactured aircraft.
In 2022, Embraer Netherlands successfully sold and delivered one aircraft, for a total amount of US$ 24.5 million, as compared to three aircraft delivered in 2021 for a total amount of US$ 8.6 million and two aircraft delivered in 2020, for a total amount of US$6.5 million. Since ECC was established in 2002 through December 31, 2022, this business segment handled 267 aircraft, of which none is available or under sale negotiations.
We believe the results of Embraer Netherlands will be largely dependent on market conditions, aircraft availability levels and the demand for jets mainly in the 70 to 150-seat category.
Markets
The following table sets forth our revenues by segment and geographic region of end users for the periods indicated:
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
(in US$ millions) | ||||||||||||
Commercial Aviation |
||||||||||||
North America |
1,234.7 | 687.6 | 858.4 | |||||||||
Latin America (except Brazil) |
— | — | 0.4 | |||||||||
Asia Pacific |
— | 3.3 | 4.8 |
44
Year ended December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
(in US$ millions) | ||||||||||||
Brazil |
2.4 | 1.8 | 3.0 | |||||||||
Europe |
234.9 | 494.5 | 215.4 | |||||||||
Others |
71.9 | 129.2 | 32.4 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,543.9 | 1,316.4 | 1,114.4 | |||||||||
|
|
|
|
|
|
|||||||
Executive Aviation |
||||||||||||
North America |
914.1 | 807.2 | 1,054.4 | |||||||||
Latin America (except Brazil) |
20.0 | 4.1 | — | |||||||||
Asia Pacific |
— | 27.6 | — | |||||||||
Brazil |
87.8 | 62.1 | — | |||||||||
Europe |
212.6 | 229.1 | 17. 1 | |||||||||
Others |
9.9 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,244.4 | 1,130.1 | 1,071.5 | |||||||||
|
|
|
|
|
|
|||||||
Defense & Security |
||||||||||||
North America |
2.9 | 58.1 | 108.8 | |||||||||
Latin America (except Brazil) |
1.4 | 3.0 | 49.2 | |||||||||
Asia Pacific |
3.6 | 80.8 | 81.6 | |||||||||
Brazil |
245.1 | 285.8 | 297.6 | |||||||||
Europe |
194.1 | 158.7 | 108.4 | |||||||||
Others |
0.5 | 8.0 | 8.3 | |||||||||
|
|
|
|
|
|
|||||||
Total |
447.6 | 594.4 | 653.9 | |||||||||
|
|
|
|
|
|
|||||||
Services & Support |
||||||||||||
North America |
706.0 | 614.0 | 509.7 | |||||||||
Latin America (except Brazil) |
31.6 | 30.7 | 26.4 | |||||||||
Asia Pacific |
97.3 | 97.9 | 75.2 | |||||||||
Brazil |
132.2 | 106.1 | 72.3 | |||||||||
Europe |
242.8 | 234.4 | 203.1 | |||||||||
Others |
56.9 | 49.1 | 33.3 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,266.8 | 1,132.2 | 920.0 | |||||||||
|
|
|
|
|
|
|||||||
Other Segments |
||||||||||||
North America |
— | 1.3 | 1.2 | |||||||||
Brazil |
37.7 | 22.8 | 10.1 | |||||||||
|
|
|
|
|
|
|||||||
Total |
37.7 | 24.1 | 11.3 | |||||||||
|
|
|
|
|
|
Suppliers and Components; Risk-Sharing Arrangements
We do not manufacture all of the parts and components used in the production of our aircraft. As of December 31, 2022, 74.9% of our consolidated production costs in our Commercial Aviation, Executive Aviation and Defense & Security segments consisted of materials and equipment purchased from our risk-sharing partners and other major suppliers. Risk-sharing arrangements with suppliers of key components enable us to focus on our core business: design, development, manufacture and sale of aircraft and systems for the Commercial Aviation, Executive Aviation, and Defense & Security segments. Risk-sharing arrangements are those in which suppliers are responsible for the design, development and manufacture of major components or systems of our aircraft.
In our Commercial Aviation, Executive Aviation and Defense & Security segments, we rely on risk-sharing partners to supply vital components of our aircraft. We select suppliers on the basis of, among other factors, technical performance and quality of their products, production capacity, prior relationship and financial competitiveness. We have had continuing relationships with most of our major suppliers since production of the Bandeirante aircraft began in 1975.
45
In addition, we have entered into purchase agreements with our major suppliers, which cover our production. These contracts contain pricing formulas that take into consideration the various factors that affect the business of our suppliers and help us mitigate the effects of price volatility (which in some cases can be significant) of the materials, parts and components that are required for our operating activities. We are not obligated to purchase a minimum amount of materials annually under any of these supply contracts. Our ongoing supplier relationships depend on cooperation, performance and the maintenance of competitive pricing.
As a result of the conflict between Russia and Ukraine, inflation levels have raised and energy prices have also increased, mainly in Europe due to impact in the supply and gas prices. The conflict also had the effect of increasing costs of labor and caused a global shortage of components, affecting our supply chain cycle in 2022.
As soon as the conflict began, we suspended parts, maintenance, and technical support services for certain customers to comply with the sanctions imposed on Russia, Belarus, and certain regions of Ukraine by laws of jurisdictions to which we are subject. Russia is one of the largest titanium suppliers in the world, and titanium is a key element for the aircraft manufacturing process. Although there is no concern over the availability of titanium in our supply chain, considering our current inventory position and the existing alternative sources in other countries, we will continue to monitor our supply chain in order to identify any potential constraints.
For additional information on our relationship with our suppliers, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Embraer—We work with a limited number of key suppliers.”
Commercial Aviation
EMBRAER 170/190 Jet Family and E-Jets E2 Jet Family
We are continuously improving the EMBRAER 170/190 jet family, together with risk-sharing partners that supply key systems for the aircraft. Our supplier arrangements for the EMBRAER 170/190 jet family differ from the supplier arrangements of the ERJ 145 regional jet family, in which we use fewer suppliers. In the EMBRAER 170/190 jet family, each risk-sharing partner is responsible for the development and production of aircraft systems, including the landing gear, the hydraulic system and the flight control system, rather than individual components, and fewer components are supplied by companies that are not risk-sharing partners. The assumption of responsibility for systems by our risk-sharing partners lowers our capital expenditures, which decreases our development risks and increases our operating efficiency by reducing the number of suppliers per product and cutting production costs. It also shortens development and production time.
When the E-Jets were launched, they were one of the most advanced aircraft in operation. The fly-by-wire system, the integrated avionics and the double-bubble cross-section brought a new level of technology and passenger comfort for the segment. The family’s success led to 29% market share of the deliveries in the up to 150 seats jet segment from 2004 to 2022, according to Cirium. Notwithstanding, during the last ten years we have been continually improving the family. New performance packages, maintenance improvements, external noise reduction and fuel burn reduction are examples of improvements developed.
The E-Jets E2 project is an important example of our commitment to keep our market leadership in the segment. The state-of-the-art technology applied to the engines, wings, and avionics make the E2 family a highly efficient tool for airlines. The E2 represents a new level of aerodynamic efficiency, as applied to the wing with one of the highest aspect ratios of the industry and advanced wing shape. The E2 also has improved systems and avionics, including fourth generation full fly-by-wire flight controls, and Pratt & Whitney’s PurePowerTM Geared Turbofan high by-pass ratio engines (PW1700G on the E175-E2, PW1900G on the E190-E2 and E195-E2). These improvements result in double-digit reductions of fuel burn, emissions, noise and maintenance costs. Cockpit commonality with the current generation of E-Jets is a key driver in the design of the E-Jets E2, in order to enable a smooth transition for the E-Jets pilots. Honeywell’s Primus Epic™ 2 advanced integrated avionics system with large landscape displays and advanced graphics capabilities, and Honeywell’s Next Generation Flight Management System (NGFMS), already in development with current-generation E-Jets, provide exceptional pilot situational awareness and flexibility for continuous innovation on the flight deck. E-Jets E2 has the additional objective of increasing revenue opportunities, as the family is designed to provide better aircraft availability and to increase ancillary revenue for operators.
46
Known for its comfortable and roomy cabins, with no middle seats, the E-Jets passenger experience is further enhanced in the E2 generation. The U.K. design firm Priestmangoode was contracted to develop the aircraft cabin jointly with Embraer. The interiors establish a new benchmark in cabin design, improve the passenger experience, and deliver a more comfortable and improved environment tailored to passengers’ needs, while maximizing airlines’ operational efficiency.
Other suppliers and partners for the E-Jets E2 include: Liebherr (control systems for flaps and slats), Moog (fly-by-wire), Collins Aerospace (formerly Rockwell Collins) (horizontal stabilizer control system), Collins Aerospace (formerly UTC Aerospace Systems)(wheels, brakes, APU, electrical system), Safran AeroSystem (formerly Intertechnique), (engine and APU fuel feed, pressure refueling, fuel transfer, fuel tank inerting and ventilation, and fuel gauging and control), Crane Aerospace & Electronics (electronic control module for landing gear, brake control systems and proximity sensors), ASTK (formerly Triumph) (fuselage segments, rudder and elevators) and Aernnova Aerospace (vertical and horizontal stabilizers).
Parker-Meggitt (formerly Meggitt) designs and produces a redone high-performance assembly for in-flight connectivity, while KID-Systeme provides the SKYfi Club, a wireless streaming onboard platform.
Executive Aviation
The risk-sharing partners for the Phenom 100EV and Phenom 300I jets are Pratt & Whitney Canada, the engines supplier, Garmin, the avionics systems supplier, and for the Phenom 100EV Eaton Corporation, the hydraulic systems supplier. The main risk-sharing partners for the Praetor 500 and Praetor 600 jets are Honeywell, which is the engines supplier, and Rockwell Collins, the avionics systems supplier.
Defense & Security
With respect to our Defense & Security segment, we established business arrangements with various entities for the supply of parts. One example is our partnership with ELTA Systems, a subsidiary of the Israel Aerospace Industries (IAI), announced in 2019 for the launch of the P600 AEW&C. With respect to the C-390 Millennium, we have a partnership with Raytheon Technologies, responsible for various aircraft parts, including the engines and the avionics system, with Rheinmetall, our preferred supplier for simulators and training devices; and with BAE Systems to explore C-390 opportunities in the Middle-East. For the A-29 Super Tucano, we have a partnership with Elbit Systems, which is a strategic and relevant supplier of core electronic components, and a partnership with Sierra Nevada Corporation (SNC) for sales of the A-29 Super Tucano through the United States FMS (Foreign Military Sales) program.
Aircraft Financing Arrangements
Commercial aircraft customers may request financing support for aircraft acquisition. This support usually includes providing assistance to customers in obtaining financing arrangements from different sources, including ECAs, leasing companies, commercial banks and capital markets.
Additionally, customers may sometimes require short-term bridge financing prior to arranging long-term debt financing, as long-term funding may not be available for them at the time of delivery. On a case-by-case basis, we have provided interim financing, above market rates, to customers who already have their financing arrangement structured or who are in the process of negotiating such arrangements.
47
Government Regulation and Aircraft Certification
We are subject to regulation by regulatory aviation agencies, both in Brazil and abroad. These agencies principally regulate aircraft design, manufacturing and operation. Besides certification in Brazil, we must obtain certification in each jurisdiction in which our aircraft is registered and operated. The certifying authority in Brazil is the National Civil Aviation Agency (Agência Nacional de Aviação Civil), or the Brazilian Aviation Authority, a special organization with the status of a regulatory agency related to the Ministry of Infrastructure of the Presidency of the Federative Republic of Brazil, which supervises and certifies aircraft, aircraft parts, manufacturers and operations. We are also subject to the regulation of aviation authorities in other countries, including the FAA in the United States and the EASA for the European Union. Once an aircraft is certified by the Brazilian National Civil Aviation Agency and validated by the FAA and/or the EASA, some authorities, including those in Australia and Mexico, may opt to ratify the product certification instead of running a full domestic validation process. Other countries, such as Canada, require compliance with their own specific national requirements before certification. Some countries simply validate and complement original certification of the Brazilian National Civil Aviation Agency or of the FAA or the EASA, in accordance with their own rules. The Brazilian National Civil Aviation Agency has a bilateral certification agreement with several aviation authorities, including the FAA and EASA. This cooperation among regulatory authorities leads to faster certification by the foreign authorities.
Aircraft certification is a continuous process. The Brazilian Aviation Authority must approve any change in the design of any of our aircraft. Significant changes to aircraft design may require a separate validation/certification by other authorities as specified in their regulations and bilateral agreements. Changes in aircraft certification requirements do not require a new certification or a new validation of a previously certified aircraft, but significant safety improvements may otherwise be required by the authorities acting through operational rules or airworthiness directives.
Our defense products must comply with the certification guidelines defined in each contract with the customer. Unlike our civil aircraft, our defense products are not subject to regulatory obligations. Some contracts, including those for civil aircraft modified for military purposes, require civil certification (e.g., India, SIVAM, etc.). Other contracts, including those for LAS and C-390 Millennium, require approval from the Military Certification Authority.
Environmental, Social and Governance (ESG) Practices
ESG has been part of our strategy, including in the development of increasingly more eco-efficient aircraft and in the adoption of more sustainable production processes and management of natural resources. This includes two decades of positive social impact produced by Instituto Embraer, which manages our social projects. Nonetheless, we are aware of the responsibility of the private sector of going beyond and we will establish new environmental, social and governance, or ESG, commitments and targets for the next years.
We are embedding our business strategy with social responsibility and environmental impacts in everything we do, from our processes and facilities to product development and our supply chain. We work across all our key stakeholder audiences to develop sound strategies, define indicators, and establish targets that are integrated into our corporate sustainability plan.
ESG principles bring to our day-to-day routine the understanding of the need to generate profit, bearing in mind social and environmental responsibility and best governance practices. Sustainability is key for the continuity of any business and we are committed to align our economic targets to social and environmental performance. In light of the new global ESG requirements, we have been preparing our next steps to face the challenges of fighting climate change and increasing our diversity, inclusion and equity. These priorities add to our commitment to business ethics and absolute focus on the safety of our products, which are key pillars in our sector. Our new portfolio of products and services is significantly competitive and aligned with a new structure that is more agile, efficient and focused on sustainable growth.
In 2021, we announced new long-term goals in ESG. Efforts have been intensified to direct the business towards low-carbon aviation and a fairer, more inclusive and diverse society, especially in the communities where the company operates. Some of our long-term ESG commitments are: (i) achieve carbon neutrality in operations by 2040, through the acquisition of electricity 100% from renewable sources, the increasing use of sustainable aviation fuel (SAF) and the compensation of residual emissions that are not reduced through efficiency projects, alternative energy available or new technologies, (ii) develop sustainable
48
disruptive products, services and technologies, including electrification, hybrids, biofuels, including SAF and other innovative alternative energies; (iii) launch “eVTOL” aircraft with zero emission by 2026; and (iv) leverage diversity in the hiring of gateway programs, in leadership positions and in the aeronautical specialization program maintained by us. Achievement of these targets involves several risks. For more information, see “Item 3—D. Risk Factors—We may not be able to achieve our carbon emission targets or make progress in other environmental, social and governance initiatives.” For further information on our ESG practices, please see our sustainability annual report, available at our investor relations website, which is not incorporated by reference in this annual report.
In 2022, we worked to further develop our ESG agenda in all aspects, as described below.
Environmental
Environmental management is an essential part of our strategy and ranges from the development of new products and services, industrial operations to the dismantling and final disposal of the aircraft at its end-of-life.
Our Environment, Health and Safety at Work Policy defines the main corporate guidelines for the management of eco-efficiency, supply chain, product development and climate change, as well as compliance with laws and regulations. In addition, the conduction of projects to reduce resource consumption and greenhouse gas (GHG) emissions make concrete the commitment to respect the environment, reducing environmental impacts and risks. We also focused on initiatives aimed at improving the energy efficiency of its equipment and processes, thus building a global pipeline of projects. The maintenance of ISO 14001 certification, since 2002, shows the compliance and continuous improvement of our processes.
In 2022, we carried out important actions to meet our decarbonization goals. In May 2022, we entered into an electricity purchase agreement with the purpose of having 100% of the electricity purchased by our units in Brazil coming from renewable sources beginning in 2024. In addition, we invested in initiatives to reduce the consumption of fossil fuels, such as the installation of solar panels at the Gavião Peixoto unit and the installation of photovoltaic panels at our subsidiary ELEB Equipamentos Ltda.
In 2022, we also continued to pursue our SAF acquisition strategy, which is concentrated in our unit in Melbourne, United States. We are also directly involved in several initiatives and partnerships for research and development of the SAF chain in Brazil and worldwide. These include the Sustainable Aviation Fuel Users Group (SAFUG), the Initiative for Alternative Fuels for Commercial Aviation (CAAFI), participation in the Brazilian consortium BioValue (in partnership with the European consortium BECOOL, within the scope of the Horizon 2020 program of the European Commission) which is developing biomass and new technologies for sustainable advanced fuels, including for aviation. In addition to these actions, in strategic partnerships with other players in the chain, we funded Brazilian institutions to carry out technical research studies to identify the direct and indirect impact of the production of sustainable aviation fuels in Brazil.
We have also been proactively working on our products and services, with the goal of fulfilling the long-term objectives assumed by the aerospace sector. In the E-Jets E2 family of jets, we have evolved in the aerodynamic and system optimization that made it possible to reduce the aircraft’s fuel consumption by 5%. We used unprecedented solutions in the single aisle market, such as the use of the fly-by-wire system to reduce critical flight loads, allowing to reduce the weight of the aircraft in addition to other aerodynamic cleaning. Due to this extensive work, the E190-E2, which is the first aircraft of the new generation to come into service, had a 17% reduction in fuel consumption and emissions when compared to the first generation. In June 2022, we had the first flight on an E195-E2 aircraft using 100% renewable SAF, in partnership with the engine manufacturer Pratt & Whitney. The test proved that the Pratt & Whitney’s GTFTM engines and the E-Jets E2 family can fly with both engines at up to 100% SAF, without compromising safety or performance.
In addition to our new generation of commercial aircraft, we are developing a new concept of turboprop aircraft. Focused on the short-distance segment, up to 150 seats, the new turboprop will have its development directed to be the most economical solution for short distance operators. We intend to create it in order to be 100% compatible with sustainable aviation fuels and will facilitate its integration with future hydrogen propulsion technologies. Sustainability-oriented, the new turboprop, compared to the current turboprop in operation, will show a 15% reduction in CO2 emissions.
49
We also announced a family of concept aircraft, the “Energia Family,” composed of four aircraft of varying sizes that incorporate different layout, energy sources and propulsion technologies – electricity, hydrogen fuel cell, dual-fuel gas turbine and hybrid-electric. This family explores a range of sustainable concepts to carry up to 50 passengers and seeks to reduce carbon emissions by 50% from 2030 – a key step towards the goal of being carbon neutral by 2050.
The electric demonstrator is another initiative on our journey towards a future of zero carbon emissions and, in 2021, the project reached a new phase with the beginning of the flight-testing campaign. Developed specifically to evaluate new technologies and solutions that enable 100% electric and more sustainable aeronautical propulsion, the demonstrator performs tests at the Embraer unit in Gavião Peixoto, in the interior of São Paulo. This technological cooperation project used a Weg electric powertrain system and a set of EDP funded batteries that were integrated into an EMB-203 Ipanema, an aircraft that is part of Embraer’s history and became in 2004 the first airplane in the world certified and mass- produced to fly with a renewable fuel source (ethanol). The results of the Electrical Demonstrator allow Embraer to use the knowledge acquired for the application of innovative electrification technologies in the development of new products aligned with the continuous search for a sustainable future.
Environmental performance is also considered in EmbraerX, an Embraer organization dedicated to the development of disruptive businesses, which is exploring new opportunities focused on urban transport. The concept of an electric vertical takeoff and landing aircraft (eVTOL) was unveiled in 2018 and presented itself as a solution focused not only on safety, passenger experience and affordability, but also on making the least impact in terms of emissions and noise.
Social
We continuously invest in personnel, diversity, inclusion and education, constantly seeking competitiveness and innovation. We make sure that our employees have adequate work conditions, professional development plans, quality of life and wellbeing. Accordingly, we offer an attractive compensation compared to market standards, and social and labor benefits. We also maintain social and environmental programs and projects that value education, culture, leisure and health. For us, promoting social inclusion is key to building a fairer and more sustainable society.
Workforce and Diversity
We constantly seek to build diverse teams that are representative and value the history and uniqueness of all people. In 2020, we created affinity groups, called EMBRACE, to discuss the agenda of diversity, inclusion and equity, representing the following minority groups: Women, Ethnicity, LGBTQIA+ and People with Disabilities.
Our goal is to have diverse teams that are representative of all people. In 2022, we developed several actions related to diversity, equity and inclusion, such as: (i) diversity hiring in the selection processes on the entry level programs; (ii) diversity training for our employees in leadership positions and all our staff; (iii) educational initiatives (conversation circles and discussions) on topics related to diversity, equity and inclusion; (iv) application of diversity mapping at EMEA and OGMA, taking into account the particularities of the laws of each jurisdiction; (v) actions to support LGBTQIA+ minorities, such as the development of a project to implement neutral restrooms and social identification for transgender employees, and (vi) career mentoring programs focused on minority groups. Also in 2022, we sponsored the Women in Aviation International Conference 2022, the 1st International Congress of Women in STEAM, and the 34th Annual Conference of the International Aviation Women’s Association (IAWA).
50
Parallel to the mapping, we also promoted the awareness of leaders on the theme of Diversity, Equity and Inclusion. Regarding the awareness of employees, we promoted periods of celebration and reflection on the struggle of some minority groups, stimulating the involvement of employees in discussions and testimonials on the topics. The dates celebrated were the history of the global LGBTQIA+ movement, Brazilian National Day of the Struggle of People with Disabilities and Black Consciousness in Brazil.
Currently, we have developed educational programs and special projects that range from young talents to support in the post-career process, always attentive to people’s different career moments and plurality. We have structured the following programs for recruitment and qualification of workforce:
Embraer Internship Program. The program was structured focused on developing a better experience for candidates and managers, and on the retention of new talents. The program has consistently used artificial intelligence in the recruitment and selection process since 2018, in order to assist in the hiring process with the transformative behavioral profile. We gained agility and were also able to offer the response to candidates in a shorter amount of time. In 2022, 388 new interns joined our internship program.
Young Apprentice Program. One of our practical initiatives for the constant improvement and responsible insertion of teenagers in the marketplace is the Young Apprentice Program. Through this program, we help young people through learning to develop their ability for entry and maintenance in the labor market. The actions aim at developing their autonomy, favoring the search for improved quality of life, decision-making, the construction of healthy affective relationships, and the recognition of themselves as active and participant individuals within their social group. In 2022, approximately 200 apprentices participated in the program in the cities of São José dos Campos, Taubaté and Gavião Peixoto.
Engineering Specialization Program (PEE). In the context of fostering training and development, in 2021 we invested approximately R$5.0 million in this large training initiative. Through the PEE, carried out in partnership with the Instituto Tecnológico de Aeronáutica (ITA), we offer the title of professional master in aeronautical engineering to selected participants who are interested in working in the aviation segment. The classes are taught by professionals of Embraer and teachers of ITA and the students have the possibility to be admitted by Embraer after the completion of the course. In 2022, 61 engineers joined the program.
Software Specialization Program (PES). Founded in 2022, our Software Specialization Program, or PES, is a post-graduate specialization in Embedded Software and Data Science, carried out in partnership with the Federal University of Pernambuco (UFPE). Courses are taught by UFPE professors and with the participation of Embraer professionals. Upon completion of the degree, students have the possibility of being employed by Embraer. In December 2022, the class was completed with the approval of 35 professionals, 33 of whom were hired by Embraer.
Engineering Acceleration Program (ACE). The ACE program aims to train employees with up to 12 months in the company and new hired in 34 courses divided into the pillars of Aeronautical Culture & Business, Manual of Excellence Engineering and DIP, Technical Concepts, Procedures and Tools Engineering and Soft Skills, with 100% of the training provided by Embraer specialist multipliers, within a period of 12 days. The program had its first class of 35 employees graduated in 2022.
Manufacturing Engineering Training Program (PCEM). The PCEM program was created with the purpose of diagnosing and developing skills required by the industry. Launched in August 2022, the program had more than 70 professionals involved in the structuring of the program, which took approximately 500 hours, and in the elaboration of its contents, which took approximately 2,000 hours. In 2022, we had 50 defined courses, 34 classes, and 887 engineers, analysts and technicians as participants. The program aims to develop soft and hard skills of the participants and is carried out in two phases, the first of which being a general conceptual phase and the second focusing on the future of manufacturing and practical skills for process evolution, practices and mindset of digital transformation.
Embraer on the Diversity Route Program. Carried out in partnership with educational institutions in the cities of São José dos Campos and Araraquara, the program focuses on the training of people with disabilities, offering theoretical training and practical training within Embraer and the allocation is carried out according to the profile of the vacancies. The program has contributed to increasing the employability of people with disabilities. Since its launch in 2019, approximately 100 people have been trained and many have pursued careers in various areas within Embraer such as Production, Quality, Engineering, Logistics and Administrative departments.
51
Social Tech Program. In 2021, in order to increase the opportunities to qualify workforce for technology and digital transformation, we launched this program in partnership with EdTechs, aimed at supporting technology careers for minority groups in Brazil. The purpose of the program is to promote professional qualification for 1,500 people from minority groups by 2025. Each representative group in the program follows the bootcamp methodology for immersive and accelerated training, in which participants attend technology courses and deal with challenges and project execution. Since its launch, Social Tech already had more than 1,400 students.
Professional Development
Since 2020, we have been reinforcing the people cycle concept, which covers the creation and monitoring of goals, going through the performance evaluation process, quarterly performance monitoring, and development and talent review.
Our performance evaluation process focuses on a culture of high performance and development, opening space for structured and evolutionary feedback and recognizing the deliveries and behaviors of employees in the previous year. The process has three steps: 1) Performance Matrix: with the purpose of evaluating the results and behaviors of employees and position them in the performance matrix; 2) Calibration: with the purpose of meeting with other leaders and calibrate the evaluation of the teams; 3) Performance Conversation: with the purpose of providing feedback to the evaluated employee and inform their final position in the performance matrix.
One of the great outputs of the performance evaluation process is preparing an individual development plan for our employees. We invest heavily in the education, training and development of people, always focusing on the qualification and preparation of our employees to take on the challenges inherent to our business and strategy.
Since 2019, we have been further reinforcing our learning culture, through the EMpower learning ecosystem. Our ecosystem brings together the best forms of learning, either through an internal catalog, with about two thousand educational solutions, or by the possibility of carrying out other development actions through a platform that uses artificial intelligence and creates content. The EMpower ecosystem aims to foster protagonism and self-development for our employees.
We also continue to invest in the development of online courses, to feed our internal catalog, providing knowledge quickly and effectively to all our units in the world. In 2022, we developed 34 online courses to meet new business competencies, in several languages and with the possibility of taking them through mobile devices. Currently, 70% of our employees that participate in our courses prefer to do it online.
In 2022, we recorded about 660,000 hours of training and invested approximately R$6.9 million in development actions. We work with external and internal partners in our programs, and 85% of our training is carried out internally, with about 1,200 knowledge partners. This group is formed by our collaborators, who carry out the elaboration, development, review and instruction of the content, encouraging learning and stimulating the dissemination of knowledge.
Strengthening our EMpower learning ecosystem, we continue with the strategy of building the academies, aligned with our strategic objectives, and supported by an active and permanent learning process. As of December 31, 2022, we had the following academies:
Leadership Academy: covers the entire leadership lifecycle, from onboarding to training and development actions in the long term in order to enable the implementation of the corporate strategy. In 2022, we maintained the focus of leadership development in five pillars (Business, People Cycle, Diversity, Future of Work and Culture) and offered programs focused on hybrid management, cultural evolution, lean leadership, performance and potential, labor relations, among other topics. In total, within the Leadership Academy, we had more than 13,000 participations, totaling approximately 30,000 hours of training dedicated to leadership development.
52
Corporate Academy: reinforcing our commitment to be a company recognized for ethics and compliance, in 2021, we continued to provide online training for our Code of Ethics. The contents were made available globally and are part of the mandatory training route for all employees.
Within the Corporate Academy, a soft skills program was also developed, with the purpose of training our employees based on the behavioral skills necessary to meet our business and strategy needs. In 2022, our employees participated in courses on Occupational Safety, Business Planning, Performance Assessment, Data Protection, Coronavirus Prevention and Corporate Intellectual Property Policy, totaling approximately 6,000 hours of training.
Engineering Academy: in order to strengthen the aeronautical culture, the training of engineers, technicians and engineering professionals and establish a systemic view of the product, we offer development solutions aligned with the business strategy. In 2022, the Engineering Academy restructured its training program, counting on several specialists as contributors, with the purpose of educating its participants in soft skills, business management and product development.
Operations Academy: this academy has the Qualification Program, aimed at employees who work in the manufacture of aircraft. In 2022, there were 47,000 participations in our qualification courses, totaling 182,000 hours of training.
The courses are structured in curricula according to requirements for performance in the production process. The definition of these requirements is carried out in conjunction with representatives of quality, engineering, safety and human resources. The internal procedures and normative requirements for each process are considered. Face-to-face, remote, online and practical educational solutions are offered to enhance the employee’s experience during the learning process.
In 2022, maintenance audits of NBR ISO 14001 and transition to ISO 45001 were carried out in the units of Gavião Peixoto, Botucatu, EDE, Taubaté, Eugênio de Melo and São José dos Campos. All these sites were approved with zero non-compliance.
Business Academy: considering our strategic planning, and the purpose of boosting our sales through our business segments, in 2022, we focused on building the VSS Materials Solution Academy, in order to assess the main competencies and skills necessary in the process to direct training and development priorities. While the Business Academy is still under construction, some training identified in this assessment has already been carried out, such as: Storytelling, Presenter Communication (oratory), Visual Communication / Slides, Negotiation, Decision Making, Onboarding, as well as specific technical training.
Supply Chain Academy. The Supply Chain Academy was created with the purpose of training supply chain management concepts and best practices, in addition to promote the necessary transformation of processes in pursuit of excellence. The Supply Chain Academy was launched in October 2021 and started to offer courses in 2022, in addition to soft and hard skills development programs. In 2022 we had approximately 60 classes, with more than 1,200 participations and about 190 hours of learning.
Procurement Academy. The purpose of the Procurement Academy is to guarantee the training of procurement professionals based on the skills required for each function to meet our business and strategy needs. The Procurement Academy covers 27 development themes, has had approximately 3,600 participations and over 11,500 hours of training.
Lean Academy. The Lean Academy is one of the pioneering and cross academies for all areas of the company. It was first known as the P3E (Business Excellence Program) training program, and was founded with the purpose of promoting organizational learning and dissemination of the Lean philosophy, which is
53
part of the cultural basis of our strategic plan. The trails of this academy involve all professional categories and aim to make Lean knowledge always available and accessible “Lean for All”. In 2022, we offered training in Lean practical learning rooms, called the “Dojos.” In 2022, we created two important programs using Dojo rooms, the Lean Leadership program and the Lean Attitudes for Trainers program. We currently have nine Dojo rooms serving units in Brazil and abroad. In 2022, the Lean Academy offered more than 60 courses and approximately 800 hours of training, involving more than 450 participant groups, and approximately 30,000 individual participations. In 2022, Lean was the second most researched skill at Empower.
Culture and Diversity Academy. Through what we call our Culture and Diversity Academy, we developed the concept of the journey “Culture Flight” and launched our first training on culture and diversity, for all employees in Brazil, USA, EMEA and Asia. In addition, we carried out sessions of psychological safety training for operations leaders, as well as conversation circles with leaders and our operations teams in Botucatu to discuss concepts and experienced situations of diversity, equity and inclusion.
Knowledge Partners Program: We encourage employees to share their skills in order to perpetuate knowledge. Due to the constant search of our employees for knowledge, innovation and technology, we reformulated the Knowledge Partners Program so that the training of instructors is now conducted by Embraer professionals, reducing the need of suppliers, which increased quality and decreased costs associated with the program.
To support the quality of the didactics of internal instructors and meet the new education trends, we developed the Virtual Facilitator Training, with the purpose of accelerating the online development of new and essential distance facilitation skills that make a difference in the development of people and in our results.
Language Program: We have adopted a professional development policy in focused on business language skills, seeking more robust, concentrated and effective ways to ensure the availability of qualified resources to meet the strategic business objectives of each area. In 2022, we started a new partnership with Lingopass, providing a more digital study method and supporting student engagement. We adapted the classroom classes for online and live classes, maintaining the quality of content and teaching. In 2022, we had the participation of more than 350 students.
Education Incentive Program. Launched in 2022, the Education Incentive Program aims to promote the recognition and development of employees, through grants for postgraduate courses, MBA degrees, master’s, doctorate and post-doctorate degrees, taking into account our strategy and business needs.
Future of Work Project: in March 2020, we were affected by the pandemic and had to adapt to the new reality with the purpose of preserving the health and well-being of our employees. We quickly adapted to the remote work format because we already had tools to support this work model. In September, we officially started the global Future of Work project in order to identify, analyze and structure actions and processes for this new remote work format. We formed a multidisciplinary team with approximately 50 employees, representing the main areas of Embraer.
In 2022, based on studies and analysis on the subject, we implemented new work models, namely: (i) on-site model (comprised of five days of physical attendance), (ii) hybrid model (comprised of up to two days of on-site work and remote work), and (iii) 100% remote work.
Occupational Safety
We seek excellence in our occupational health and safety performance, a topic considered a priority for Embraer. To this end, we promote educational and preventive actions in a continuous manner and directed by the Environment, Health and Safety at work (MASS) policy of global scope, which is a guideline for setting goals linked to our business excellence criteria.
54
The management model adopted in the Embraer Business Excellence Program - P3E uses the concept of Safety, Quality, Delivery and Cost (SQDC), aiming at the standardization and optimization of our operational and cost indicators. In addition to the criteria of business excellence, we have maintained international certifications in its largest manufacturing units for 20 years.
In 2022, the Brazil units successfully achieved the certification of ISO 45001, ensuring the implementation of all the tools provided for in this requirement. We have been working on the creation of important corporate programs that aim at preventive behavior in its operations, in order to record potential situations on a daily basis, directing the dealings quickly and assigning responsibilities among all involved. A consistent policy coupled with the assurance of a robust management system and programs with a focus on preventive has brought results compared to the most recognized global parameters.
Social Projects
For us, promoting social inclusion is key to building a fairer and more sustainable society. Over the years, we have developed several social programs to help develop the communities where we operate.
Embraer Institute of Education and Research
The Embraer Institute of Education and Research - IEEP consolidates the private social investment made by us in Brazil. The IEEP initiatives seek to engage communities, schools and Embraer employees in actions aimed at education. In 2022, our social investment was approximately R$20 million, destined to programs developed in the regions in which we have activities in Brazil.
Among the IEEP projects, the Embraer Colleges serve low-income students and graduates from the public school system, according to established socioeconomic criteria. The model offers the three grades of high school full-time and, in 20 years of existence, became a reference in education, with high rates of approval in entrance exams of public and private universities. In total, more than 4,700 students have already been trained in the two units of São José dos Campos and Botucatu, in São Paulo. From 2019, in order to ensure the long-term sustainability of the project, the Colleges also opened the doors for paying students, allocating 20% of the vacancies to them.
In order to contribute to the continuity of the studies of low-income youth, the IEEP created in 2005 the Scholarship Fund program, aimed at former students at the Colleges with excellent school performance, financial limitations and who have been approved in public or private universities with total exemption from tuition. In 2022, the Scholarship Fund benefited 21 university students.
The IEEP also works directly with local communities, funding educational projects proposed by civil society organizations. The initiatives are guided by the agenda of the United Nations Sustainable Development Goals (SDGs). In 2022, we launched the first edition of the Diverse Science Program, with the purpose of bringing the teaching of Science, Technology, Engineering and Mathematics (STEM) to minority groups. In this first edition, two projects focused on teaching STEM to girls up to 18 years old were selected. Since 2004, more than 190 educational projects have been supported. In turn, through the Embraer Historical Center, created in 2006, the IEEP rescues, preserves and disseminates the memory of the aeronautical industry in Brazil – a topic that is the object of study inside and outside the country.
The Embraer Institute also coordinates programs to promote the culture of volunteering through the Wings of Good platform, an online portal that allows the relationship between Civil Society Organizations and Embraer Employees who wish to become volunteers. In 2022, there were more than 800 volunteer posts occupied in Brazil and more than 3000 people impacted by the actions carried out.
55
Embraer Foundation
In order to consolidate our corporate social responsibility strategy in the United States, we created in 2016 the Embraer Foundation, a sister organization of the Embraer Institute, whose operations are guided by three fronts: volunteering, social and environmental partnerships and entrepreneurship. The pillars are aligned with our global social responsibility strategy and respect the particularities of social investment in the United States. In 2022, more than 400 volunteers engaged in the social activities promoted by the Embraer Foundation, totaling about 3,300 hours. In the partnership pillar, 40 organizations received support from the Embraer Foundation to carry out projects, in the same way as the Social Partnership Program of the Embraer Institute in Brazil.
Corporate Governance
In order to ensure a corporate management focused on sustainable growth and business perpetuity, our corporate governance model is based on integrity and meets the highest market standards in Brazil and in the United States. Our target with respect to corporate governance is to maintain the highest international standards of governance and a robust ethics and compliance program, fully aligned with global standards.
Governance Structure
Our governance structure comprises our board of directors, fiscal council, board of executive officers, internal audit and external audit. For more information on our governance bodies, see “Item 6. Directors, Senior Management and Employees” and “Item 16. Reserved—G. Corporate Governance.”
Ethics and Compliance
We seek to ensure integrity and ethics in our activities. Accordingly, we established an ethics and compliance program to promote and support all actions aiming at compliance with the laws and regulations applicable to our business, as well as with our internal policies.
Our ethics and compliance program is based on key elements, including the maintenance of a responsible organization and structure through our leadership, the constant management of risks, the establishment of the appropriate internal control policies and standards, training and communication with our audiences, in addition to a monitoring process, audit and whistleblowing channels for the assessment and investigation of potential misconduct, promoting an ethics and integrity culture in all our units.
On May 22, 2020, we successfully completed the external and independent anticorruption monitoring, which started in January 2017 under the deferred prosecution agreement, or DPA, executed with the U.S. Department of Justice, or DoJ, with the consent of the SEC. We implemented the recommendations of the monitor to strengthen our compliance program and improve our processes, systems and internal controls. The monitor certified that our program reached the standards set forth in the DPA for compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, and other applicable anticorruption laws. We continue to improve and expand our global compliance program in all our operations and countries where we are present.
Moreover, we permanently invest in the training of employees and business partners on business ethics and integrity through workshops, case studies, lectures and seminars, in the in-person and online formats.
Risk Management
Our risk management method focuses on the following categories of risks: strategic risks, operating risks, financial risks, regulatory/legal risks and cyber risks. Our structure is strengthened by the operation of our risks and internal controls department, comprising the following macroprocesses: management of internal controls, management of corporate risks, monitoring of credit risks in financial transactions, management of crises, and monitoring of risks and potential violations of segregation of functions and business continuity.
56
The purpose of our risk and internal controls department is to ensure that the identification, prioritization, assessment and management of the main risks are conducted in accordance with the best practices established by us and the market, ensuring transparency and integrity in our processes. We also use these tools to prevent uncertainties that may negatively affect our results. We seek the continuous improvement of our risks and internal controls system.
Management Model and Strategic Planning
Our management model comprises long-term planning, as set forth in our strategic plan, and short- and medium-term projects, as set forth in our action plan. Our strategic plan establishes strategic projects, and our action plan establishes the objectives to be met in the first year and the operating efficiency and economic and financial targets for the period, focused on sustainability.
Our strategic plan and our action plan aim at our business perpetuity and the creation of value for shareholders, focusing on increasing our competitiveness, improving our corporate excellence model and continuously searching for better results. For more information on our strategic plan, see “—Business Strategies.”
Seasonality
We have historically experienced seasonality in our results of operations and cash flow generation. This is mainly due to a traditionally higher number of deliveries in the fourth quarter, particularly in our Executive Aviation segment, which is in line with overall executive jet industry seasonality. Deliveries of executive jets in the fourth quarter generally constitute at least 35% to 45% of annual deliveries in our Executive Aviation segment, and we expect this trend to continue.
C. | Organizational Structure |
Our operations are conducted by Embraer S.A. as the controlling and principal operating company. We have a number of direct and indirect subsidiaries, none of which is considered significant. A complete list of our subsidiaries is filed as Exhibit 8.1 to this annual report, and a description of our joint ventures and project subsidiaries and strategic alliances is included in the annual report in Item 3 above.
D. | Property, Plants and Equipment |
For information on our property, plant and equipment, see Note 14 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
For a discussion of our capital expenditures relating to property, plant and equipment, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures.”
Production
The manufacture of an aircraft consists of three principal stages: production of primary parts, assembly of major components and final assembly. Primary parts include metal sheets and plates (produced from die-cast molds, stretch forming or various chemical treatments), parts produced using computerized and non-computerized machines, and prefabricated parts. The primary parts are then assembled, or mated, with one another to produce the aircraft’s major components, which are in turn joined to create the aircraft’s basic structure. In the final assembly stage, the aircraft’s various operating systems (including wiring and electronics) are installed into the structure and tested.
In 2022, we entered into an agreement with Toyota do Brasil to embrace Toyota Production System (TPS) principles and concepts in its industrial operations. The program aims to eliminate waste, obtain operational efficiency, and increase value generation for stakeholders. During the first phase of this project, carried out throughout the second half of 2022, a team of TPS specialists from Toyota do Brazil has immersed into our daily work to evaluate and suggest improvements for our manufacturing area at the Ozires Silva Unit, located in São José dos Campos, Brazil.
57
We have the flexibility to increase or decrease production as a response to changing demand.
Commercial Aviation
In July 2009, in line with our initiatives to improve production efficiency pursuant to the Business Efficiency Strategy (Frente Eficiência Empresarial), we converted the final assembly for the E-Jets E1 family to a line concept in São José dos Campos, which resulted in a significant reduction in the cycle of production time. In 2015, we started the prototype production for the new E-Jets E2 family of jets, with the first delivery and production certification in 2018. We have production facilities for commercial aviation aircraft in São José dos Campos, State of São Paulo, Brazil.
Executive Aviation
Executive Aviation aircraft are currently produced in Melbourne, Florida in the United States and Gavião Peixoto, State of São Paulo, Brazil. The Melbourne facility is a final assembly plant with a Customer Center and an Engineering Office. In 2014, we announced an expansion plan to assemble the Legacy 450/500 in this facility, to improve our production capacity. We have been increasing the number of executive jets produced in Melbourne since 2016. Executive Jets has been manufactured in Gavião Peixoto facility since 2020.
Defense & Security
The Gavião Peixoto facility includes flight-testing capabilities for all Embraer aircraft and a final assembly line for our defense aircraft. This facility has been operational since November 2002. In May 2014, we inaugurated the final assembly line of the new military transport and aerial refueling jet, the C-390 Millennium, and in February 2015, it successfully performed its first flight. Embraer is currently conducting flight tests for the C-390 Millennium. In the fourth quarter of 2018, we received the Type Certificate from the Brazilian Aviation Authority for the multi-mission airlift C-390 Millennium and delivered the first aircraft in 2019.
We have a final assembly facility in Jacksonville, Florida for Defense & Security where we initiated the final assembly line for the A-29 Super Tucano for the United States Air Force’s LAS Program in 2013.
In 2016, we launched the GDDN in Gavião Peixoto. It is the hub for the Gripen NG technology development in Brazil for Saab and Embraer together with the Brazilian partner industries and institutions. The GDDN includes the development environment and simulators required to undertake the fighter development work. In addition, the GDDN is connected to Saab in Sweden and the industrial partners in Brazil, securing both technology transfer and efficient development.
Other Segments
We manufacture aerospace systems and components at our subsidiary ELEB Equipamentos Ltda., or ELEB, which is one of our productive subsidiary located in São José dos Campos, and its main products are structural parts, landing gear systems, hydraulics and electro-mechanical sub-assemblies, such as actuators, valves, accumulators and pylons.
In Botucatu, state of São Paulo, Brazil, we produce the Ipanema, a crop duster aircraft developed pursuant to specifications of the Brazilian Ministry of Agriculture.
Production in our Subsidiaries
EZ Air Interior Limited, our subsidiary for the production of interior parts for our Commercial Aviation segment in Mexican factories, began production and shipping of parts to Brazil in 2013. It achieved full production capacity in January 2015.
58
In 2015, we completed the acquisition of a new subsidiary, Embraer Aero Seating Technologies. We progressively acquired its ownership stake in the company, headquartered in Irwindale, California, which provides luxury seating solutions for the aviation industry and for Embraer product lines. In 2016, we opened a new state of the art manufacturing facility located in Titusville, Florida.
On November 11, 2021, our board of directors approved the sale of the equity interest of two subsidiaries of Embraer, namely, Embraer Portugal Estruturas Metálicas S.A., or EEM, and Embraer Portugal Estruturas em Compósitos S.A., or EEC, to Aernnova Aerospace, SAU, or Aernnova. EEM and EEC are responsible for operating our two facilities in Évora, Portugal, which are used for the manufacture and assembly of metallic components and composite material components. The binding agreement for the sale, which was valued at US$175.0 million, was entered into on January 11, 2022 and closed on May 2, 2022.
Environmental Matters
We have all material permits required to operate our business in all Embraer sites around the world. The terms of these operating permits are reviewed every year and, as of December 31, 2022, we were in compliance with all of them. In addition, our Environmental and Occupational Health and Safety Management System was established in 2001, allowing us to maintain ISO 14001 certification since 2002. Certified environmental, health and safety management systems have been progressively implemented across our manufacturing sites, with around 81% of our employees operating under an ISO 14001 and ISO 45001.
Since 2009, we have carried out our greenhouse gas (“GHG”) emissions inventory in accordance with ISO 14064 Part I. As of 2020, we have increased the coverage of GHG emissions data, and in 2022 our GHG emissions inventory included 15 facilities, representing approximately 93% of coverage.
Work procedures and instructions are set up in order to ensure that the activities that cause environmental impacts are carried out in order to minimize or mitigate any environmental damage, and we perform studies of environmental aspects and impacts and we implement actions to eliminate, reduce or control them, including infrastructure works.
We established a corporate procedure for performing environmental diagnoses and detailed investigations for finding the presence of contaminants in soil and water due to past activities. This procedure is applied to the relevant areas where Embraer has production and/or maintenance facilities, as well as to new relevant areas being acquired. The diagnosis results are periodically reported and monitored by the internal Risk Department, also reported to the CCRA (Committee for Environmental Risk and Control), our board and shareholders.
We take into account environmental and safety requirements to enter into agreements with third parties. Embraer is committed to hire suppliers, service providers and contractors who respect the environment, health and safety through their practices and processes, and we have a systematic procedure for their continual evaluation and monitoring.
We encourage not only the environmental certification but also the development of a full life cycle orientation for products and services, as this remains the most cost-efficient and practical way to effectively reduce environmental impacts. The environmental management system attempts to create economic value by reducing environmental costs and exposure at each stage of the product life, from design to operations and to end of life. Integrated development of environmentally sustainable products, through the design for environment methodology, aims to incorporate environmental requirements into product development throughout the various stages of production.
The implementation of further innovative and eco-efficient technologies and processes is a key factor in ensuring our sustainability, increasing the attractiveness of our products and our overall competitiveness. We continuously pursue eco-efficiency, seeking responsible business opportunities by developing breakthrough technologies, products and services, as well as by reducing the environmental impact of our activities and products throughout their life cycle, and, more generally, by integrating environmental concerns into our daily business. We recognize that environmental requirements, such as reduction of greenhouse gas emissions, are becoming one of the main drivers of airline fleet decisions and are already influencing aircraft developments.
59
We are committed to Brazilian and international legislations as well as our customers’ requirements. Our suppliers must also ensure that the environmental requirements will be followed through its upstream supply chain. Accordingly, our suppliers and their supply chain must comply with applicable environmental legislations, such as European REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) regulation (EC) No 1907/2006, TSCA (Toxic Substances Control Act), SCIP (Substances of Concern In articles as such or in complex objects (Products), established under the Waste Framework Directive (WFD)) and any other relevant rules that may affect our products.
The REACH regulation aims to improve the protection of human health and the environment through more strict regulation of chemicals. The regulation establishes progressive withdrawal of some of the substances considered of very high concern for human health and the environment. As of December 31, 2022, we have not suffered any penalties in connection with REACH.
To ensure compliance with REACH requirements and the SCIP database, we have developed a system that allows our engineering team to register substances present in raw materials and articles. We have filled up this system with the substances that are present in mixtures or articles that release substances and are working with our suppliers to collect information on substances, especially SVHC (Substances of Very High Concern) that are present in parts acquired by us.
Our commitments to environmental sustainability and compliance with regulations is further reflected in its adherence to the Globally Harmonized System of Classification and Labelling of Chemicals (GHS). This internationally recognized system establishes harmonized criteria for the classification and labeling of substances and compounds with respect to physical, health, and environmental hazards. By complying with the GHS, we ensure that our products are manufactured, handled, and transported in a safe and environmentally responsible manner.
Our dedication to developing advanced, innovative environmental solutions for our products is reflected in our membership in the International Aerospace Environmental Group (IAEG), as one of the twelve founding members, formed to address the complexity of the regulations on health and environment, impacting the Aerospace Industry and our supply chain and customers, and also as an associate company at the Aircraft Fleet Recycling Association (AFRA), the leading global organization for developing and promoting the safe and sustainable management of circularity of components and aircraft end-of-life.
Our commitment to responsible manufacturing practices and our goal to minimize the environmental impact of our products is evident in our historic disruption in the use of hazardous materials. We are actively promoting waste reduction during aircraft maintenance and operations by using LED lamps, which are free of mercury and have a longer lifespan than fluorescent bulbs, and by reducing the usage of hazardous materials like Hexavalent Chromium and Cadmium, which we believe not only serves as an important step towards reducing the environmental impact of our products, but also sets a high bar for other companies to follow.
Insurance
We maintain insurance at levels deemed to meet all risks associated with our operations and legislation. The insurance covers potential damages to our property, inventories, working process, cargo and aircraft hulls for our own fleet. In addition, we maintain a comprehensive aviation products liability policy, for claims arising out of our legal liability as manufacturers, repairers, suppliers or servicers. We also possess natural disaster and business interruption insurance.
4A. Unresolved Staff Comments
We have no unresolved staff comments.
60
Item 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
This discussion should be read in conjunction with our audited consolidated financial statements and notes thereto and other financial information included elsewhere in this annual report. The purpose of this discussion is to provide management’s explanation of factors that have materially affected our financial condition and results of operations for the historical periods covered by the financial statements, and management’s assessment of factors and trends which are anticipated to have a material effect on our financial condition and results of operations for future periods.
This annual report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in “Item 3. Key Information—D. Risk Factors” and the matters set forth in this annual report generally.
Except as otherwise indicated, all consolidated financial information in this annual report has been prepared in accordance with IFRS as issued by IASB and presented in U.S. dollars, while, for local purposes, our consolidated financial statements are also prepared in IFRS but are presented in reais. For certain purposes, including providing reports to our shareholders located in Brazil, filing financial statements with the CVM and determining dividend payments and other distributions and tax liabilities in Brazil, we have prepared and will continue to be required to prepare parent company financial statements in accordance with IFRS, presented in reais.
A. Operating Results
Current Conditions and Trends in our Company and Industry
The following discussion is based largely upon our current expectations about future events and trends affecting our business. Actual results for our industry and performance could differ substantially. For additional information related to our forward-looking statements, see “Introduction—Special Note Regarding Forward-Looking Statements” and for a description of certain factors that could affect our industry in the future and our own future performance, see “Item 3. Key Information—D. Risk Factors.”
Restatement of Eve Holding’s and our Financial Statements
As disclosed on our current report on form 6-K, filed on November 11, 2022, Eve Holding reviewed its accounting for certain warrants that were issued and became exercisable at the closing of the Business Combination Agreement on May 9, 2022, as well as for certain related transaction costs and listing expenses.
As a result, and as disclosed by Eve Holding in its current report on form 8-K/A filed on December 7, 2022, Eve Holding restated (i) the audited combined financial statements of the Urban Air Mobility Business of Embraer S.A as of December 31, 2021 and 2020 and for each of three years in the period ended December 31, 2021, (ii) the unaudited condensed consolidated financial statements of EVE UAM, LLC as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, (iii) the unaudited pro forma condensed consolidated financial information and (iv) management’s discussion and analysis of financial condition and results of operations filed therewith.
After assessing, together with our independent registered accounting firm, the impacts of Eve Holding’s adjustments on Embraer’s unaudited interim condensed consolidated financial statements for the quarter ended June 30, 2022, which were prepared in accordance with accounting practices adopted in Brazil and IFRS (“Embraer’s Second Quarter Results”), we restated Embraer’s Second Quarter Results to recognize the following non-cash expenses: (i) with respect to warrants, we recognized a non-cash impact of US$76 million in net results, resulting from a recording of US$142 million in other operating expenses and US$66 million of fair value in financial income; (ii) US$136 million in other operating expenses related to listing expenses, and (iii) US$15 million in equity to other operating expenses, related to the reclassification of transaction costs (of the Business Combination).
61
As a result, our audited consolidated financial statements as of and for the year ended December 31, 2022 reflect the restatement of Embraer’s Second Quarter Results.
Closing of the Business Combination with Zanite
As disclosed to the market on our current report on form 6-K, filed on May 9, 2022, the previously announced Business Combination between Eve and Zanite was completed on that date.
In connection with the closing of the Business Combination, our subsidiary Embraer Aircraft Holding, Inc., or EAH, contributed all of the Eve limited liability company interests held by it to Zanite in exchange for 220 million shares of Zanite common stock and Zanite changed its corporate name to Eve Holding, Inc. (“Eve Holding”). EAH also completed a cash investment of US$185 million into Eve Holding substantially concurrently with the closing in exchange for an additional 18.5 million shares of Eve common stock. Eve Holding’s common stock and public warrants were then listed on the New York Stock Exchange under the tickers “EVEX” and “EVEXW”, respectively.
As of the date of this annual report, EAH holds 238.5 million shares of Eve Holding’s common stock, representing approximately 90% of the outstanding shares of Eve Holding common stock. The remaining shares of common stock are currently owned by public stockholders, including the sponsor and certain third-party investors who entered into subscription agreements to purchase shares of common stock at the closing of the Business Combination. Further, the previously announced agreements entered into by Embraer in connection with the Business Combination to provide products, inputs, and services to Eve continue to remain in full force and effect.
Sale of two Embraer subsidiaries in Portugal
On May 2, 2022, the sale of two of our subsidiaries, namely, Embraer Portugal Estruturas Metálicas S.A., or EEM, and Embraer Portugal Estruturas em Compósitos S.A., or EEC, to Aernnova Aerospace, SAU, or Aernnova, was concluded.
The transaction is an integral part of our assets optimization strategy, which aims at maximizing facilities use and increase profitability. We and Aernnova entered into a purchase and supply agreement, which became effective as of the closing of the transaction, for the continuous supply of metallic and composite components at fixed prices.
The transaction was valued at the final adjusted price of US$ 175.0 million and resulted in a cash inflow of US$158.2 million recorded as investing activities in our statements of cash flow for the year ended December 31, 2022.
COVID-19
The COVID-19 pandemic and governmental responses thereto have had, and may continue to have, an impact on global and Brazilian macro-economic and financial conditions, including the disruption of supply chains and the closures or interruptions of many businesses, leading to losses of revenues, increased unemployment and economic stagnation and contraction. The COVID-19 pandemic has also resulted in materially increased volatility in both Brazilian and international financial markets and economic indicators, including exchange rates, interest rates and credit spreads. Furthermore, the COVID-19 pandemic has negatively affected the supply of pilots in the United States, many of which decided to change careers or retire as a result of the pandemic.
In connection with the pandemic, we have adopted several initiatives focused on health and safety of our employees, including health and safety measures, carry-out of essential activities only, including customer support, aircraft maintenance and manufacturing, social distancing, remote work for some employees,
62
reduction of working hours and wages, collective vacations, and paid leaves. We have also adopted certain measures to preserve our cash flow, including (i) reductions in working hours and pay cuts; (ii) reductions and pay cuts in executive management and board of directors’ fees (iii) extension of payment terms relating to our suppliers; (iv) extension of tax payment deadlines; (v) negotiation of new credit lines; and (vi) adjustment of our production chain.
Although vaccination campaigns have presented relevant advances around the globe and while many of the governmental imposed restrictions, such as social distancing measures, have since been lifted, there is no way to predict that these policies will not be tightened or that new and different restrictions will not be imposed, which may affect airports, passengers and airlines, and the industry total recovery itself. As a result, any future air traffic disruption and decreased demand globally may materially and adversely affect our aircraft deliveries.
For information on the risks related to COVID-19, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Embraer—The outbreak of communicable diseases around the world, including COVID-19, may lead to higher volatility in the global capital markets and recessionary pressure on the global economy,” and “Item 3. Key Information—3D. Risk Factors—Risks Relating to Embraer—A downturn in our key markets may reduce our sales and revenue, and, consequently, our profitability.” For additional information on the impacts of the COVID-19 pandemic, see Note 1.1.1 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
Impacts on our Commercial Aviation Segment
In the Commercial Aviation segment, the extensive traffic disruption affected our customer’s operations throughout the world. While global commercial airline traffic volume in 2022 recovered to 77% of 2019 levels by December 2022, as showed in the Air Passenger Market Analysis report published by the International Air Transport Association (IATA), we are still below our pre-COVID commercial aircraft delivery rate, with as of our customers have rescheduled aircraft deliveries for 2023 and beyond.
Additionality, the shortage of pilots in United States is expected to continue affecting the delivery pipeline for our E175 Program at least for the next two years. Most industry stakeholders, including us and some of our airline customers, expect a normalization around 2025.
Impacts on our Executive Aviation Segment
In 2022, the Executive Aviation segment continued to recover from the impacts of the pandemic. Despite the fact that COVID-19 and its variants have not caused significant negative impacts on our operations, the main risks related to the post-pandemic recovery is possibility of discontinuities in the supply of some parts and supplies to fleet maintenance and the manufacture of new aircraft. On the date of this annual report, the production lines of our Executive Aviation aircraft are able to attend the planned supply levels without further shortages. We continue to monitor these risks and control the supply chain, in order to accommodate demand and avoid obstacles that may yet arise from future global shortages and crisis arisen from or in connection with the pandemic. In 2022, we had no postponements of order cancellations, having delivered a total of 102 executive jets in 2022, representing a 9.7% increase as compared to 2021.
Impacts on our Defense & Security Segment
In our Defense & Security segment, the COVID-19 global pandemic has impacted mainly supply chain and logistics. Although our suppliers’ production level has shown recovery, it is still below the pre-pandemic levels, which impact their ability to deliver parts and goods to us in a timely manner. Logistics for imports and exports has also been impacted, with higher cycles and costs.
In November 2021, the Brazilian Air Force decided to unilaterally reduce the total value of their KC-390 Millennium aircraft agreement with us, which caused a reduction in our backlog and a decrease in revenue. In February 2022, we and the Brazilian Air Force engaged in negotiations, which resulted, among
63
other matters, in the reduction of the total number of KC-390 Millennium aircraft to be delivered under the terms of the agreement from 28 to 22. In October 2022, we and the Brazilian government engaged in further negotiations which resulted, among other matters, in the reduction of the total number of KC-390 Millennium aircraft to be delivered under the terms of the agreements from 22 to 19, with no possibility of unilateral reductions.
Impacts on our Services & Support Segment
Our Services & Support segment has maintained positive results through its ability to support customer needs, convert commercial opportunities into new businesses.
The year-over-year revenue improvement comes despite ongoing challenges in the aerospace industry, as a result of the pandemic. The most critical of these are worldwide materials shortages and supply chain constraints which are affecting availability of spare parts inventories, delaying repair turnaround time, and increasing the quantity of back-ordered items. Nevertheless, the global trend is the increase in international and domestic commercial flights. In the Services & Support related to our Executive Aviation, the profits are already higher than pre-pandemic numbers.
Cybersecurity Incident
On November 24, 2020, we suffered a cybersecurity incident in our IT systems, which was later identified as a ransomware attack. The attack resulted in the encryption of an environment of virtual servers hosted in Brazil, prevented access to certain files and resulted in the inadvertent disclosure of data, some of which were made available on the dark web. We have reported the incident to law enforcement authorities.
Immediately after the incident, we employed significant IT resources, took measures to protect and strengthen the security of our systems, isolated the affected environment and repaired our network. As part of our reaction, we hired Tempest Security Intelligence, a leading cybersecurity firm, to investigate the incident and supplement our remediation efforts. Embraer adopted additional measures to strengthen the security of its systems, as well as reporting the incident to competent authorities, in Brazil and abroad.
The incident had no significant impact over our revenues, cash flows or any material incremental expenses for the 2020 fiscal year and we have not had any similar incident in 2021 and in 2022. There is also no indication that the accuracy and completeness of any financial information had been affected as a result of the incident.
Operational Data
The following tables present a summary of our operational data as of the dates and for the periods indicated.
Year ended December 31, | ||||||||||||
Other Data: Aircraft delivered: |
2022 | 2021 | 2020 | |||||||||
To the Commercial Aviation Market |
57 | 48 | 44 | |||||||||
EMBRAER 175 |
35 | 27 | 32 | |||||||||
EMBRAER 190 |
3 | — | 1 | |||||||||
EMBRAER 195 |
|
— |
|
— | — | |||||||
EMBRAER 190-E2 |
1 | 2 | 4 | |||||||||
EMBRAER 195-E2 |
18 | 19 | 7 | |||||||||
To the Defense & Security Market(1) |
4 | 17 | 24 | |||||||||
C-390 |
1 | — | 2 | |||||||||
Super Tucano |
— | 14 | 16 | |||||||||
Modernization Programs |
2 | 3 | 6 | |||||||||
Combat |
0 | — | — | |||||||||
Special Mission |
1 | — | — | |||||||||
To the Executive Aviation Market |
102 | 93 | 86 | |||||||||
Legacy 600/650 |
— | — | 1 | |||||||||
Legacy 450/500 |
— | — | 1 | |||||||||
Praetor 500 |
15 | 14 | 10 |
64
Year ended December 31, | ||||||||||||
Other Data: Aircraft delivered: |
2022 | 2021 | 2020 | |||||||||
Praetor 600 |
21 | 17 | 18 | |||||||||
Phenom 100 |
7 | 6 | 6 | |||||||||
Phenom 300 |
59 | 56 | 50 | |||||||||
To the General Aviation Market |
55 | 42 | 22 | |||||||||
Light Propeller Aircraft |
55 | 42 | 22 | |||||||||
|
|
|
|
|
|
|||||||
Total delivered (in aircraft) |
218 | 200 | 176 | |||||||||
|
|
|
|
|
|
As of December 31, | ||||||||||||
Other Data: Aircraft in backlog |
2022 | 2021 | 2020 | |||||||||
In the Commercial Aviation Market |
291 | 325 | 281 | |||||||||
EMBRAER 175 |
90 | 147 | 132 | |||||||||
EMBRAER 190 |
— | 3 | 3 | |||||||||
EMBRAER 190 – E2 |
7 | 5 | 7 | |||||||||
EMBRAER 195 – E2 |
194 | 170 | 139 | |||||||||
In the Defense & Security Market(1) |
39 | 43 | 65 | |||||||||
C-390 |
21 | 25 | 31 | |||||||||
Super Tucano |
3 | — | 14 | |||||||||
Modernization |
— | 2 | 5 | |||||||||
Combat |
15 | 15 | 15 | |||||||||
Special Mission(2) |
— | 1 | — | |||||||||
In the Executive Aviation Market |
281 | 221 | 84 | |||||||||
Phenom 100/300, Legacy 650, Legacy 450/500, Praetor 500/600 |
281 | 221 | 84 | |||||||||
Total backlog (in aircraft) |
611 | 589 | 430 | |||||||||
|
|
|
|
|
|
|||||||
Total backlog (in US$ millions) |
17,488.4 | 17,039.1 | 14,363.6 | |||||||||
|
|
|
|
|
|
(1) | The amounts in backlog for C-390 aircraft reflects the modifications in accordance with the agreement reached with the Brazilian Air Force (FAB) for the order of the aircraft KC-390, as discussed under “Item 4. Information on the Company—A. Business Overview—Defense & Security Segment—Products—Military Transport – C-390 Millennium.” |
(2) | Special Mission category comprises aircraft of our Executive Aviation segment portfolio, which we have sold to customers of our Defense & Security segment. |
Brazilian Economic Environment
The Brazilian government has frequently intervened in the Brazilian economy and occasionally made drastic changes in policy and regulations. The Brazilian government’s actions to control inflation and affect other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies and incentives, price controls, currency devaluations, capital controls and limits on imports. Changes in Brazil’s monetary, credit, tariff and other policies could adversely affect our business, as could inflation, currency and interest-rate fluctuations, social instability and other political, economic or diplomatic developments in Brazil, as well as the Brazilian government’s response to these developments.
Rapid changes in Brazilian political and economic conditions that have occurred and may occur require continued assessment of the risks associated with our activities and the adjustment of our business and operating strategy accordingly. Developments in Brazilian government policies, including changes in the current policy and incentives adopted for financing exports of Brazilian goods, or in the Brazilian economy, over which we have no control, may have a material adverse effect on our business.
65
The following table shows data for real GDP growth, inflation, interest rates and the U.S. dollar exchange rate for and as of the periods indicated.
December 31, | ||||||||||||||||||||
2022 | 2021 | 2020 | 2019 | 2018 | ||||||||||||||||
Real growth in gross domestic product |
2.9 | % | 4.6 | % | (4.1 | )% | 1.1 | % | 1.3 | % | ||||||||||
Inflation (IGP-M)(1) |
5.5 | % | 17.8 | % | 23.1 | % | 7.3 | % | 7.6 | % | ||||||||||
Inflation (IPCA)(2) |
5.8 | % | 10.1 | % | 4.5 | % | 4.3 | % | 3.8 | % | ||||||||||
CDI rate(3) |
12.4 | % | 4.4 | % | 2.8 | % | 5.9 | % | 6.4 | % | ||||||||||
LIBOR rate(4) |
4.8 | % | 0.2 | % | 0.2 | % | 1.9 | % | 2.8 | % | ||||||||||
Depreciation of the real vs. U.S. dollar |
(6.5 | )% | 7.4 | % | 28.9 | % | 4.0 | % | 17.1 | % | ||||||||||
Period-end exchange rate—US$1.00 |
R$ | 5.2177 | R$ | 5.5805 | R$ | 5.1967 | R$ | 4.031 | R$ | 3.875 | ||||||||||
Average exchange rate—US$1.00(5) |
R$ | 5.1386 | R$ | 5.4071 | R$ | 5.2426 | R$ | 3.944 | R$ | 3.680 |
Sources: Fundação Getúlio Vargas, or FGV, and the Central Bank and Bloomberg.
(1) | Inflation (IGP-M) is the general market price index measured by FGV. |
(2) | Inflation (IPCA) is a broad consumer price index measured by the Instituto Brasileiro de Geografia e Estatística. |
(3) | The CDI rate is average of inter-bank overnight rates in Brazil (as of the last date of the respective period). |
(4) | Three-month U.S. dollar LIBOR rate as of the last date of the period. The LIBOR rate is the London inter-bank offer rate. |
(5) | Represents the average of the exchange rates on the last day of each month during the period. |
Inflation and exchange rate variations have had, and may continue to have, substantial effects on our financial condition and results of operations. Inflation and exchange rate variations affect our monetary assets and liabilities denominated in reais. The value of these assets and liabilities as expressed in U.S. dollars declines when the real devalues against the U.S. dollar and increases when the real appreciates. In periods of devaluation of the real, we report (i) a remeasurement loss on real-denominated monetary assets and (ii) a remeasurement gain on real-denominated monetary liabilities. For additional information on the effects of exchange rate variations on our financial condition and results of operations, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate Risk.”
For additional information on the impact of macro-economic factors on our financial position, see Note 25 of our 2022 audited consolidated financial statements.
Tax Incentives
Similar to other Brazilian companies across multiple industries, we benefit from certain tax and other government-granted incentives, including those related to our export and research and development activities. For the effective tax reconciliation, see Note 23.3 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
Tax Incentives for Companies in Research and Development
Brazilian Law 11,196/05, also known as Lei do Bem, grants tax benefits to entities involved in research and development activities for technological innovation.
To take advantage of the tax benefits, a beneficiary must (i) assess its income tax according to the real profit (lucro real) measurement, (ii) record taxable profits, (iii) be current with all of its fiscal obligations, , and (iv) have qualifying investments in research and development.
Technological innovation is deemed to be the development of a new product or manufacturing procedure, as well as the addition of new features or characteristics to an existing product or manufacturing procedure, which entails incremental improvements and gains in quality or productivity, therefore resulting in greater market competitiveness.
We and other Brazilian companies across multiple industries benefit from these tax incentives with respect to the income tax (Imposto de Renda Pessoa Jurídica), or IRPJ, and the social contribution on net income tax (Contribuição Social sobre o Lucro Líquido), or CSLL. These benefits allow us to deduct from our taxable net income an additional amount between 60% to 80% of our expenditures related to research and development activities for technological innovation during a fiscal year.
66
Tax Incentives and Payroll Exemptions for Exporting Companies
Normative Instruction 2126/2022 from the Brazilian Federal Revenue (IN RFB 2126/2022) established Special Customs Regime of Industrial Warehouse under automated control of Customs Board (RECOF) which allows the beneficiary company to import or to acquire in the local market raw materials, parts and components destined to industrial application on which federal taxes are suspended. Part of these goods must be processed, and it can be subsequently shipped both to domestic and foreign markets. When exporting the finished good, the company exempts the payment of federal taxes.
Decree No. 45,490, from the State of São Paulo, established the Simple Special Customs Regime (RESE), which is the State version of RECOF and suspends or exempts the payment of state taxes.
Brazilian Law 12.546/11 established the tax incentives for exporting companies and created the Special Regime for the Reintegration of Taxes of Exporting Companies (Regime Especial de Reintegração de Valores Tributários para as Empresas Exportadoras), or REINTEGRA, to stimulate and facilitate exports. The goal of REINTEGRA is to recover, in whole or in part, the residual tax costs from the production chain of exported goods, thereby reducing the tax burden. The exporting entity may receive tax credits according to a percentage, which may vary from 0.1% to 3%, established by decree of the Brazilian Finance Ministry and applied to the revenue earned from the export of the goods abroad.
To take advantage of those tax benefits, (i) an exporting entity must manufacture the exported product in Brazil, (ii) the product must be codified in the TIPI, which is a material code list issued by Brazilian fiscal authorities under the Tax on Manufactured Products (Imposto Sobre Produtos Industrializados), or IPI, and (iii) the cost of imported materials used in the exported product may not exceed certain limits prescribed by law, expressed as a percentage of the export price.
Principal Operating Data and Components of Our Statement of Income
Operating Data
Revenue
We generate revenues from the sale of aircraft and spare parts as well as from providing maintenance and repair, training and other product support services. In 2022, we presented revenues from Commercial Aviation, Executive Aviation, Defense & Security, Services & Support, and Other segments.
Of our revenues, 61.4% and 58.3% were generated through commercial and executive aircraft deliveries in 2022 and 2021, respectively. Revenue arising from the sale of commercial and executive aircraft is denominated in U.S. dollars. In 2022 and 2021, total defense and security revenue included 58.7% and 75% of revenue denominated in foreign currency, predominantly in U.S. dollars, and 41.3% and 25% denominated in Brazilian reais, respectively. Our Services & Support segment accounted for 27.9% of our revenue for the year ended December 31, 2022.
In addition, we generate revenue from our Other segments which include single-source supply of structural parts and mechanical and hydraulic systems to other aircraft manufacturers, and general aviation propeller aircraft, including crop dusters, which are also referred to as light aircraft.
Our Other segments also include services related to the development and certification of eVTOLs, including the creation of a maintenance and services network for eVTOLs and the creation of an air traffic management system for eVTOLs (urban air mobility, or UAM business).
For the sales of our aircraft, we receive an initial deposit upon the execution of the purchase agreement, progress payments prior to the delivery of each aircraft and a final payment upon delivery. The final payment typically represents the majority of the sale price. The deposits and the progress payments are for the most part nonrefundable in the event orders are canceled, except in the case of the Defense & Security segment. Payments in advance of delivery are recorded under contract liabilities as a liability on our statement of financial position and, when we deliver the aircraft, these payments are recognized as revenue. We generally receive monetary deposits for each option to purchase an executive or commercial jet. For additional information on our operating revenues, see Note 3 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
67
Our sales contracts in U.S. dollars with our Executive Aviation and Services & Support segment segments customers generally include adjustments for inflation as measured by the U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers, when deliveries are not in the same calendar year of the sale except when fixed prices are pre-determined considering the estimated inflation and strategic price positioning planning of a given aircraft model, in line with Embraer’s strategic planning. Our sales contracts with our Commercial Aviation and generally Defense & Security segment customers include adjustments to the purchase price of the aircraft based on an escalation formula, which is based on a mix of indexes related to raw material, transportation equipment and labor costs. Specific to Defense & Security sales contracts with Brazilian customers, national indexes are used to adjust the prices of the relevant contract. The initial deposits and progress payments are nonrefundable (except in some instances contemplated in the agreement). Once a customer exercises an option to purchase an aircraft, we account for it as a firm order, and we begin to receive the respective progress payments and recognize revenue upon delivery of the aircraft or the contractual milestone.
A significant part of our defense contracts, including the contracted research and development for specific programs, meet the criteria for revenue recognition by percentage of completion. For the contracts that do not meet the criteria for percentage of completion, we recognize revenue at a point of time, on the moment the product is delivered, or the service is rendered. Certain contracts contain provisions for the redetermination of price based upon future economic conditions. Our defense customers continue to provide customer advances, which are converted into revenue as we fulfill pre-determined stages of completion of the project, including conception, development and design, and engineering, systems integration and customization. These installments are nonrefundable for the most part.
Cost of Sales and Services
Cost of sales and services consists of the cost of the aircraft, spare parts and services rendered, comprising:
• | Raw materials. Substantially all materials costs are covered by contracts with suppliers. Prices under these contracts are generally adjusted based on an escalation formula which reflects, in part, inflation in the United States. |
• | Labor. These costs comprise salaries and related charges primarily in Brazilian reais. |
• | Depreciation. Property, plant and equipment in general are depreciated over their useful lives, ranging from two to 60 years, on a straight-line basis. Depreciation of aircraft under operating leases is recorded in cost of sales and services from the beginning of the lease term using the straight-line method over the estimated useful life and considering a residual value at the end of the lease term. |
• | Amortization. Internally generated intangible assets are amortized in accordance with the estimated sales of the series of aircraft. Intangible assets acquired from third parties are amortized on straight-line bases over the estimated useful lives of the assets. |
We accrue a liability for the obligations associated with product warranties at the aircraft delivery date, which is estimated based on historical experience and recorded in cost of sales and services.
We enter into transactions that represent multiple-element arrangements, including training, technical assistance, spare parts and other concessions. These costs are recognized when the product or service is provided to the customer.
68
Results of Operations
The following table presents statement of income data by segment for the periods indicated:
2022 | 2021 | 2020 | ||||||||||
(in US$ millions) | ||||||||||||
Revenue |
||||||||||||
Commercial Aviation |
1,543.9 | 1,316.4 | 1,114.4 | |||||||||
Executive Aviation |
1,244.4 | 1,130.1 | 1,071.5 | |||||||||
Defense & Security |
447.6 | 594.4 | 653.9 | |||||||||
Services & Support |
1,266.8 | 1,132.2 | 920.0 | |||||||||
Others |
37.7 | 24.1 | 11.3 | |||||||||
|
|
|
|
|
|
|||||||
Total |
4.540.4 | 4,197.2 | 3,771.1 | |||||||||
|
|
|
|
|
|
|||||||
Cost of sales and services |
||||||||||||
Commercial Aviation |
(1,382.3 | ) | (1,263.9 | ) | (1,086.8 | ) | ||||||
Executive Aviation |
(953.2 | ) | (923.4 | ) | (886.1 | ) | ||||||
Defense & Security |
(350.8 | ) | (488.4 | ) | (549.1 | ) | ||||||
Services & Support |
(912.3 | ) | (827.6 | ) | (751.4 | ) | ||||||
Others |
(29.6 | ) | (34.3 | ) | (20.1 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
(3,628.2 | ) | (3,537.6 | ) | (3,293.5 | ) | ||||||
|
|
|
|
|
|
|||||||
Gross profit |
||||||||||||
Commercial Aviation |
161.6 | 52.5 | 27.6 | |||||||||
Executive Aviation |
291.2 | 206.7 | 185.4 | |||||||||
Defense & Security |
96.8 | 106.0 | 104.8 | |||||||||
Services & Support |
354.5 | 304.6 | 168.6 | |||||||||
Others |
8.1 | (10.2 | ) | (8.8 | ) | |||||||
|
|
|
|
|
|
|||||||
Total |
912.2 | 659.6 | 477.6 | |||||||||
|
|
|
|
|
|
|||||||
Operating income (expenses) |
||||||||||||
Commercial Aviation |
(145.5 | ) | (57.1 | ) | (300.8 | ) | ||||||
Executive Aviation |
(141.5 | ) | (76.9 | ) | (95.5 | ) | ||||||
Defense & Security |
(86.8 | ) | (89.0 | ) | (72.2 | ) | ||||||
Services & Support |
(193.2 | ) | (143.2 | ) | (240.7 | ) | ||||||
Other |
(386.1 | ) | (23.1 | ) | (22.6 | ) | ||||||
Unallocated operating expenses(1) |
(69.6 | ) | (69.0 | ) | (69.2 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
(1,022.7 | ) | (458.3 | ) | (801.0 | ) | ||||||
|
|
|
|
|
|
|||||||
Operating (loss)/income before financial result |
(110.5 | ) | 201.3 | (323.4 | ) | |||||||
|
|
|
|
|
|
(1) | Expenses not allocated in the total refers to (i) expenses incurred in 2022 and 2021 as part of the corporate restructuring of the Company and expenses with certain corporate demands not directly related to any operating segment, and (ii) expenses incurred by the Company as part of the voluntary dismissal plans for specific group of employees in Brazil and reduction in workforce in 2020. |
The following table sets forth statement of income information, and this information as a percentage of our revenue, for the periods indicated:
Consolidated Statements of Income | 2022 | 2021 | 2020 | |||||||||||||||||||||
(in US$ millions, except percentages presented in absolute values) | ||||||||||||||||||||||||
Revenue |
4,540.4 | 100 | % | 4,197.2 | 100 | % | 3,771.1 | 100 | % | |||||||||||||||
Cost of sales and services |
(3,628.2 | ) | 79.9 | % | 3,537.6 | 84.3 | % | (3,293.5 | ) | 87.3 | % | |||||||||||||
Gross profit |
912.2 | 20.1 | % | 659.6 | 15.7 | % | 477.6 | 12.7 | % | |||||||||||||||
Operating income (expense) |
(1,022.7 | ) | 22.5 | % | (458.3 | ) | 10.9 | % | (801.0 | ) | 21.2 | % | ||||||||||||
Administrative |
(184.9 | ) | 4.1 | % | (153.2 | ) | 3.7 | % | (143.4 | ) | 3.8 | % | ||||||||||||
Selling |
(274.4 | ) | 6.0 | % | (226.4 | ) | 5.4 | % | (194.0 | ) | 5.1 | % | ||||||||||||
Expected credit losses (reversal) over financial assets and contract assets |
(17.4 | ) | 0.4 | % | 13.0 | 0.3 | % | (61.8 | ) | 1.6 | % | |||||||||||||
Research |
(110.0 | ) | 2.4 | % | (43.0 | ) | 1.0 | % | (29.8 | ) | 0.8 | % | ||||||||||||
Other operating expense, net |
(444.5 | ) | 9.8 | % | (49.8 | ) | 1.2 | % | (374.7 | ) | 9.9 | % | ||||||||||||
Equity in income of associates |
8.5 | 0.2 | % | 1.1 | 0.0 | % | 2.7 | 0.1 | % | |||||||||||||||
Operating income/(loss) before financial result |
(110.5 | ) | 2.4 | % | 201.3 | 4.8 | % | (323.4 | ) | 8.6 | % | |||||||||||||
Financial income, net |
121.9 | 2.7 | % | 74.8 | 1.8 | % | 29.1 | 0.8 | % | |||||||||||||||
Financial expense |
(245.4 | ) | 5.4 | % | (274.2 | ) | 6.5 | % | (261.8 | ) | 6.9 | % | ||||||||||||
Foreign exchange gain (loss), net |
28.2 | 0.6 | % | 25.5 | 0.6 | % | (79.1 | ) | 2.1 | % | ||||||||||||||
(Loss)/Profit before income tax |
(205.8 | ) | 4.5 | % | 27.4 | 0.7 | % | (635.2 | ) | 16.8 | % | |||||||||||||
Income taxes expense |
2.3 | 0.1 | % | (70.9 | ) | 1.7 | % | (93.1 | ) | 2.5 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Loss for the period |
(203.5 | ) | 4.5 | % | (43.5 | ) | 1.0 | % | (728.3 | ) | 19.3 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Attributable to: |
||||||||||||||||||||||||
Owners of Embraer |
(185.4 | ) | 4.1 | % | (44.7 | ) | 1.1 | % | (731.9 | ) | 19.4 | % | ||||||||||||
Non-Controlling Interest |
(18.1 | ) | 0.4 | % | 1.2 | 0.0 | % | 3.6 | 0.1 | % |
69
2022 Compared with 2021
Revenue
Consolidated revenue increased 8.2% in the period, to US$ 4,540.4 million in 2022, from US$4,197.2 million in 2021.
Revenues from our Commercial Aviation segment increased 17.3%, to US$1,543.9 million in 2022 from US$1,316.4 million in 2021, mainly due to an increase of 18.8% in commercial aircraft deliveries, to 57 in 2022, from 48 in 2021. The increase in revenues was lower than the increase in the number of deliveries, as 38.6% of commercial jet deliveries in 2022 were larger jets (E190-E1, E190-E2 and E195-E2) which tend to carry higher average selling prices, as compared to 2021, in which 43.8% of total commercial jet deliveries were larger jets.
Revenue from our Executive Aviation segment increased 10.1%, to US$1,244.4 million in 2022 from US$1,130.1 million in 2021, mainly due to a 9.7% increase in executive jet deliveries, from 93 jets in 2021 to 102 jets in 2022. The increase in revenues was higher than the increase in the number of deliveries, as 35.3% of executive jet deliveries in 2022 were mid-size jets (Praetors) which tend to carry higher average selling prices, as compared to 2021, in which 33.3% of total executive jet deliveries were larger jets.
A significant part of our revenue from the Defense & Security segment is accounted for under the percentage of completion method, and we continued to execute under existing contracts with the Brazilian government, including the KC-390 Millennium program, SISFRON, deliveries of special mission aircraft, and others. Additionally, we have delivered Super Tucano aircraft to several countries around the world. Our Defense & Security segment revenues decreased 24.7%, to US$447.6 million in 2022, from US$594.4 million in 2021, due to the lower number of Super Tucano deliveries in 2022.
Revenue from our Services & Support segment increased by 11.9%, to US$1,266.8 million in 2022, from US$1,132.2 million in 2021, mainly due to the higher demand for parts and components, as a result of the growth of airlines flight activities in in the Commercial Aviation, training services in Executive Aviation and C-390 Millennium services in Defense & Security.
Revenue from our Other segments increased 56.4%, to US$37.7 million in 2022 from US$24.1 million in 2021, mainly due to the higher number of Ipanema Aircraft delivered in 2022, which increased to 55 in 2022 from 42 in 2021.
Cost of Sales and Services
Cost of sales and services increased 2.6%, to US$3,628.2 million in 2022 from US$3,537.6 million in 2021. This increase in cost of sales and services was lower than the 8.2% increase in consolidated revenues in 2022, as compared to 2021, which resulted in a decrease in cost of sales and services as a percentage of revenue to 79.9% in 2022, from 84.3% in 2021. This decrease in cost of sales and services as a percentage of revenue was mainly due to our ongoing efficiency programs which directly reduce costs.
Cost of sales and services in our Commercial Aviation segment increased 9.4%, to US$1,382.3 million in 2022 from US$1,263.9 million in 2021. This is due to the increase in deliveries and revenues in 2022, as compared to 2021. Cost of sales and services increased less than the 17.3% increase in revenues in 2022, mainly due to our ongoing efficiency programs which directly affects costs and the positive contribution from price of the products. Gross margin in our Commercial Aviation segment (calculated as gross profit from our Commercial Aviation segment divided by revenue from the Commercial Aviation segment) increased from 4.0% in 2021 to 10.5% in 2022.
70
Cost of sales and services in our Executive Aviation segment increased 3.2%, to US$953.2 million in 2022 from US$ 923.4 million in 2021, which was lower than the 10.1% increase in revenues for the segment. This was mainly due to our ongoing efficiency programs which directly affects costs and the more favorable mix of jet deliveries, in 2022 we delivered 59 Phenom 300 compared to 56 in 2021 and Phenom 300 tends to carry higher operational profitability Gross margin in our Executive Aviation segment (calculated as gross profit from our Executive Aviation segment divided by revenue from the Executive Aviation segment) increased from 18.3% in 2021 to 23.4% in 2022.
Cost of sales and services in our Defense & Security segment decreased 28.2%, to US$350.8 million in 2022 from US$488.4 million in 2021. This decrease in cost of sales and services was higher than the 24.7% decrease in revenue in the same period, mainly due to the aforementioned ongoing efficiency programs. Gross margin in our Defense & Security segment (calculated as gross profit from our Defense & Security segment divided by revenue from the Defense & Security segment) increased from 17.8% in 2021 to 21.6% in 2022.
Cost of sales and services in our Services & Support segment increased 10.2%, to US$ 912.3 million in 2022 from US$ 827.6 million in 2021. This increase in cost of sales and services was lower than the 11.9% increase in revenue in the same period, mainly due to ongoing efficiency programs. Gross margin in our Services & Support segment (calculated as gross profit from our Services & Support segment divided by revenue from the Services & Support segment ) decreased from 26.9% in 2021 to 28.0% in 2022.
Cost of sales and services in the Other segments decreased 13.7% to US$ 29.6 million in 2022 from US$34.3 million in 2021, mainly due to lower costs of hydraulics and electro-mechanical sub-assemblies in 2022 as compared to 2021, despite the increase of costs due to the higher number of Ipanema delivered in 2022.
Gross Profit
As a result of the aforementioned factors, our gross profit increased 38.3% to US$912.2 million in 2022 from US$659.6 million in 2021. Our total gross margin (calculated as gross profit divided by revenue) increased from 15.7% in 2021 to 20.1% in 2022.
Operating Income (Expenses)
As further discussed below, total operating expenses increased to US$1,022.7 million in 2022 from US$458.3 million in 2021. Total operating expenses as a percentage of revenues increased to 22.5% in 2022 as compared to 10.9% in 2021, as further explained in the paragraphs below.
Administrative. Administrative expenses increased 20.7%, to US$184.9 million in 2022 from US$ 153.2 million in 2021. The majority of our administrative expenses are fixed and do not increase or decrease at the same rate as changes in our revenues. That said, the main drivers of the increase in administrative expenses in 2022 versus 2021 were: US$ 3.7 million due to the effect of the dollar depreciation against the Brazilian real (with respect to our expenses denominated in reais), US$ 9.0 million in higher provisions for short-term and long-term incentive compensation programs on better expected results for Embraer in 2022 as compared to 2021, an increase of US$ 3.1.million in managing expenses related to services and support in the United States and US$8.2 million in higher expenses related to the increase of administrative personnel at EVE in 2022.
Selling. Selling expenses increased by 21.2%, to US$274.4 million in 2022 from US$226.4 million in 2021, due to the increase of sales operation, such as marketing events, demonstration flight, sales campaign and travel expenses, in 2022, compared to lower expenses in 2021 due to the restrictions during the pandemic.
71
Expected credit losses (reversal) over financial assets and contract assets. Expected credit losses (reversal) over financial assets and contract assets increased to a loss of US$17.4 million in 2022 from a reversal of US$13.0 million in 2021, due to provisions for expected credit losses related to the downgrade of credit risk of one of our customers in the Services & Support segment.
Research. Research expenses increased to US$110.0 million in 2022 from US$43.0 million in 2021, due to Eve and projects at the Commercial Aviation segment, which were in lower pace during the pandemic.
Other operating expense, net. Other operating expense increased to an expense of US$ 444.5 million in 2022 from an expense of US$49.8 million in 2021, mainly due to expenses of US$ 305.4 million related to EVE’s business combination and related developments (listing expenses, warrants and transaction costs and, as compared with the gain of US$39.1 million in fair value remeasurement related to our interest in Republic Airways Holdings and impairments of assets in 2021.
Operating Income/(Loss) Before Financial Result
As a result of the aforementioned factors, our consolidated operating loss before financial result decreased to an operating loss of US$110.5 million in 2022 from an operating income of US$201.3 million in 2021. Our operating margin (which is calculated as operating income (loss) before financial result divided by revenue) decreased to a negative margin of 2.4% in 2022 from a positive margin of 4.8% in 2021.
Financial Result
Financial expenses decreased to US$123.5 million in 2022 from US$199.4 million in 2021, primarily due to the fair value measurement of Eve’s warrants which were classified as derivative financial instruments in liabilities initially measured at fair value against other operating expenses on the date the Business Combination was completed. The subsequent measurement of fair value has been recognized in our financial expense/income account.
Foreign Exchange Gain (Loss), Net
Foreign exchange gain (loss), net increased to a gain of US$28.2 million in 2022 from a gain of US$25.5 million in 2021, driven by the appreciation of the Euro against the U.S. dollar related to the assets and liabilities of subsidiaries which are recorded in Euro.
Loss Before Income Tax
As a result of the aforementioned factors, loss before taxes on income decreased to a loss of US$205.8 million in 2022 from a profit US$27.4 million in 2021.
Income Tax Expense
Income tax expense decreased to a benefit of US$ 2.3 million in 2022, from an income tax expense of US$70.9 million in 2021, primarily. due to the impact of the exchange rate over non-monetary assets (primarily inventories, intangibles, and property, plant and equipment) and the reversal of certain deferred tax liability items. For additional information on the reconciliation of income tax expense, see Note 23.3 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
Loss for the Period
As a consequence of the aforementioned factors, our loss for the year increased to a loss of US$203.5 million in 2022, from a loss of US$43.5 million in 2021. As a percentage of revenue, net margin (which is calculated as loss for the year divided by revenue) decreased to a negative margin of 4.5% in 2022 from a negative margin of 1.0% in 2021.
72
2021 Compared with 2020
For this discussion, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations—2021 Compared with 2020” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 31, 2022.
B. Liquidity and Capital Resources
Overview
Our liquidity needs arise mainly from working capital requirements, research and development, principal and interest payments on our debt, capital expenditures and distributions to shareholders. To meet these needs, we generally rely on funds provided by operations, borrowings under our credit arrangements, cash contributions from risk-sharing partners, advance payments from customers and, to a lesser extent, issuance of debt and equity securities in the capital markets. For additional information on our working capital requirements and our capital sources, see “Item 4. Information on the Company—B. Business Overview—Suppliers and Components; Risk-Sharing Arrangements” and “Item 4. Information on the Company—B. Business Overview—Commercial Aviation Segment—Production, New Orders and Options” and “—Credit Facilities and Lines of Credit.”
As of the date of this annual report, we believe that our traditional sources of funds are sufficient to meet our foreseeable working capital requirements, including planned capital expenditures. However, there can be no assurance that our traditional sources of funds, or that the cost or availability of our credit facilities or future borrowing sources, will not be materially impacted by market disruptions.
As of the date of this annual report, we have experienced certain post-pandemic challenges, such as delays in our supply chain, production operations, the shortage of pilots in the regional airline sector in United States which affect the demand for our products, mainly in Commercial Aviation. We expect that our customers may reschedule deliveries, fail to exercise options or cancel firm orders as a result of potential economic downturns, including as a result of the COVID-19 pandemic, or financial volatility in our markets.
Cash Flow Analysis
Net Cash Generated (Used) by Operating Activities
2022 Compared with 2021
In 2022, net cash generated by operating activities was US$751.3 million, compared to net cash generated by operating activities of US$ 515.3 million in 2021. The improvement in the operating cash flow was mainly due to the increase in Contract Liabilities (customer advances) as a result of the increase in sales from our Executive Aviation segment and increase in Trade Accounts Payable which was partially offset by the increase of inventories, which occurred mostly to support the postponement of delivery of three commercial aircraft from 2022 to 2023. Cash used by working capital accounts (accounts receivable, inventories and trade account payables) was US$37.8 million in 2022 compared to cash generated of US$493.0 million in 2021.
2021 Compared with 2020
For this discussion, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Overview—Net Cash Generated (Used) by Operating Activities and Adjusted Working Capital—2021 Compared with 2020” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 31, 2022.
73
Net Cash Used in Investing Activities
2022 Compared with 2021
Net cash used in investing activities decreased to net cash used of US$109.5 million in 2022 from net cash used of US$131.6 million in 2021, mainly as a result of higher investments in property, plant and equipment in 2022, partially offset by the cash inflow from the sale of our two subsidiaries in Portugal.
2021 Compared with 2020
For this discussion, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Overview—Net Cash Used in Investing Activities—2021 Compared with 2020” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 31, 2022.
Net Cash Generated (Used) by Financing Activities
2022 Compared with 2021
Net cash used in financing activities increased to US$669.2 million in 2022 from US$430.6 million in 2021. This difference was mainly due to the repayment of borrowings in 2022, partially offset by the receipt in the offering of shares of our subsidiary EVE. As of December 31, 2022, we had total debt (which we calculate as current and non-current loans and financing) of US$3,203.2 million, 90.4% of which was non-current debt and 9.6% of which was current debt.
2021 Compared with 2020
For this discussion, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Overview—Net Cash Generated (Used) by Financing Activities and Total Debt—2021 Compared with 2020” of our annual report on Form 20-F for the year ended December 31, 2021, filed with the SEC on March 31, 2022.
Capital Expenditures
We capitalize our expenditures related to product development projects as non-current intangible assets on our statement of financial position when it is probable that the relevant projects will generate future benefits, taking into account their commercial and technological feasibility and availability of technological and financial resources and only if their cost can be reliably measured. We amortize the assets in the form of charges to cost of sales and services on our statements of income, based on the total estimated number of aircraft to be delivered for each new product development project. We also capitalize expenditures related to property, plant and equipment as non-current assets on our statement of financial position and depreciate the assets in the form of charges to cost of sales and services on our statements of income. For additional information on how we amortize our intangible assets and depreciate our property, plant and equipment, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Principal Operating Data and Components of Our Statement of Income—Cost of Sales and Services.”
In our Commercial Aviation, Executive Aviation and Services & Support segment, we include our investments in development and property, plant and equipment as part of our capital expenditures. Development costs in these business are capitalized from the date of board approval for the relevant project until the final certification.
Most of our development expenditures are associated with the development of new products for the Commercial Aviation and Executive Aviation segments. For additional information on our development expenditures, see “Item 5. Operating and Financial Review and Prospects—C. Research and Development, Patents and Licenses, etc.—Research.”
74
Our disbursements in capital expenditures were related to property, plant and equipment, thereby composing our additions in the period except for the exchange pool program assets and aircraft under lease or available for lease. These investments are related mainly to (i) construction of new facilities and (ii) improvements and modifications to our plants and production facilities for the production of new aircraft models.
We incur expenditures for our Defense & Security segment under both development and production contracts; however, the customers involved in these programs, which in our case mainly consists of the Brazilian government, fund these programs. A significant part of these contracts is defined as construction contracts and the revenue associated with these contracts is realized on a percentage of completion basis, as contract milestones are achieved.
Our capital expenditures are generally financed by funds provided by operations, borrowings under our credit arrangements, cash contributions from risk-sharing partners, advance payments from customers and, to a lesser extent, capital increases to meet these needs. See “C. Research and Development, Patents and Licenses, etc.—Capital Expenditures—Research.”
As of December 31, 2022, the total capital expenditures in our Commercial Aviation, Executive Aviation and Services & Support segments accounted for US$66.1 million, net of US$0.5 million related to contracted capital expenditures from Defense & Security. The anticipated source of funds to satisfy such investments is related to our cash generated in operating activities. Credit Facilities and Lines of Credit
Long-term Facilities
Revolving Credit Facility
On October 13, 2022, our subsidiaries EAH and Embraer Netherlands Finance B.V. (“Embraer Netherlands”), entered into a revolving credit facility in the amount of US$650.0 million (the “Revolving Credit Facility”), maturing on October 13, 2025 with 14 international financial institutions. The facility is guaranteed by Embraer and certain of our subsidiaries, and borrowings under the facility will accrue interest at a rate comprised of Term SOFR plus a margin of 1.50% or 1.85% per annum, depending on our corporate rating at the time of the disbursement. As of the date of this Annual Report, neither EAH nor Embraer Netherlands have incurred any borrowing under the Revolving Credit Facility.
Facilities with Multilateral Development Banks and Agencies
The Brazilian government has been an important source of export financing for our customers through the BNDES-Exim program, managed by Brazilian National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Economico e Social ), or BNDES. On December 15, 2022, we entered into an export financing agreement with BNDES in the total amount of R$2.2 billion (US$400 million) under the BNDES-Exim program. The consummation of the financing is subject to customary conditions precedent.
In January 2023, we entered into a credit facility with Citibank in the aggregate principal amount of US$ 200 million to finance purchases of supplies made by us in the United States. Disbursements under this credit facility will be made according to proof of purchases of inputs from suppliers. This credit facility is guaranteed by Export-Import Bank, the official US export credit agency.
In August 2020, we entered into a working capital guarantee agreement with the Export-Import Bank in an aggregate principal amount of US$97.2 million, with a term of one year, which amount was disbursed in August 2020. This working capital and export financing has strengthened our cash position and guaranteed funding for our entire operational process, from production to product shipment for the export market. As of December 31, 2022, US$8.4 million was outstanding in the short-term, including principal and accrued interest. Interest is paid monthly.
75
Senior Notes
In September 2013, we completed an exchange offer in which (i) US$146.4 million in principal amount of our guaranteed notes with maturity in 2017 and (ii) US$337.2 million in principal amount of our guaranteed notes with maturity in 2020 were exchanged for US$540.5 million in principal amount of notes issued by Embraer Overseas at a rate of 5.696%, maturing in 2023. The notes due in 2023 were issued pursuant to exemptions from SEC registration pursuant to Regulation S and Rule 144A under the Securities Act. The notes due in 2023 are subject to a registration rights agreement, pursuant to which we have agreed to (i) exchange the notes within 270 days of their issuance for notes with the same terms and conditions which are registered with the SEC or (ii) file a resale shelf registration statement with the SEC on Form F-3. In June 2014, we filed a resale shelf registration statement accordingly. As of December 31, 2022, a total of US$211.8 million under our notes due 2023 was outstanding, of which US$211.8 million was due in the short-term, including principal and accrued interest.
In June 2015, Embraer Netherlands Finance issued 5.05% US$1.0 billion guaranteed notes due 2025, and, as of December 31, 2022, US$957.0 million was outstanding (US$2.0 million in the short-term), including principal and accrued interest. Interest is paid semiannually.
In February 2017, Embraer Netherlands Finance issued 5.40% US$750.0 million guaranteed notes due 2027 and as of December 31, 2022, US$744.9 million was outstanding (US$16.3 million in the short-term), including principal and accrued interest. Interest is paid semiannually.
In September 2020, Embraer Netherlands Finance issued 6.950% US$750.0 million guaranteed notes due 2028, or the 2028 notes, and as of December 31, 2022, US$729.5 million was outstanding (US$22.5 million in the short-term), including principal and accrued interest. Interest is paid semiannually.
Concurrently with the offering of the 2028 notes, in September 2020, Embraer Netherlands Finance completed two concurrent and distinct cash tender offers in which (i) $167.7 million in principal amount of our guaranteed notes due 2022 was tendered and accepted for purchase, and (ii) US$168.8 million in principal amount of our guaranteed notes due 2023 was tendered, of which $82.3 million was accepted for purchase.
On January 1, 2022, as a result of the partial spin-off of our wholly-owned subsidiary Yaborã Indústria Aeronáutica S.A., or Yaborã, whereby Yaborã transferred substantially all of its assets to Embraer, we amended the indentures governing the senior unsecured notes due 2022, 2023, 2025, 2027 and 2028 in order to (i) have Embraer substitute Yaborã as the issuer of the notes due 2022 and (ii) have Embraer substitute Yaborã as guarantor of the notes due 2023, 2025, 2027 and 2028. As a result, Yaborã was released from its obligations as issuer or guarantor, as applicable, of the notes. As this transaction was considered a common control transaction, there was no impacts on Embraer’s consolidated assets, liabilities and shareholders’ equity.
On March 1, 2022, pursuant to a tender offer, we repurchased and cancelled US$59.2 million and US$228.6 million in aggregate principal amount of outstanding 5.150% senior unsecured notes due 2022 issued by Embraer S.A. and 5.696% senior unsecured notes due 2023 issued by Embraer Overseas Limited and guaranteed by Embraer S.A., respectively.
We may from time to time seek to retire or purchase our outstanding debt, including our guaranteed notes due 2023, 2025, 2027 and 2028, through cash purchases, tender offers and/or exchanges for other securities, in open market purchases, privately negotiated transactions or otherwise. The repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material, and notes repurchased may be canceled or resold, but will only be resold in compliance with applicable requirements or exemptions under the relevant securities laws.
76
Other Facilities
We have various other long-term loans and credit agreements with aggregate outstanding borrowings of US$204.0 million as of December 31, 2022. For additional information on these financing arrangements, see Note 20 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
Of our total indebtedness, US$300 million (mainly related to our financing with BNDES), are secured by security interests in real estate, machinery and equipment and bank guarantees, in the aggregate amount of US$301.3 million as of December 31, 2022.
We continue to evaluate additional financing opportunities in order to maintain a long-term indebtedness profile that supports and is aligned with business cycle. For additional information on our loans and financings, including currency and maturity breakdowns and breakdowns between fixed and floating rate debt, see Note 20 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
Subsequent Events
Other than the events described in this annual report, no subsequent events have occurred after December 31, 2022. For further information, see Note 37 to our 2022 audited consolidated financial statements.
C. Research and Development, Patents and Licenses, etc.
Research and Development
Our research and development activities are driven by our corporate strategic planning in the short, medium, and long terms. We refer to research activities as technological development and to development activities as integrated product development.
Based on our work defining our product and services strategies, including innovation, growth, and business prospects, we carry out projects that include the production and commercialization of new aircraft, systems, and aerospace services.
With a focus on our internal business plans and continuous monitoring of the global technology environment, we define a technological development plan which aims to research and develop solutions to the main challenges we will face in the medium and long terms, in order to remain competitive in our business segments.
In an effort to reduce development risk and optimize financial results of our projects, our development strategy and teams have the essential skills to manage and execute multi-disciplinary projects, maintaining and coordinating a global network of development partners and integrating diverse groups such as universities, research and development institutes, companies, and startups. As a result, application of advanced technologies allows for the evolution of products, including lighter, quieter, more comfortable and energy efficient aircraft, in addition to improvements in design and production cycles and optimization of company resources.
Following the results of our internal technological development planning, the new product and services design phase begins. In this phase our efforts are coordinated in an integrated manner with advanced project engineering and our business segments, which work in collaboration with future customers and potential partners to conclude the design of new products and services. Once the design is approved, the product development program is created. In this capital-intensive phase, our development, product, process and services groups work together with strategic partners, suppliers and regulatory agencies, to begin the detailed development of the product, its production, systems and associated services, until the effective entry into service of the product.
77
We have the majority of our research and development activities concentrated in Brazil, but also maintain internal initiatives and partnerships in several locations around the world.
We incur research expenses related to the creation of new technologies that may be applied to our aircraft. These expenses are not associated with any particular aircraft and include the implementation of quality assurance initiatives, improvements to the productivity of production lines and studies to determine the latest developments in technology and quality standards. Under IFRS, research costs are expensed as incurred in the research line item of our statement of income.
Intellectual Property
Our intellectual property, which includes utility patents, design patents, trade secrets, know-how and trademarks, is important to our business. We hold trademarks over our name and symbol and the names of our products, some of which are registered and some of which are in the process of registration in a number of countries, including, but not limited to, Brazil, the United States, Canada, Singapore, Hong Kong, China, the European Union and Japan. As of December 31, 2022, we had approximately 561 trademarks registered or in the process of registration. Our trademarks are generally renewed at the end of their validity period, which usually runs for ten years from the date of application for registration. We do not believe that the loss of any of our trademarks would have a material impact on our business or results of operations.
We develop our intellectual property in our research, development and production process. Under the agreements we have with some of our suppliers and risk-sharing partners, we are granted access to information and technology necessary to better develop, manufacture and market our products. We aim to protect our intellectual property rights resulting from investments in technical research and development. We hold granted patents and patent applications relating to our technologies. Currently, we hold granted patents and patent applications from the appropriate registries in Brazil, the United States, the European Union, Russia, Japan, India and China in connection with the various technologies of our products. We require that our suppliers and risk-sharing partners respect the intellectual property rights of third parties, and we believe that we have the necessary intellectual property rights to conduct our business and operations.
Considering our utility and design patent portfolios, as of December 31, 2022, we had filed 796 patent applications and had been granted 640 patents.
Innovation
We seek to remain in the technological vanguard by constantly reinventing ourselves as we search for opportunities to transform our business, products, services, and markets aiming for a more sustainable future.
While it is necessary to compete, through consolidated technologies, in markets where efficiency and incremental improvements are valued as competitive differentials; it is also essential to be able to compete with distinction and relevance, through innovations and new technologies, and in new markets where flexibility, agility and experimentation are key to obtain competitive advantages. In this context, we set the balance between incremental, adjacent and transformational innovation.
Innovations that resulted in products and services launched in the last five years accounted for 46% of our revenues in 2022. We believe innovation is key to the competitiveness and continuous growth of our business. For this reason, we have created a vice-presidency dedicated to Corporate Strategy, Digital and Innovation, that reports directly to our chief executive officer.
We also structured the Innovation Verticals, focused on in research, technology and innovation to accelerate business results, and which main purpose is to organize and prioritize innovation efforts and investments, activating the best power of a common, co-created corporate vision about business models, niches, technologies, future products, services and processes. The Innovation Verticals integrate our innovation efforts across all business segments, affiliates and EmbraerX, a market accelerator committed to the development of innovative solutions. Our current Innovation Verticals are: Zero Emission, Autonomous Flight, Artificial Intelligence and Data Science, Industry 4.0, Airframe Competitiveness, Platform Based Business, Passenger Experience and Cybersecurity.
78
Embraer-X is located in Melbourne, Florida, United States, and has an office in Brazil. In 2022, we expanded our international presence and opened an office in the Aerospace Innovation Hub@TUD, at the Delft University of Technology (TU Delft) in the Netherlands, aiming to accelerate new partnerships to co-explore the application of emerging technologies for new businesses, as well as foster the development of joint education, research, and innovation projects that will create a vision for a more sustainable future when it comes to mobility.
A major milestone achieved in 2022 was the initial public offering of Eve Holding on the New York Stock Exchange, consolidating the plan to accelerate the Urban Air Mobility market through the first spin-off company that was created from Embraer-X.
Beacon, the second business accelerated by Embraer-X after EVE, has maintained growth after the launch customer in 2020 and has signed trial agreements with major operators, most notably Jetblue Airways in New York and Binter in the Canary Islands. Beacon’s goal is to continue accelerating the future of aviation digitalization both in the United States and Europe, while raising the level of efficiency of maintenance teams through improved collaboration. As a completely solution agnostic, Beacon has grown its network of providers for commercial and business aviation annually bringing a human-centric approach.
In addition to agreements and partnerships, Embraer-X also makes active use of venture capital. Connected to Embraer Ventures, our corporate venture capital vehicle, Embraer-X seeks to identify and create synergies with technology-based startups of high economic and social impact. Currently, Embraer Ventures implements its strategy through three private equity funds (FIP): the Brazil Aerospace Fund (FIP-AERO) and two funds based in Silicon Valley, Catapult Ventures I and II. Among the technology topics covered by the investments are cybersecurity, computer vision, robotics, artificial intelligence, data science, and the Internet of Things (IoT), among others. Besides being a shareholder in FIPs, Embraer Ventures also invests directly in minority stakes in companies. In 2022, Embraer Ventures also invested in Xmobots, the largest drone manufacturing company in Latin America.
On January 27, 2023, Embraer announced an initial investment of approximately US$ 3.8 million in MSW MultiCorp 2, a fund managed by MSW Capital, a Venture Capital manager, with the objective of attracting and boosting innovative Brazilian startups that have synergy with the company’s innovation strategy. On February 13, 2023, we paid an amount of approximately US$ 0.3 million. As a result of this event, we now hold 40% of the shares of MSW MultiCorp. The Research and Technology (R&T) department is constantly monitoring the global technological environment and is developing the readiness of new technologies that will enable us to maintain our competitiveness and to achieve our vision of the future.
To strengthen the capability of pre-competitive aeronautical research activities in Brazil and other countries, Embraer has been working with different R&T organizations worldwide, covering a very broad spectrum of technologies, including: Sustainable Aviation Fuels (including H2), Electrification, Autonomy, Flight Safety, Aircraft Condition-Based Maintenance, Aircraft Design, New Materials & Structures, Noise Reduction, Airborne Systems, Augmented Reality, Artificial Intelligence & Data Sciences and Flexible Manufacturing Solutions.
Some R&T projects are developed in cooperation with reference universities and research centers in Brazil and abroad, including Instituto Tecnológico da Aeronáutica (ITA), Universidade Federal de Santa Catarina (UFSC), Serviço Nacional da Aprendizagem Industrial (SENAI), Centro de Pesquisa em Energia e Materiais (CNPEM, Centro de Referência em Tecnologias Inovadoras (CERTI), Fundação CPQD, Universidade de São Paulo-Escola de Engenharia de São Carlos (USP-EESC), Instituto de Pesquisa Tecnológica (IPT), Instituto de Estudos Avançados (IEAv), Instituto Tecgraf de Desenvolvimento de Software Técnico-Científico da PUC-Rio (TECGRAF), Universidade Federal de São Paulo (UNIFESP), Universidade do Estado de São Paulo (UNESP), Bristol University (Great Britain), IST - Instituto Superior de Eng. do Porto (Portugal), Tu Delft (The Netherlands), DLR (Germany), IVS - Intelligent Vision Systems
79
(United States), Rosemount (United States), Goodrich/Collins Aerospace (United States), GMV (POR), FCT - Fundação p/Ciência e a Tecnologia (Portugal), University of Stuttgart (Germany), University of Linköping (Sweden), University of Hanyang (South Korea), RollsRoyce (United Kingdom), Deep Blue SRL (Italy), Wideroe (Norway), SAAB (Sweden), MDH (Sweden), FACC (Australia).
We also have the Innova Program, which aims to strengthen the innovation culture within Embraer. The Innova Program includes the Green Light, Innova Challenge and Innovation Day. The Green Light is our entrepreneurship program that evaluates innovative proposals presented voluntarily by employees and provides time availability, technical and business mentoring, and resources for them to carry out the idea until its technical and economic feasibility is proven. . In 2022, 60 innovative projects were under development. The Innova Challenge is an internal crowdsourcing mechanism that stimulates ideas to solve issues globally from different departments of the company, and any employee in the world may participate in this process. Moreover, cultural events like the Innovation Day in 2022 had the participation of more than 2,800 employees.
With respect to our digital transformation, our current strategy is to accelerate the development of solutions to our clients and strengthen efficiency in corporate and business areas of the company. In addition, we aim to increase operational efficiency in processes through digital solutions. Digital inventory management system and new data-based services to aircraft operators are some of our projects. In order to accelerate digital transformation by increasing human capital aligned to our strategy, we launched two new entry programs: (i) Software Specialization Program in partnership with the Federal University of Pernambuco. In December 2022, the program’s first group was concluded with the approval of 35 professionals, 33 of whom were hired by Embraer, and (ii) Social Tech Program. In its first edition, Social Tech had people with disabilities as participants and, in 2022, the program focused on black people, with more than 10,000 candidates for 1,000 vacancies. significantly enhancing the development of new ideas for improvements, new products, innovative services, and new businesses.
D. Trend Information
General Information
Our total firm order backlog as of December 31, 2022 was US$17.5 billion, of which US$8.6 billion was from the Commercial Aviation segment , US$3.9 billion was from the Executive Aviation segment, US$2.4 billion was from the Defense & Security segment and US$2.6 billion was from the Services & Support segment . Our total firm order backlog as of December 31, 2021 was US$17.0 billion, of which US$9.0 billion was from the Commercial Aviation segment , US$2.9 billion was from the Executive Aviation segment, US$2.7 billion was from the Defense & Security segment and US$2.4 billion was from the Services & Support segment. Our total firm order backlog as of December 31, 2020 was US$14.4 billion, of which US$7.6 billion was from the Commercial Aviation segment , US$1.2 billion was from the Executive Aviation segment, US$3.6 billion was from the Defense & Security segment and US$2.0 billion was from the Services & Support segment. Economic uncertainty, mainly related to the COVID-19 outbreak, will continue to play a role in investment attitude and philosophy of the private and public sectors. Business jet prospective buyers around the globe are reviewing their cash flows and capital expenditures in order to preserve capital, which is affecting market growth fundamentals and perspectives. Furthermore, the COVID-19 pandemic has negatively affected the supply of pilots in the United States, many of which decided to change careers or retire as a result of the pandemic.
In the Commercial Aviation segment , the extensive traffic disruption affected our customer’s operations throughout the world. While global commercial airline traffic volume in 2022 recovered to 77% of 2019 levels by December 2022, as showed in the Air Passenger Market Analysis report published by the International Air Transport Association (IATA), we are still below our pre-COVID commercial aircraft delivery rate, with as of our customers have rescheduled aircraft deliveries for 2023 and beyond.
Additionality, the aforementioned shortage of pilots in United States is expected to continue affecting the delivery pipeline for our E175 Program at least for the next two years. Most industry stakeholders, including us and some of our airline customers, expect a normalization around 2025.
80
On the Executive Aviation segment, we expect global demand to outpace 2019 levels in 2023. In 2022, the executive aviation global market continued to grow, mainly in light and medium size jet classes. Recovery was strengthened by private, corporate flight departments, and fractional ownership segments buying activity. Industry average backlog at the end of 2022 was estimated to be above two years.
While we do not expect any additional material adverse effects on our deliveries for 2023 resulting from traffic disruption and decreased demand, we cannot fully determine the impact of the COVID-19 pandemic and other communicable diseases, in the short-to-medium term on our business. Factors such as the organic growth of world wealth and the need for fleet renewal of large fractional ownership operators, should maintain market activity at stable levels in 2023.
With respect to our Defense & Security segment, we expect an increase in global defense spending in light of intensified international tensions and ongoing insurgencies threats in some countries. In this scenario, with our comprehensive product portfolio and customers in key countries, we are well positioned to provide key customized solutions, creating sales opportunities for our Defense & Security segment, especially in the areas of aircraft platforms, critical software, command, control, communications and intelligence (C4I) and sensors in all domains (air, sea, land, space and cybersecurity).
In relation to our Services & Support segment, we expect that all segments associated with this segment continue progressing to either recover business volumes, similar to Commercial Aviation, or to maintain business activities or growth associated to pre-pandemic volumes, as in Defense & Security or surpass the pre-pandemic volumes, as it the case with Executive Aviation. As we have been able to properly support customer needs, convert commercial opportunities into new businesses, and to renew contracts, we can notice positive trends for the future with respect to our Services & Support segment.
On March 10, 2023, we released our projections for 2023, including a deliveries range of 65 to 70 aircraft in the Commercial Aviation segment and a range of 120 to 130 aircraft in the Executive Aviation segment, compared to actual deliveries of 57 aircraft in the Commercial Aviation segment and 102 aircraft in Executive Aviation segment, in 2022.
Commercial Aviation Segment
The following table summarizes our order book for our Commercial Aviation segment as of December 31, 2022:
Commercial Aviation |
Firm Orders |
Deliveries | Firm Order Backlog |
|||||||||
EMB 120 Brasília |
352 | 352 | — | |||||||||
ERJ 135 |
108 | 108 | — | |||||||||
ERJ 140 |
74 | 74 | — | |||||||||
ERJ 145 |
708 | 708 | — | |||||||||
EMBRAER 170 |
191 | 191 | — | |||||||||
EMBRAER 175 |
818 | 728 | 90 | |||||||||
EMBRAER 190 |
568 | 568 | — | |||||||||
EMBRAER 195 |
172 | 172 | — | |||||||||
EMBRAER 190 – E2 |
25 | 18 | 7 | |||||||||
EMBRAER 195 – E2 |
245 | 51 | 194 |
81
The following tables set forth our Commercial Aviation order book as of December 31, 2022 by aircraft type, customer and country.
EMBRAER 170:
Customer |
Firm Orders |
Delivered | Firm Order Backlog |
|||||||||
Airnorth (Australia) |
1 | 1 | |
— |
| |||||||
Alitalia (Italy) |
6 | 6 | |
— |
| |||||||
BA CityFlyer (UK) |
6 | 6 | — | |||||||||
Cirrus (Germany) |
1 | 1 | — | |||||||||
ECC Leasing (Ireland) |
6 | 6 | — | |||||||||
EgyptAir (Egypt) |
12 | 12 | — | |||||||||
Finnair (Finland) |
10 | 10 | — | |||||||||
GECAS (United States) |
9 | 9 | — | |||||||||
JAL (Japan) |
18 | 18 | — | |||||||||
NAC / Jetscape (United States) |
6 | 6 | — | |||||||||
LOT Polish (Poland) |
1 | 1 | — | |||||||||
Petro Air (Libya) |
2 | 2 | — | |||||||||
Regional (France) |
10 | 10 | — | |||||||||
Republic Airlines (United States) |
48 | 48 | — | |||||||||
Satena (Colombia) |
1 | 1 | — | |||||||||
Saudi Arabian Airlines (Saudi Arabia) |
15 | 15 | — | |||||||||
Sirte Oil (Libya) |
1 | 1 | — | |||||||||
Suzuyo (Japan) |
2 | 2 | — | |||||||||
TAME (Equator) |
2 | 2 | — | |||||||||
US Airways (United States) |
28 | 28 | — | |||||||||
Virgin Australia (Australia) |
6 | 6 | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
191 | 191 | — | |||||||||
|
|
|
|
|
|
EMBRAER 175:
Customer |
Firm Orders |
Delivered | Firm Order Backlog |
|||||||||
Air Canada (Canada) |
15 | 15 | — | |||||||||
Air Lease (United States) |
8 | 8 | — | |||||||||
Alitalia (Italy) |
2 | 2 | — | |||||||||
American Airlines (United States) |
101 | 101 | — | |||||||||
Belavia (Belarus) |
1 | 1 | — | |||||||||
CIT (United States) |
4 | 4 | — | |||||||||
ECC Leasing (Ireland)(1) |
1 | 1 | — | |||||||||
Flybe (UK) |
11 | 11 | — | |||||||||
Fuji Dream (Japan) |
2 | 2 | — | |||||||||
GECAS (United States) |
5 | 5 | — | |||||||||
Horizon Air / Alaska (United States) |
50 | 33 | 17 | |||||||||
KLM (The Netherlands) |
17 | 17 | — | |||||||||
LOT Polish (Poland) |
12 | 12 | — | |||||||||
Mauritania Airlines (Mauritania) |
2 | 2 | — | |||||||||
Mesa (United States) |
7 | 7 | — | |||||||||
NAC / Aldus (Ireland) |
2 | 2 | — | |||||||||
NAC / Jetscape (United States) |
4 | 4 | — | |||||||||
Northwest (United States) |
36 | 36 | — | |||||||||
Oman Air (Oman) |
5 | 5 | — | |||||||||
Overland Airways (Nigeria) |
3 | — | 3 | |||||||||
Republic Airlines (United States) |
190 | 127 | 63 | |||||||||
Royal Jordanian (Jordan) |
2 | 2 | — | |||||||||
Skywest (United States) |
209 | 205 | 4 | |||||||||
Suzuyo (Japan) |
11 | 11 | — | |||||||||
TRIP (Brazil) |
5 | 5 | — | |||||||||
Undisclosed |
3 | — | 3 | |||||||||
United Airlines (United States) |
110 | 110 | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
818 | 728 | 90 | |||||||||
|
|
|
|
|
|
(1) | Aircraft delivered by ECC Leasing to Air Caraibes. |
82
EMBRAER 190:
Customer |
Firm Orders |
Delivered | Firm Order Backlog |
|||||||||
Aero Republica (Colombia) |
5 | 5 | — | |||||||||
Aeromexico (Mexico) |
12 | 12 | — | |||||||||
Air Astana (Kazakhstan) |
2 | 2 | — | |||||||||
Air Canada (Canada) |
45 | 45 | — | |||||||||
Air Caraibes (Guadalupe) |
1 | 1 | — | |||||||||
Air Lease (United States) |
23 | 23 | — | |||||||||
Air Moldova (Moldavia) |
1 | 1 | — | |||||||||
Augsburg (Germany) |
2 | 2 | — | |||||||||
Austral (Argentina) |
22 | 22 | — | |||||||||
AZAL (Azerbaijan) |
4 | 4 | — | |||||||||
Azul (Brazil) |
5 | 5 | — | |||||||||
BA CityFlyer (UK) |
9 | 9 | — | |||||||||
BOC Aviation (Singapore) |
14 | 14 | — | |||||||||
China Southern (China) |
20 | 20 | — | |||||||||
CIAF (Egypt) |
3 | 3 | — | |||||||||
CIT (United States) |
7 | 7 | — | |||||||||
Conviasa (Venezuela) |
16 | 16 | — | |||||||||
Copa (Panama) |
15 | 15 | — | |||||||||
Dniproavia (Ukraine) |
5 | 5 | — | |||||||||
ECC Leasing (Ireland) |
1 | 1 | — | |||||||||
Finnair (Finland) |
12 | 12 | — | |||||||||
GECAS (United States) |
27 | 27 | — | |||||||||
Guizhou / Colorful (China) |
9 | 9 | — | |||||||||
Hainan (China) |
50 | 50 | — | |||||||||
Hebei (China) |
6 | 6 | — | |||||||||
JAL (Japan) |
14 | 14 | — | |||||||||
JetBlue (United States) |
64 | 64 | — | |||||||||
Kenya Airways (Kenya) |
10 | 10 | — | |||||||||
KLM (The Netherlands) |
26 | 26 | — | |||||||||
KunPeng (China) |
5 | 5 | — | |||||||||
LAM (Mozambique) |
2 | 2 | — | |||||||||
Lufthansa (Germany) |
9 | 9 | — | |||||||||
M1 Travel (Lebanon) |
8 | 8 | — | |||||||||
NAC / Aldus (Ireland) |
21 | 21 | — | |||||||||
NAC / Jetscape (United States) |
9 | 9 | — | |||||||||
NAS Air (Saudi Arabia) |
3 | 3 | — | |||||||||
NIKI (Austria) |
7 | 7 | — | |||||||||
Regional (France) |
10 | 10 | — | |||||||||
Republic (United States) |
2 | 2 | — | |||||||||
Taca (El Salvador) |
11 | 11 | — | |||||||||
TAME (Ecuador) |
3 | 3 | — | |||||||||
TRIP (Brazil) |
3 | 3 | — | |||||||||
US Airways (United States) |
25 | 25 | — | |||||||||
Virgin Australia (Australia) |
18 | 18 | — | |||||||||
Virgin Nigeria (Nigeria) |
2 | 2 | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
568 | 568 | — | |||||||||
|
|
|
|
|
|
EMBRAER 195:
Customer |
Firm Orders |
Delivered | Firm Order Backlog |
|||||||||
Arkia (Israel) |
1 | 1 | — | |||||||||
Aurigny (Guernsey) |
1 | 1 | — | |||||||||
Azul (Brazil) |
59 | 59 | — | |||||||||
Belavia (Belarus) |
4 | 4 | — | |||||||||
BOC Aviation (Singapore) |
1 | 1 | — | |||||||||
Flybe (UK) |
14 | 14 | — | |||||||||
GECAS (United States) |
12 | 12 | — | |||||||||
Globalia (Spanish) |
12 | 12 | — | |||||||||
Hainan (China) |
20 | 20 | — |
83
Customer |
Firm Orders |
Delivered | Firm Order Backlog |
|||||||||
LOT Polish (Poland) |
4 | 4 | — | |||||||||
Lufthansa (Germany) |
34 | 34 | — | |||||||||
Montenegro (Montenegro) |
1 | 1 | — | |||||||||
NAC / Aldus (Ireland) |
4 | 4 | — | |||||||||
NAC / Jetscape (United States) |
2 | 2 | — | |||||||||
Royal Jordanian (Jordan) |
2 | 2 | — | |||||||||
Trip (Brazil) |
1 | 1 | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
172 | 172 | — | |||||||||
|
|
|
|
|
|
EMBRAER 190 – E2:
Customer |
Firm Orders |
Delivered | Firm Order Backlog |
|||||||||
Aercap (Ireland) |
5 | 5 | — | |||||||||
Air Kiribati (Kiribati) |
2 | 1 | 1 | |||||||||
Aircastle (United States) |
2 | — | 2 | |||||||||
Azorra (USA) |
4 | — | 4 | |||||||||
Helvetic (Switzerland) |
8 | 8 | — | |||||||||
Widerøe (Norway) |
3 | 3 | — | |||||||||
Undisclosed |
1 | 1 | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
25 | 18 | 7 | |||||||||
|
|
|
|
|
|
EMBRAER 195 – E2:
Customer |
Firm Orders |
Delivered | Firm Order Backlog |
|||||||||
Aercap (Ireland) |
45 | 16 | 29 | |||||||||
Air Peace (Nigeria) |
13 | 5 | 8 | |||||||||
Aircastle (United States) |
23 | 11 | 12 | |||||||||
Azorra (USA) |
16 | — | 16 | |||||||||
Azul (Brazil) |
51 | — | 51 | |||||||||
Binter Canarias (Spain) |
5 | 5 | — | |||||||||
Helvetic (Switzerland) |
10 | 5 | 5 | |||||||||
ICBC (China) |
6 | — | 6 | |||||||||
Porter (Canada) |
50 | 5 | 45 | |||||||||
Undisclosed |
22 | — | 22 | |||||||||
|
|
|
|
|
|
|||||||
Total |
245 | 51 | 194 | |||||||||
|
|
|
|
|
|
For additional information on trends in our business, see “Item 4. Information on the Company—B. Business Overview—Business Strategies” and “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Current Conditions and Trends in our Industry.” For additional information on risks affecting our business, see “Item 3. Key Information—D. Risk Factors.”
E. Critical Accounting Estimates
For this information, see Note 3 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
84
Item 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
We are managed by our board of directors (conselho de administração), composed of a minimum of nine and a maximum of 11 effective members. As approved in our shareholders’ meeting held on September 1, 2021, our board of directors for the 2021/2023 biennium (which expires in the annual shareholders’ meeting to be held in April 2023) exceptionally had 13 members. Our board of executive officers (diretoria) is composed of no less than four and no more than 13 members (each an executive officer). We have a permanent fiscal council (conselho fiscal), which is composed of at least three and no more than five members and an equal number of alternates.
There are no family relationships among the members of our board of directors and/or our board of executive officers.
Board of Directors
Our board of directors meets ordinarily eight times a year and extraordinarily when called by the chairman. It is responsible for, among other things, establishing our general business policies and electing our executive officers and supervising management.
Our board of directors is appointed by our shareholders for a two-year term, reelection is permitted, and there are three reserved seats as follows: (i) one effective and one alternate member to be appointed by the Brazilian government, as holder of the “golden share,” and (ii) two effective and two alternate members to be appointed by our employees (one board member and his alternate to be appointed by the Employee Investment Club of the Company - CIEMB - Clube de Investimentos dos Empregados da Embraer and one board member and his or her alternate to be appointed by the non-shareholder employees of the Company). The remaining eight effective directors are elected in accordance with the slate voting, or cumulative voting, rules according to our bylaws. For additional information on the rules and procedures regarding the nomination and election of our board members, see “Item 10. Additional Information—10. Memorandum and Articles of Association—Board of Directors—Election of Board of Directors.” There is no mandatory retirement age for our directors.
According to the Novo Mercado listing segment rules, the members of our board of directors agreed to comply not only with the Novo Mercado rules but also with the rules of the B3 Arbitration Chamber before taking office. In order to take office, the members of the board of directors must execute a term of investiture (termo de posse).
Set forth below are the names, ages, positions, the year first elected and brief biographical descriptions of the members of our board of directors, as of the date of this annual report:
Name |
Age |
Position |
Year First Elected to Board | |||
Alexandre Gonçalves Silva | 78 | Chairman | 2011 | |||
Raul Calfat | 70 | Vice-President | 2017(1) | |||
Alexandre Magalhães Filho | 70 | Member | 2015 | |||
Claudia Sender Ramirez | 48 | Member | 2021 | |||
Dan Ioschpe | 58 | Member | 2020 | |||
Dejair Losnak Filho | 59 | Member | 2017(2) | |||
João Cox Neto | 59 | Member | 2011 | |||
Kevin G. McAllister | 59 | Member | 2021 | |||
Marcelo Kanitz Damasceno | 63 | Member | 2021 | |||
Maria Leticia de Freitas Costa | 63 | Member | 2017 | |||
Pedro Wongtschowski | 76 | Member | 2015 | |||
Sergio Guillinet Fajerman | 50 | Member | 2020 | |||
Todd Messer Freeman | 63 | Member | 2021 |
(1) | Appointed as the vice-president of our board of directors on May 18, 2020. |
(2) | Elected as member of the board of directors from 2017 to 2019 and re-elected in 2021. |
85
Alexandre Gonçalves Silva. Mr. Silva holds a Bachelor of Science degree in mechanical engineering from Pontifícia Universidade Católica do Rio de Janeiro (PUC Rio de Janeiro). In his 40-year career, he has occupied positions in several areas, including 22 years as a CEO. Mr. Silva was the CEO of General Electric (GE) in Brazil from 2001 to 2007 and since then, he has occupied positions on boards of directors of various companies. Mr. Silva is the chairman and an independent member of our board of directors, an independent member of the board of directors of Nitroquímica and Iochpe-Maxion. Since 2003, Mr. Silva is also a pro bono board member of the American Chamber of Commerce.
Raul Calfat. Mr. Calfat holds a degree in business administration from Fundação Getúlio Vargas (FGV). Mr. Calfat (i) was the CEO of Votorantim S.A. until December 2013, and the Chairman of the board of directors of Votorantim S.A. from January 2014 until April 2019; (ii) has been the chairman of the board of directors of Aché Laboratórios Farmacêuticos since September 2018; (iii) has been an independent board member of Dexco S.A. since 2015; (iv) has been an independent member of the board of directors of China Three Gorges Brasil since January 2021; (v) has been an independent board member of Fleury S.A. since May 2021, He is also a senior advisor at RGE Pte Ltd (Singapore), Macquarie Serviços Agricolas Participações Ltda and at Bracell SP Cellulose Ltda and (vi) has been a member of the board of Sírio-Libanês Hospital from August 2015 up to April 2020. Mr. Calfat is an independent member of our board of directors, and also acts as the coordinator of our Strategy and Innovation Committee and as a member of our audit, risks and ethics committee.
Alexandre Magalhães Filho. Mr. Magalhães Filho holds a degree in accounting sciences from Faculdade de Ciências Econômicas e Administrativas Professor Ulisses Vieira, class of 1975, with a specialization in budget analysis. He has been an employee of Embraer since 1986, holding the following positions: (i) budget supervisor, from 1986 to 2008; (ii) assistant controllership officer; (iii) pricing and economic planning manager, from 2008 to 2010; and (iv) costs manager. Mr. Magalhães Filho is a member of our board and also acts as a financial process manager in charge of cost, accounting and tax procedures, including products and services costing, accounting for 29 companies, controllership and IFRS accounting consolidation for 50 companies in the Embraer group, and tax operations. Mr. Magalhães Filho was a member of the fiscal council of (i) Banco do Brasil Previdência Privada (BBPREV) from 1997 to 2009; (ii) Embraer Prev – Sociedade de Previdência Complementar from 2010 to 2012 and reelected for two terms from 2015 to 2018 and from 2018 to 2021; and (iii) Cooperativa dos Empregados da Embraer (Cooperemb), from 2009 to 2011, and was also elected to their board of directors from 2015 to 2017. He is also a member of the fiscal council of Instituto Embraer de Educação e Pesquisas, since 2001. Mr. Magalhães Filho was an alternate director for the representative of the Embraer Employees Investment Club (CIEMB) on our board of directors from 2013 to 2015, was elected as an effective director for three consecutive terms, from 2015 to 2017, 2017 to 2019, 2019 to 2021, and 2021 to 2023 as appointed by Embraer’s employees.
Claudia Sender Ramirez. Mrs. Ramirez has a bachelor’s degree in chemical engineering from Escola Politécnica da Universidade de São Paulo, obtained in 1998 and an MBA degree from Harvard Business School, earned in 2002. She was recognized by the World Economic Forum as a Young Global Leader in 2014. Mrs. Ramirez is a member of the board of directors of companies listed in Brazil and Europe, such as Gerdau in Brazil, Telefonica in Spain and Holcim in Switzerland. In addition, she is a member of the board of directors of several NGOs, such as Amigos do Bem, Hospital Israelita Albert Einstein and Gastromotiva. Before serving as a board member, Mrs. Ramirez was President and CEO of LATAM Airlines Brasil and Chief Customer Officer of Latam globally. She started her career at TAM in December 2011. She worked for 7 years with consumer goods at Whirpool in Brazil, mainly in the areas of marketing and product development. Prior to joining Whirlpool, she was a consultant at Bain&Company for 7 years, working in several industries and countries. Mrs. Ramirez was elected as an effective member of the board of directors of Embraer S.A. She is an independent member of our board of directors and a member of the People and ESG Committee and the Audit, Risk and Ethics Committee.
86
Dan Ioschpe. Mr. Ioschpe holds a bachelor’s degree in journalism from Universidade Federal do Rio Grande do Sul (UFRS), class of 1986, with a specialization in marketing from Escola Superior de Propaganda em Marketing (ESPM São Paulo), class of 1988, and an MBA degree from the Amos Tuck School at Dartmouth College, class of 1991. Since May 2020, Mr. Ioschpe is an independent member of our board of directors, and also a member of our Strategy and Innovation Committee. He is the chairman of the board of directors of Iochpe-Maxion S.A., an independent member of the board of directors of Cosan S.A., WEG S.A. and Marcopolo S.A., a chairman of the board of directors of IEDI, and a member of the board of Sindipeças, SESI/SP and ABDI and Vice President of FIESP.
Dejair Losnak Filho. Mr. Losnak Filho holds a bachelor’s degree in law from Universidade do Vale do Paraíba in São José dos Campos, 2011, and a postgraduate degree in social security and labor law from UNISAL, in São José dos Campos, obtained in 2013 and a postgraduate degree in social security law from Faculdade Legale, São Paulo, 2016, a training for members of the board of directors and fiscal council by IBGC completed in 2017/2019 and a certification of member of the fiscal council by FGV, obtained in 2019. Mr. Losnak Filho has been a member of the Fiscal Council of COOPEREMB since 2018, served as an effective member of the board of directors of Embraer from 2017 to 2019 and as a member of the Deliberative Council of Embraer’s Pioneers and Veterans Association (APVE - Associação dos Pioneiros e Veteranos da Embraer) from 2017 to 2020. In April 2021, Mr. Losnak Filho was elected as an effective member of the board of directors of Embraer, by the company’s non-shareholder employees. He has also been an employee of Embraer since 2003, working as a production programmer.
João Cox Neto. Mr. Cox holds a bachelor’s degree in economics from Universidade Federal da Bahia and attended to post graduation in economics at Université du Québec à Montreal and at the College of Petroleum Studies of Oxford University. Mr. Cox has extensive board experience in both public and private companies. Currently he serves as Chairman of the board of directors of Vivara S.A. (largest Latin America jewelry company) and as member of the board of directors of Embraer S.A. Some of his previous board positions include, but are not limited to: Independent board member of Petrobras S.A.; Vice-Chairman of Braskem S.A.’s board of directors; Chairman of the Board of TIM Participações S.A; Vice-Chairman of Claro S.A.’s board of directors; Vice-chairman of the board of directors of Cellcom; Independent board member of Linx S.A.,; CRSFN— National Financial System Resources Council; ABRASCA (Brazilian Association of Publicly-Held Companies) and ;IBRI (Brazilian Institute of Investors’ Relations). Mr. Cox is an independent member of the board of directors of Embraer since 2011, also acting as a head of the Audit and Risks Committee and member of the People and ESG Committee.
Kevin Gregory McAllister. Mr. McAllister has a bachelor’s degree from University of Pittsburgh, Metallurgical and Materials Engineering, 1987. Mr. McAllister has been an independent member of the board of directors of Embraer S.A. since September 2021. Mr. McAllister brings more than 30 years of experience in the aerospace industry through his tenures with Howmet Corporation, GE Aviation, and the Boeing Company. He has 27 years of engine experience at GE, complemented by close to three years of experience at Boeing, serving as the President and CEO of Boeing Commercial Airplanes. He is a certified Six Sigma Master Black Belt, with deep understanding of operational efficiency and excellence. Mr. McAllister’s current experience as a senior operating partner at the private equity firm AE Industrial Partners, as well as his Board role at Belcan (owned by AE Industrial), has provided him with a much broader industry exposure, particularly as it relates to new markets and technologies, such as satellites, space and eVTOL. Mr. McAllister is the current Chairman of the Board of Directors of ORBIS International, a non-profit global organization dedicated to preserving and restoring sight worldwide. Also, he has served in various positions in other companies or third sector organizations, he was a member of the Board of Director of the Washington Roundtable and Challenge Seattle, organization that brings senior executives together for positive change in policies that support a vibrant Washington state economy and served as President of the Wings Club Board of Governors, the premier global society of aviation professionals and a leading forum for aviation issues since 1942. Mr. McAllister is a member of Embraer’s Strategy and Innovation Committee.
Marcelo Kanitz Damasceno. Mr. Damasceno completed several academic courses, including an Aviation Officer Training Course, an Officer Improvement Course at Escola de Aperfeiçoamento de Oficiais, a Command and General Staff Course at Universidade da Força Aérea – UNIFA, and an Aerospace Policy and Strategy and Business Administration course at Universidade de Santa Catarina. Mr. Damasceno received
87
several awards, including, Order of Defense Merit - Grand Officer Degree, Order of Aeronautical Merit - Grand Officer Degree, Order of Military Judicial Merit - High Distinction Degree, Order of Rio Branco - Officer Degree, National Order of Merit (French government) and Santos-Dumont Medal of Merit. In the military area, he served in various positions, including, Secretary of Economy, Finance and Administration of the Air Force, from January 2019 to October 2020 and Head of the Office of the Air Force Commander, from April 2016 to January 2019. He has been Chief of the Air Force General Staff since October 2020. In April 2021, Mr. Damasceno was elected as an effective member of the board of directors of Embraer, by the Brazilian Federal Government, as holder of a golden share.
Maria Leticia de Freitas Costa. Mrs. Costa holds a Bachelor of Science degree in industrial engineering from the Polytechnical School of the Universidade de São Paulo, class of 1982, and an MBA degree from the Samuel Curtis Johnson School of Business at Cornell University, class of 1986. Mrs. Costa is an independent member of our board of directors, also acting as the coordinator of our People and ESG Committee and as a member of our Strategy and Innovation Committee. Mrs. Costa is also a partner at Prada Assessoria Empresarial Ltda. from 2010 until 2022; member of the board of directors of Localiza S.A. since 2009; member of the Board of Directors of BrasilSeg and Mapfre Holding since 2015; a member of the board of directors of Totvs S.A. since 2017; a member of the board of directors of Mapfre S.A. since 2015. She was a member of the board of directors of Martins S.A. from 2014 to 2020. She was also the coordinator of the strategy committee at Votorantim Cimentos from 2018 to 2019.
Pedro Wongtschowski. Mr. Wongtschowski holds a bachelor’s degree in chemical engineering and master and PhD degrees in engineering from the Polytechnical School of the University of São Paulo (Universidade de São Paulo), classes of 1970, 1978 and 1998, respectively. He was CEO of Oxiteno S.A. from 1992 to 2006. From January 2007 to December 2012, he was the president and CEO of ULTRAPAR Participações S.A., a publicly held company doing business in the fields of fuel distribution (Ipiranga), LPG distribution (Ultragaz), bulk liquid logistics (Ultracargo), and specialty chemicals (Oxiteno). Mr. Wongtschowski is the chairman of the board of directors of Ultrapar Participações S.A., an independent director of Embraer S.A. and Centro de Tecnologia Canavieira S.A., as well as a member of our Strategy and Innovation Committee.
Sergio Guillinet Fajerman. Mr. Fajerman holds a Bachelor of Science degree in economics from Universidade do Rio de Janeiro (UFRJ) in 1998, an MBA degree in corporate finance from IBMEC in 2020 and an MBA degree from INSEAD in Fontainebleau, France in 2004. Since May 2020, Mr. Fajerman is a member of our board of directors, also acting as a member of our People and ESG Committee, and a partner and Executive Director of HR since 2017 and a Member of the Executive Committee responsible for the People, Marketing and Corporate Communications area at Itaú Unibanco since January, 2021.
Todd Messer Freeman. Mr. Freeman has a bachelor’s degree from Lehigh University in Accounting & Finance,1982, an MBA in Finance & Strategic Planning, 1987, from the Wharton School of the University of Pennsylvania and an M.A. in International Studies, 1987, from the University of Pennsylvania. He is also an FAA-certified flight instructor. Mr. Freeman has been an independent member of the board of directors of Embraer S.A. since September 2021 and a member of Embraer’s Strategy and Innovation Committee. Mr. Freeman brings over 30 years of experience in the aviation industry, the majority of which has been spent in commercial aircraft leasing leadership roles at GECAS. He leveraged his early career experience with JP Morgan and Airbus to evolve into an effective commercial leader in the aircraft leasing world. He brings good technical knowledge across a range of airframe and engine types. Mr. Freeman spent 12 years leading GECAS’ regional aircraft business, which provided him with great exposure to Embraer and other major regional players. He has an intimate understanding of the regional aircraft market and the competitive landscape, including business challenges and opportunities. He was a Special Advisor to the Chairman of Nordic Aviation Capital, from 2019 to 2022, a role which deepened his experience in the regional aircraft market segment. From 1989 to 2018, he held various commercial positions in General Electric Company. Mr. Freeman holds or has held several positions in other organizations, charities or industry groups as follows: Chairman of Airlink; member of the Board of Mubadala Infrastructure Partners; Chairman of the Board of ISTAT Foundation; member of the Board of the Regional Airline Association (US); member of the Board of the European Regions Airline Association; member of the Board of GRA, Inc (airline/airport advisory). He is also an FAA-certified flight instructor.
88
Committees
Three committees were formed to assist the board of directors in its duties and responsibilities:
• | Strategy and Innovation Committee. See “—C. Board Practices—Strategy and Innovation Committee” below. |
• | Audit, Risk and Ethics Committee. See “—C. Board Practices—Audit, Risks and Ethics Committee” below. |
• | People and ESG Committee. See “—C. Board Practices—People and ESG Committee” below. |
• | Fiscal Council . See “—C. Board Practices—Fiscal Council” below. |
Executive Officers
Our executive officers are responsible for our day-to-day management. The board of executive officers has responsibilities established by our bylaws and by the board of directors.
The terms of office for our executive officers are two years and reelection is allowed. The vote of at least seven members of our board of directors is necessary to remove an executive officer. Our bylaws prohibit any executive officer from also serving simultaneously as a member of our board of directors.
According to the Novo Mercado rules, the members of our board of directors agreed to comply not only with the Novo Mercado rules but also with the rules of the B3 Arbitration Chamber before taking office. In order to take office, the members of the board of directors must execute a term of investiture (termo de posse).
Our chief executive officer’s tenure will end in April 2023, at our annual and special general shareholders’ meetings. We will formalize the announcement of our president and chief executive officer on or before this date.
Set forth below are the names, ages, positions, the year first elected and brief biographical descriptions of our current executive officers, as of the date of this annual report:
Name |
Age | Position |
Year First Elected | |||
Francisco Gomes Neto | 64 | President and Chief Executive Officer | 2019 | |||
Antonio Carlos Garcia | 57 | Executive Vice President – Chief Financial and Investor Relations Officer | 2020 | |||
Fabiana Klajner Leschziner | 51 | Executive Vice President – General Counsel & Chief Compliance Officer | 2016 | |||
Jackson Medeiros de F. Schneider | 58 | Executive Vice President – Defense & Security | 2014 |
Francisco Gomes Neto. Mr. Gomes Neto holds a degree in electrical engineering from Universidade de Mogi das Cruzes (UMC), class of 1981, and an MBA degree in controlling and finance from Universidade de São Paulo (USP), class of 2001. He has also concluded specialization courses in business administration at Fundação Getúlio Vargas (FGV) in 2000, finance and risk management at St. John’s University in 2002, executive education programs at University of Michigan in 2002 and at Instituto Brasileiro de Governança (IBGC) in 2018. Mr. Gomes Neto is our president and chief executive officer since May 2019. He has extensive experience in management positions, including CEO positions for approximately 20 years, in the
89
transportation sector in Brazil and abroad. Mr. Gomes Neto was the CEO of Marcopolo Group, one of the leading bus body manufacturers in the world, when he led the company’s transformation process, generating strong sales growth and market value for the business. He was also the CEO Americas of the company Mann+Hummel and was the president of Knorr Bremse, a leading company in commercial vehicle control systems.
Antonio Carlos Garcia. Mr. Garcia. Mr. Garcia holds a degree in accounting from Faculdades Integradas Campos Salles, class of 1989 and an MBA degree in business administration from Pontifícia Universidade Católica de São Paulo (PUC – São Paulo), class of 1999. Furthermore, Mr. Garcia holds an MBA at Duke University from Siemens Management Program in 2001. He also participated in ThyssenKrupp Executive Program at Harvard Business School in 2011. Mr. Garcia was elected Executive Vice President, Financial and Investor Relations on January 1, 2020. Since July 2020 he is also responsible for Procurement. Mr. Garcia worked at ThyssenKrupp where he served as global CFO of the forged technologies business segment in Germany. Previously, he worked for six years at the ZF Group in Brazil and over eighteen years at the Siemens Group, where he worked in several business segments.
Fabiana Klajner Leschziner. Mrs. Leschziner holds a law degree from the Universidade de São Paulo (USP) School of Law, class of 1993, and an LL.M. degree from Cornell Law School. She specializes in compliance, corporate law, corporate finance, capital markets, antitrust and international trade. Mrs. Leschziner is our executive vice president, general counsel and chief compliance officer since June 2016. She worked at DuPont in Brazil from September 2002 to December 2015 as the legal and government affairs director for Brazil and from January 2016 to June 2016 as legal director for Brazil and the Andean Region, responsible for the legal aspects of all business of DuPont in Brazil, Colombia, Venezuela, Peru, Ecuador and Bolivia. She was also an associate at Davis Polk & Wardwell in New York from July 1998 to December 2001.
Jackson Schneider. Mr. Schneider is the President and CEO of Embraer Defense & Security, which provides solutions for defense, space and security customers. He also holds the position of Executive Vice-President of Governmental Relations for Embraer worldwide. Jackson is currently the Chairman of Visiona (space technology Embraer/Telebras joint venture), the Chair of the Brazilian Chapter of BRICS Business Council (CEBRICS) and a member of the Board of Directors of OGMA (aeronautic industry Embraer/Portuguese Government joint venture), the Mercedes-Benz do Brasil Advisory Council, and he is the President of COSCEX (Superior Council for Foreign Trade). He is also an active member in various not-for-profit organizations, including the Biennial Foundation of Sao Paulo, the AACD (Association to Support Disabled Children) and MASP – Assis Chateaubriand São Paulo´s Art Museum. Mr. Schneider began his career at the Brazilian Ministry of Justice, actively participating in a number of government committees and special task forces. Prior to joining Embraer, Jackson held management positions in private sector companies such as Mercedes-Benz Brazil and Unilever, holding responsibilities in corporate affairs, legal and HR. Schneider was the former President of ANFAVEA (Brazilian Association of Vehicle Manufacturers), ABIPLA (Brazilian Association of Manufacturers of Cleaning Products) and a Board Member of CDES (Brazilian President´s Council on Economic and Social Development). Jackson holds a law degree from the University of Brasilia (UNB) and a Master of Business Administration degree from the Business School of Sao Paulo. He is a visiting Senior Research Fellow in Conflict and Security at the Department of War Studies at the King’s College London.
B. Compensation
Overview
Our executive officers, board of directors and fiscal council members are entitled to fixed compensation. In addition, our executive officers are eligible to participate in our executive profit-sharing plan, which provides them with variable compensation that is based on their and our performance and is limited to a percentage of our net income for the year.
For the fiscal year ended December 31, 2022, the aggregate compensation that we paid to members of the board of directors, the audit, risks and ethics committee, and the executive officers for services in all capacities was US$7.2 million, of which US$3.0 million to members of the board of directors and US$4.1 million to the executive officers. In the same period, we paid US$0.1 million to members of the fiscal council.
90
For the fiscal year ended December 31, 2022, members of our committees of the board of directors, including our audit, risks and ethics committee, received an aggregate additional compensation of US$0.8 million, which is included in the US$3.0 million compensation mentioned above.
In addition, in 2022, we contributed US$0.1 million for the payment of pension benefits to our executive officers. Members of our board of directors and fiscal council do not receive these benefits. The board of directors’ members, fiscal council members and executive officers did not receive any compensation (including benefits in kind) from any of our subsidiaries. As of December 31, 2022, none of the board of directors’ members, fiscal council members or executive officers had any financial or other interests in any transaction involving us which was not in the ordinary course of our business. In the year ended December 31, 2022, the maximum, medium and minimum yearly compensation paid to an individual member of our board of directors was US$0.4 million, US$0.2 million and US$0.1 million, respectively.
In the year ended December 31, 2022, the maximum, medium and minimum yearly compensation paid to an individual member of our board of executive officers was US$1.6 million, US$0.4 million and US$0.4 million, respectively.
In the year ended December 31, 2022, the maximum, medium and minimum yearly compensation paid to an individual member of our fiscal council was US$0.34 thousand, US$0.31 thousand and US$0.30 thousand, respectively.
Phantom Shares Plan
In February 2014, we adopted a long-term incentive plan aligned with our remuneration policy. This plan is based on the granting of virtual shares to officers and management and has as its objective of attracting and retaining highly qualified staff to ensure continuity of management and align the interest of officers and key personnel of the Company with that of shareholders. Amounts distributed are defined with reference to the market, under the conditions described in the plan. In general, participants in the plan are entitled to receive two classes of virtual shares, 50% in the form of virtual restricted shares and 50% in the form of virtual performance shares linked to performance indicator target. We pay the amount of the long-term incentive converting the virtual shares into reais by the average price of the Company’s shares in the ten trading sessions preceding the relevant determination date, in general after the third year of the grant date.
The objectives of our long-term incentive plan are the recruitment and retention of highly qualified personnel and to allow those who can contribute to our performance the opportunity to participate in our profits. Incentives under the plan are intended to promote continuity among our management and alignment of the interests between our executives and shareholders.
The table below sets forth information about the grants under the Phantom Shares Plan with outstanding virtual shares as of December 31, 2022.
Grants under the Phantom Shares Plan |
Year Granted | Total Benefit Granted |
Amount of Virtual Shares Granted |
Fair Value of Shares on December 31, 2022(1) |
Outstanding Virtual Shares as of December 31, 2022(2) |
|||||||||||||||
(in R$ millions) | (in R$ millions) | |||||||||||||||||||
7th grant |
April 12, 2018 | 35.2 | 1,622,986 | 2.3 | 167,347 | |||||||||||||||
8th grant |
March 12, 2019 | 26.0 | 1,349,153 | 4.4 | 323,415 | |||||||||||||||
9th grant |
March 24, 2020 | 27.7 | 1,633,741 | 15.8 | 1,157,029 | |||||||||||||||
10th grant |
November 13, 2020 | 43.6 | 6,530,000 | 59.2 | 4,326,111 | |||||||||||||||
11th grant |
March 18, 2021 | 24.6 | 2,181,442 | 17.7 | 1,293,066 | |||||||||||||||
12th grant |
March 11, 2022 | 40.4 | 2,292,434 | 8.6 | 631,352 | |||||||||||||||
13th grant |
September 05, 2022 | 187.1 | 13,662,385 | 28.4 | 2,074,484 | |||||||||||||||
14th grant |
November 18, 2022 | 78.7 | 6,254,302 | 7.4 | 542,908 |
91
(1) | Refers to the estimated fair value of total virtual shares granted in each grant date. |
(2) | Refers to outstanding virtual shares as of December 31, 2022 considering the respective vesting periods and less the virtual shares already paid to the beneficiaries. |
For additional information on this plan, see Note 27 to our 2022 audited consolidated financial statements.
Short-Term Variable Compensation Policy
Our Short-Term Variable Compensation Policy is designed to promote the retention of executives and alignment of their interests with those of shareholders. Goals with greater impact and importance for our company are given greater weight.
Employee Profit-Sharing Plan
We first implemented a profit-sharing plan in 1998 that linked employee profit sharing to dividend payments. In 2020, we approved a new profit-sharing plan that linked employee profit sharing, as a percentage of the employee’s monthly wage, to the achievement of corporate targets, such as free cash flow and operating margin.
For the 2022, 2021 and 2020 fiscal years, we distributed US$19.2 million, US$10.7 million and US$9.0 million to our employees under our profit-sharing plan.
Defined Contribution Pension Plan
We sponsor a defined contribution pension plan for employees and the participation in this plan is optional. The plan is managed by EMBRAER PREV – Sociedade de Previdência Complementar. Contributions made by us to this plan in the years ended December 31, 2022, 2021 and 2020 were US$9.7 million, US$12.0 million and US$12.3 million, respectively. For additional information on our post-retirement benefits, see Note 24.5.2 to our 2022 audited consolidated financial statements.
Risk management studies are performed annually to identify the future exposure to be recorded as a provision. The provision recorded of medical benefits plan in Brazil was US$34.2 million as of December 31, 2022, US$36.5 million as of December 31, 2021 and US$24.7 million as of December 31, 2020. The decrease observed in 2022 is related to remeasurement of the plan based on updated actuarial and financial assumptions.
The actuarial methods used comply with the generally accepted actuarial methods in force, in accordance with the projected unit credit method.
D&O Insurance
We maintain directors’ and officers’ liability insurance in an amount of US$50.0 million. This insurance covers liabilities resulting from wrongful acts, including any act or omission committed or attempted by any officer or director acting in his or her capacity as officer or director or any matter claimed against an officer or director solely due to his or her serving in such capacity.
92
According to our by-laws, we may enter into agreements with, or approve indemnity policies covering the members of our board of directors, fiscal council, board of executive officers and our committees or of our controlled companies, as well as certain of our employees or of our controlled companies, for whom we agree to bear or reimburse certain expenses, costs and damages effectively incurred by the beneficiaries, during or after the period of their relationship with us, related to arbitration, judicial or administrative proceedings, involving acts practiced in carrying out the beneficiaries’ duties, from the date of their investiture or beginning of the employment relationship with us, as applicable.
C. Board Practices
Our board of directors is appointed for a two-year term. See “—A. Directors and Senior Management—Board of Directors.”
The current executive officers were elected by the board of directors, with a term of office lasting until the meeting of our board of directors to be held following the annual general meeting of our shareholders in 2024 to approve our financial statements for the fiscal year ended December 31, 2023. The members of our board of directors and our executive officers have a uniform two-year term and are eligible for reelection. A vote of at least seven members of our board of directors is necessary to remove an executive officer. See “6A. Directors and Senior Management—Executive Officers.”
None of our directors is party to an employment agreement providing for benefits upon termination of term. All of our executive officers are party to a service agreement setting forth the rights and obligations of the executive officers.
Audit, Risks and Ethics Committee
Our Audit, Risk and Ethics Committee has no executive power and must have at least three and up to five members, of which (i) the majority of its members must be independent members of the board of directors, (ii) at least one must be an external member, pursuant to our bylaws, (iii) at least one must have acknowledged experience in corporate accounting matters, and (iv) one member must be an independent member of the board of directors with acknowledged experience in corporate accounting matters, or an external member with acknowledged experience in corporate accounting matters. The primary purpose of the Audit Risks and Ethics Committee is to assist the board of directors. The Audit Risks and Ethics Committee’s responsibilities include validation and submission to the board of directors of guidelines for risk policy, verification of risk management policy compliance, supervision of activities performed by our independent registered accounting firm and monitoring the quality and integrity of internal controls and financial statements. Our Audit, Risk and Ethics Committee is currently composed of three independent members of our board of directors and two external members.
Foreign private issuers are subject to local legislation which may prohibit the board of directors from delegating certain responsibilities to the audit committee, pursuant to Rule 10A-3 of the Exchange Act. Audit committees of foreign private issuers may be granted responsibilities, including advisory powers, with respect to certain matters to the extent permitted by law. Due to certain restrictions imposed by the Brazilian Corporate Law, our Audit Risks and Ethics Committee, unlike a U.S. audit committee, only has an “advisory” role and may only make recommendations for adoption by the full board of directors, which is responsible for the ultimate vote and final decision. For example, our Audit, Risks and Ethics Committee makes recommendations regarding the appointment of auditing firms, which are subject to a vote by the board of directors. Our Audit, Risks and Ethics Committee complies with Brazilian legal requirements (including for “independent directors,” as defined by Brazilian law).
93
Set forth below are the names, ages, position and the year first elected and brief biographical descriptions of the members of our Audit, Risks and Ethics Committee:
Name |
Age | Position |
Year First Elected | |||
João Cox Neto | 59 | Coordinator and Effective member | 2015(1) | |||
Claudia Sender Ramirez | 48 | Effective member | 2021 | |||
Raul Calfat | 70 | Effective member | 2020 | |||
Sergio Eraldo de Salles Pinto | 58 | External member | 2011(2) | |||
Vanessa Claro Lopes | 47 | External member | 2019(3) |
(1) | Mr. João Cox Neto was also a member of this committee from April 2011 through April 2013. |
(2) | Mr. Sergio Eraldo de Salles Pinto was elected in May 2020 as an external member of the Audit, Risks and Ethics Committee, after resigning as an effective member of our board of directors. |
(3) | Ms. Vanessa Claro Lopes was elected on July 16, 2019 as an external member of the Audit, Risks and Ethics Committee. |
João Cox Neto. See “—A. Board of Directors.”
Claudia Sender Ramirez. See “—A. Board of Directors.”
Raul Calfat. See “—A Board of Directors.”
Sergio Eraldo de Salles Pinto. Mr. Salles Pinto holds a bachelor’s degree in economics from Centro de Ensino Unificado de Brasília (CEUB) and in electrical engineering from Universidade de Brasília (UnB). He holds a master’s degree in economics from FGV – Rio de Janeiro (EPGE) and a master’s degree in business administration from Universidade Católica do Rio de Janeiro (PUC). Since 2011, he has been serving as chief executive officer of Grupo Bozano. In April 2009, he was elected for the first time as member of our board of directors and served as independent member until May 2020. Mr. Salles Pinto serves as member of the board of directors of Azul Linhas Aéreas.
Vanessa Claro Lopes. Ms. Lopes holds a bachelor’s degree in accounting sciences from Universidade Federal Fluminense, or UFF, a bachelor’s degree in system analysis from FATEC/BS, and a master’s degree in management systems from UFF, with specialization in corporate management from EAESP FGV and computer networks from Universidade São Judas. Ms. Lopes is an external and independent member of our Audit, Risks and Ethics Committee. She has 28 years of professional experience and currently serves as independent member in the boards of directors of Afya Limited and Lojas Americanas S.A.; coordinator of the audit committee of Tegma Logística S.A.; member of the audit committees of Afya Limited and Lojas Americanas S.A.; and member of the fiscal councils of Cosan S.A., Comgás S.A. and Cosan Logística S.A. Mrs. Lopes served as chairman of the fiscal council of Via Varejo S.A. and member of the fiscal councils of Gerdau S.A., Terra Santa Agro S.A., Renova Energia S.A. and Estácio Participações S.A. She has significant experience in publicly-held companies, listed in Brazil and in the United States.
People and ESG Committee
Our People and ESG Committee has no executive power and its members are appointed by our board of directors. The majority of its members shall be independent members of our board of directors, and the remaining members can be external members, pursuant to paragraph 1 of Section 34 and paragraph 3 of Section 37 of our bylaws. The purpose of this committee is to assist our board of directors with matters related to human resources issues, including appointment of executive officers and removal of executive officers from office and designation of their duties according to our bylaws, compensation and human relations policy and transfer of our resources to employee associations, charity and recreational entities, to the private security fund and foundation. Additionally, this committee also assists our board of directors with corporate governance matters.
94
Set forth below are the names, ages, position and the year first elected and brief biographical descriptions of the members of our People and ESG Committee:
Name |
Age | Position |
Year First Elected | |||
Maria Leticia de Freitas Costa | 63 | Coordinator and effective member | 2019 | |||
Claudia Sender Ramirez | 48 | Effective member | 2021 | |||
João Cox Neto | 59 | Effective member | 2011 | |||
Sergio Guillinet Fajerman | 50 | Effective member | 2020 | |||
Beatriz Botelho de Oliveira | 58 | External member | 2021 |
Maria Leticia de Freitas Costa. See “—A Board of Directors.”
Claudia Sender Ramirez. See “—A Board of Directors.”
João Cox Neto. See “—A Board of Directors.”
Sergio Guillinet Fajerman. See “—A Board of Directors.”
Beatriz Botelho de Oliveira. Mrs. Botelho holds a bachelor’s degree in Chemical Engineering from the Universidade Federal do Rio de Janeiro (UFRJ) with a specialization in Environmental and Sanitary Engineering from the Universidade do Rio de Janeiro (UERJ) and an MBA in Business Management from the São Paulo Business School. A professional with 35 years of experience in the environmental and sustainability area, Mrs. Botelho is an Environmental and Sustainability Consultant at B2 Consultoria Ambiental. She was the Head of Environment for South America at Ambev, from 1991 to 2020, including 49 industrial plants. She was responsible for the sustainability strategy supply and Leadership of the Sustainability Committee, responsible for environmental management and control, eco-efficiency indicators as well as environmental training and team building. She performed natural resource preservation work with a reduction of more than 50% in water consumption among other activities. She has experience in Europe and the USA in the development of global environmental policies and standards. She has received 3 global awards for the development of best sustainability practices and 7 consecutive global awards for South America as the Company’s Best Zone in Environmental Management (2014 to 2020), and the 2017 CEBEDS (Brazilian Business Council for Sustainable Development) award for Women’s Leadership in Brazil for Sustainability. Mrs. Botelho is an external and independent member of our People and ESG Committee.
Strategy and Innovation Committee
Our Strategy and Innovation Committee has no executive power and its members are appointed by our board of directors. The majority of its members shall be independent members of our board of directors, and the remaining members can be external members, pursuant to paragraph 1 of Section 34 and paragraph 3 of Section 37 of our bylaws. The primary purpose of our Strategy and Innovation Committee is to assist the board of directors. The Strategy and Innovation Committee’s responsibilities include assisting the board of directors in the performance of its duties, focused on the following areas: (i) strategic objectives and macro-projects relating to our strategic plan and action plan, and (ii) potential opportunities in the assessment of new business.
Set forth below are the names, ages, position and the year first elected and brief biographical descriptions of the members of our Strategy and Innovation Committee:
Name |
Age | Position |
Year First Elected | |||
Raul Calfat | 70 | Coordinator | 2017 | |||
Dan Ioschpe | 58 | Effective member | 2020 | |||
Kevin G. McAllister | 59 | Effective member | 2021 | |||
Maria Leticia de Freitas Costa | 63 | Effective member | 2017 | |||
Pedro Wongtschowski | 76 | Effective member | 2015 | |||
Todd Messer Freeman | 64 | Effective member | 2021 |
95
Raul Calfat. See “—A Board of Directors.”
Dan Ioschpe. See “—A Board of Directors.”
Kevin G. McAllister. See “—A Board of Directors.”
Maria Leticia de Freitas Costa. See “—A Board of Directors.”
Pedro Wongtschowski. See “—A Board of Directors.”
Todd Messer Freeman. See “—A Board of Directors.”
Fiscal Council
Under the Brazilian Corporate Law, the fiscal council is a corporate body independent of management and a company’s external auditors. The fiscal council has not typically been equivalent to or comparable with a U.S. audit committee. The primary responsibility of the fiscal council has been to monitor management’s activities, review the financial statements, and report its findings to the shareholders. In our case, our statutory audit, risks and ethics committee, established in accordance with the Novo Mercado Listing Rules, will serve as the equivalent of a U.S. audit committee. For additional information on our committees, see “—A. Directors and Senior Management—Committees.”
Under the Brazilian Corporate Law, the fiscal council may not have members who are members of the board of directors or the executive committee, or who are our employees or employees of a controlled company or of a company of this group, or a spouse or relative of any member of our management. In addition, the Brazilian Corporate Law requires that fiscal council members receive a remuneration of at least 10% of the average amount paid to each executive officer. The Brazilian Corporate Law requires a fiscal council to be composed of a minimum of three and a maximum of five members and their respective alternates.
Our fiscal council is composed of three to five members who are elected at the annual shareholders’ meeting, with terms lasting until the next annual shareholders’ meeting after their election. Under the Brazilian Corporate Law, if a company acquires control of another company, minority shareholders that in the aggregate hold at least 10% of the voting shares also have the right to elect separately one member of the fiscal council. This provision will not be applicable to us as long as we are subject to widespread control. Set forth below are the names, ages, the year first elected and positions of the members of our fiscal council and respective alternates, elected at our annual shareholders’ meeting held on April 26, 2022.
The following table sets forth the name and year of election of each of the members of our fiscal council as of the date of this annual report.
Name |
Age | Position |
Year First Elected | |||
Ivan Mendes do Carmo(1) | 60 | Effective member | 2008 | |||
Tarcísio Luiz Silva Fontenele | 60 | Alternate | 2001 | |||
José Mauro Laxe Vilela(2) | 75 | Effective member | 2011 | |||
Wanderley Fernandes da Silva | 49 | Alternate | 2011 | |||
Mario Ernesto Vampré Humberg | 59 | Effective member | 2020 | |||
Carla Alessandra Trematore | 47 | Alternate | 2022 | |||
Otavio Ladeira de Medeiros | 55 | Effective member | 2022 | |||
Adriano Pereira de Paula | 59 | Alternate | 2022 |
(1) | President of the fiscal council. |
(2) | Vice-President of the fiscal council. |
96
D. Employees
The table below sets forth the number of our employees by category at the dates indicated and includes the employees of our wholly owned subsidiaries. The total consolidated employees refer to employees at all of our subsidiaries and joint ventures, including, OGMA, ECTS, and Visiona:
As of December 31, | ||||||||||||
2022 | 2021 | 2020 | ||||||||||
Production Process |
8,671 | 7,882 | 7,874 | |||||||||
Research and Development |
3,717 | 3,562 | 3,590 | |||||||||
Customer Support |
3,010 | 2,847 | 2,599 | |||||||||
Administrative—Production Support |
250 | 253 | 262 | |||||||||
Administrative—Corporate |
1450 | 1,447 | 1,333 | |||||||||
|
|
|
|
|
|
|||||||
Total (including only wholly owned subsidiaries of Embraer S.A) |
1,7263 | 16,067 | 15,658 | |||||||||
|
|
|
|
|
|
|||||||
Total Consolidated Employees |
1,9475 | 18,320 | 18,125 | |||||||||
|
|
|
|
|
|
Approximately 80% of our workforce is employed in Brazil. Most of our technical staff is trained at leading Brazilian engineering schools, including ITA, located in the city of São José dos Campos.
Embraer fully supports the choice of union association of its employees. In Brazil, 6.4% of our employees are unionized, and, according to Brazilian labor laws, salary readjustments and other clauses negotiated in collective bargaining agreements extend to the entire category, resulting in 100% employees covered by clauses negotiated in these agreements.
We actively support the training and professional development of our employees. We have established a program at our facility in the city of São José dos Campos to provide newly graduated engineers with specialized training in aerospace engineering.
E. Share Ownership
As of December 31, 2022, our board members owned 601 of our common shares and our executive officers did not own any of our common shares. As of the same date, members of our fiscal council owned one of our common shares and none of our directors individually owns more than 1.0% of the outstanding common shares.
For a description of our stock option plan terminated in March 2020 that was applicable to our executive officers and employees in 2020, including those of our subsidiaries, see “—B. Compensation—Stock Option Plan.”
Item 7. | MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS |
A. Major Shareholders
Shareholders
As of the date of this annual report, we have a total authorized capital of 1,000,000,000 shares, of which 740,465,044 common shares were issued, including one special “golden share” held by the Brazilian government. The golden share provides the Brazilian government with veto rights in certain specific circumstances. In addition, non-Brazilian shareholders may have their voting rights restricted in certain specific circumstances. For additional information on the voting rights of our common shares, see “Item 10. Additional Information—B. Memorandum and Articles of Association—Voting Rights of Shares.”
97
The table below sets forth information related to the number of shares held by our significant shareholders, as of December 31, 2022, in accordance with the most recent shareholder position information provided to us:
Common Shares | ||||||||
Shares(1) | (%) | |||||||
Brandes Investment Partners, L.P.(2) |
112,071,399 | 15.14 | ||||||
BNDES Participações S.A.—BNDESPAR(3) |
39,762,489 | 5.37 | ||||||
BlackRock, Inc(4). |
37,290,149 | 5.0 | ||||||
União Federal/Brazilian government(5) |
1 | 0.0 | ||||||
Shares in company treasury |
5,832,238 | 0.79 | ||||||
Others |
545,508,768 | 73.67 | ||||||
|
|
|
|
|||||
Total |
740,465,044 | 100.0 | ||||||
|
|
|
|
(1) | The number of shares includes our ADS. |
(2) | Brandes Investment Partners, L.P. is a 100% employee-owned independent investment advisory firm founded and co-owned by Charles Howard Brandes. The firm manages the Brandes series of mutual funds in addition to other funds and caters to individuals and institutions. |
(3) | BNDESPAR is a wholly owned subsidiary of Banco Nacional de Desenvolvimento Econômico e Social – BNDES, the government-owned national development bank of Brazil. |
(4) | Blackrock INC. is an American global investment management corporation based in the city of New York, United States. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world’s largest asset manager. |
(5) | The Brazilian government holds our “golden share.” |
There have been no significant changes in percentage ownership by any major shareholder in the past three years. On December 31, 2022, we had approximately 101,736 holders of common shares, including common shares in the form of ADSs. On December 31, 2022, an aggregate of 95,454,084 ADSs were held by 152 record holders, including DTC in the United States.
B. Related Party Transactions
The Brazilian Government
The Brazilian government, through its direct and indirect stakes in us and its ownership of our “golden share,” is one of our major shareholders. The issuance of the “golden share” was a requirement of the regulations governing our privatization in 1994 and grants the Brazilian government veto rights over certain military-related programs and corporate actions (including transfers of control and changes in our name, logo and corporate purpose). For additional information on the voting rights of our golden share, see “Item 10. Additional Information—B. Memorandum and Articles of Association—Voting Rights of Shares—Golden Share.” As of December 31, 2022, in addition to the “golden share,” the Brazilian government owned an indirect 5.37% stake in us through BNDESPAR, a wholly owned subsidiary of BNDES, which, in turn, is controlled by the Brazilian government. As a result, for the purposes of this annual report’s disclosure requirements, we consider transactions between Embraer and the Brazilian government or its agencies as falling within the definition of “related-party transactions.”
The Brazilian government plays an important role in our business activities, including as:
• | a major customer of our defense products, through the Brazilian Air Force; |
• | a source for research debt financing through technology development institutions, including FINEP and BNDES; |
• | an export credit agency, through BNDES; and |
• | a source of short-term and long-term financing and a provider of asset management and commercial banking services, through Banco do Brasil. |
98
For additional information on the role of the Brazilian government in our business activities, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities and Lines of Credit,” “Item 4. Information on the Company—B. Business Overview—Aircraft Financing Arrangements,” “Item 3. Key Information—D. Risk Factors—Risks Relating to Embraer—Any decrease in Brazilian government-sponsored customer financing or increase in government-sponsored financing that benefits our competitors, may decrease the cost competitiveness of our aircraft” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Embraer—Any decrease in Brazilian government-sponsored customer financing or increases in government sponsored financing that benefits our competitors, may decrease the competitiveness of our aircraft.” For additional information regarding our related-party transactions, see Note 13.1 to our 2022 audited consolidated financial statements.
A Major Customer (Brazilian Government)
The Brazilian government, mainly through the Brazilian Air Force, has been a significant customer of Embraer since its inception. For the year ended December 31, 2022, the Brazilian government, again mainly through the Brazilian Air Force, accounted for 42.5% or US$ 190.2 million of the revenue of our Defense & Security segment. In addition, as of December 31, 2022, we had US$ 370.5 million in contract assets and US$69.6 million in contract liabilities in connection with the Brazilian Armed Forces. We expect to continue to be the primary source of new aircraft and spare parts and services for the Brazilian government. For a description of our transactions with the Brazilian government, see “Item 4. Information on the Company—B. Business Overview—Defense & Security Segment.”
Financing Source
FINEP
We maintain credit facilities with FINEP, which as of December 31, 2022, had a total outstanding balance of US$6.4 million. These loans were extended to us primarily to fund research and development expenses of the Phenom 100 and 300 aircraft and the Legacy 500 aircraft. For additional information on the amounts, maturity dates and interest rates of the principal loans we have with FINEP, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities and Lines of Credit.”
BNDES
The Brazilian government has been an important source of export financing for our customers through the BNDES-Exim program, managed by BNDES. For additional information on our aircraft financing arrangements, see “Item 4. Information on the Company—B. Business Overview—Aircraft Financing Arrangements.”
We also entered into credit working capital and export financing agreements with BNDES, which as of December 31, 2022, had a total amount of US$400.0 million. The consummation of the financing is subject to customary conditions precedent. For additional information on the amounts, maturity dates and interest rates of these agreements, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Credit Facilities and Lines of Credit.”
A Service Provider (Banco do Brasil)
As of December 31, 2022, we maintained cash and cash equivalents of US$2.1 million with Banco do Brasil and several of its affiliates. Banco do Brasil has been a provider of regular commercial banking and asset management services to us for many decades and is one of the banks responsible for the payment of our payroll expense. These services include maintaining our checking account.
As of December 31, 2022, R$38.5 million of our cash, cash equivalents and financial investments were indexed to the variation of the CDI rate.
99
C. Interests of Experts and Counsel
Not applicable.
Item 8. | FINANCIAL INFORMATION |
A. | Consolidated Statements and Other Financial Information |
See to “Item 18. Financial Statements” for our consolidated financial statements and report of our independent registered public accounting firm included elsewhere in this annual report.
Legal Proceedings
Arbitration Proceedings
On January 24, 2019, we entered into a Master Transaction Agreement (the “MTA” or “Master Transaction Agreement”) and certain other transaction documents with Boeing and certain subsidiaries of Embraer or Boeing, which were wrongfully terminated by Boeing, pursuant to which a subsidiary of Boeing would acquire a controlling stake in Embraer’s Commercial Aviation segment and Embraer, or a subsidiary of Embraer, and Boeing, or a subsidiary of Boeing, would form a joint venture for the promotion and development of new markets and applications for the C-390 Millennium multi-mission transport aircraft.
On January 1, 2020, we implemented the internal carve-out of our Commercial Aviation segment by means of the contribution by Embraer to Yaborã Indústria Aeronáutica S.A. (“Yaborã”) of the net assets comprising assets, liabilities, properties, rights and obligations (subject to certain exceptions) related to our Commercial Aviation segment, through a capital increase.
On April 25, 2020, we received a notice from Boeing communicating its decision to terminate the Master Transaction Agreement, based on Boeing’s assertion that certain closing conditions in the MTA had not been satisfied by Embraer by the April 24, 2020 termination date in the MTA. In addition, Boeing terminated the Contribution Agreement. Embraer strongly believes that Embraer was in full compliance with its obligations under the MTA and the Contribution Agreement and Boeing wrongfully terminated the MTA and the Contribution Agreement, that Boeing was under an obligation to continue to comply with the terms of the MTA and the Contribution Agreement and that our pending arbitration proceedings against Boeing and its affiliates are a valid enforcement of our rights under the MTA and the Contribution Agreement. Such dispute with respect to the termination of the MTA and/or the Contribution Agreement has been submitted by each of Boeing and Embraer to separate arbitration proceedings that are currently ongoing. These arbitration proceedings have been consolidated into a single arbitration proceeding.
For risks relating to the termination of the Boeing Transaction, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Embraer—Legal proceedings pertaining to the now-terminated strategic partnership with Boeing, including arbitration proceedings related to Boeing’s termination of and failure to close the MTA and/or the Contribution Agreement, may adversely impact our business, financial condition and results of operations.”
Labor Lawsuits
We are defendants in individual labor lawsuits, for which we are awaiting the decision of the Brazilian labor courts. Due to the immaterial amount involved in these legal proceedings, we do not believe that any liabilities related to these individual labor lawsuits would have a material adverse effect on our financial condition or results of operations. For a further discussion of our labor lawsuits, see Note 24 to our 2022 audited consolidated financial statements.
100
Tax Matters
We have challenged the constitutionality of certain Brazilian taxes and payroll charges, as well as modifications to and increases in the rates and basis of calculation of those taxes and charges and have obtained writs of mandamus or injunctions to avoid their payment or recover past payments. For a further discussion of our tax lawsuits, see Notes 23 and 24 to our 2022 audited consolidated financial statements.
Interest on the total amount of unpaid taxes and payroll charges accrues monthly based on the SELIC rate, which is the key lending rate of the Brazilian Central Bank, and, accordingly, we make an accrual to the interest income (expenses), net line item on our statements of income.
Other Proceedings
In addition, we are involved in other legal proceedings, all of which are in the ordinary course of business.
Our management does not believe that any of our proceedings, if adversely determined, would materially or adversely affect our business, financial condition or results of operations.
As of December 31, 2022, there was a US$58.6 million provision recorded as a liability (taxes, labor and civil related) on our statement of financial position in connection with litigation contingencies that we classify as representing probable losses to us. For a further discussion of these provisions and contingent liabilities, see Note 24 to our 2022 audited consolidated financial statements.
Dividends and Dividend Policy
Amounts Available for Distribution
At each annual shareholders’ meeting, the board of directors is required to recommend how net profits for the preceding fiscal year are to be allocated. For purposes of the Brazilian Corporate Law, net profits are defined as net income after income taxes and social contribution taxes for the fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to employees’ and management’s participation in our profits, determined under IFRS. In accordance with the Brazilian Corporate Law and our bylaws, the amounts available for dividend distribution are the amounts determined under IFRS in our parent company financial statements. The amount for distribution is equal to our net income after taxes less (or plus):
• | any amounts allocated from the net income after taxes to the legal reserve, and |
• | any amounts allocated from the net income after taxes to a contingency reserve for anticipated losses or the reversion of the reserve constituted on previous fiscal years. |
We are required to maintain a legal reserve to which we must allocate 5% of net profits for each fiscal year until the amount of the legal reserve equals 20% of our capital stock. However, we are not required to make any allocations to our legal reserve in respect of any fiscal year in which the legal reserve, when added to our other established capital reserves, exceeds 30% of our capital stock. Net losses, if any, may be charged against the legal reserve. The balance of our legal reserve was US$204.4 million, which was equal to 13% of our capital stock as of December 31, 2022.
The Brazilian Corporate Law also provides for two additional, discretionary allocations of net profits that are subject to approval by the shareholders at the annual meeting. First, a percentage of net profits may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years. Any amount so allocated in a prior year must be either reversed in the fiscal year for which the anticipated loss was forecast if the loss does not in fact occur, or written off in the event that the anticipated loss occurs. Second, the amount for distribution may be limited to the fiscal year’s net profit already realized, and the difference between the amounts shall be allocated to an unrealized revenue reserve. Under the Brazilian Corporate Law, unrealized revenue is defined as the sum of:
• | price-level restatement of statement of financial position accounts; |
101
• | the share of equity earnings of affiliated companies; and |
• | profits from installment sales to be received after the end of the next succeeding fiscal year. |
According to our bylaws and subject to shareholder approval, our board of directors may allocate to an investment and working capital reserve up to 75% of our parent company adjusted net income after taxes. The reserve may not exceed 80% of our capital stock. The purpose of the investment and working capital reserve is to make investments in fixed assets or increase our working capital. The balance of the investment and working capital reserve may be used:
• | in the deduction of accumulated losses, whenever necessary; |
• | in the distribution of dividends, at any time; |
• | in the redemption, withdrawal, purchase or open market repurchase of shares, as authorized by law; and |
• | to increase our capital, including by means of an issuance of new shares. |
We may also grant a participation in our net income to our management and employees. However, the allocation to the investment and working capital reserve or the participation of our management and employees cannot reduce the mandatory distributable amount, as discussed below.
Otherwise, the reserved amounts, except for the contingency reserve and the unrealized revenue reserve that exceeds our capital stock, must be used to increase our capital or be distributed as a cash dividend.
The amounts available for distribution may be further increased by a reversion of the contingency reserve for anticipated losses constituted in prior years but not realized, or further increased or reduced as a result of the allocations of revenues to or from the unrealized revenue reserve. The amounts available for distribution are determined on the basis of financial statements prepared in accordance with the Brazilian Corporate Law method. We have not established a contingency reserve.
As of December 31, 2022, our accumulated retained earnings accounted for US$862.7 million. As of December 31, 2022, the amounts are net of minimum dividends and interest on shareholders’ equity paid or payable, as determined by the Brazilian Corporate Law.
Mandatory Distribution
The Brazilian Corporate Law generally requires that the bylaws of each Brazilian corporation specify a minimum percentage of the amounts available for distribution by the corporation for each fiscal year that dividends must be distributed to shareholders, also known as the mandatory distributable amount. Under our bylaws, the mandatory distribution is based on a percentage of adjusted net income, not lower than 25%, and not on a fixed monetary amount per share. The Brazilian Corporate Law, however, permits a publicly held company to suspend the mandatory distribution of dividends if the board of directors and fiscal council report presented at the shareholders’ meeting indicate that the distribution would be inadvisable in view of Embraer’s financial condition. This suspension is subject to approval of holders of common shares. In this case, the board of directors shall file a justification for the suspension with the CVM. Profits not distributed by virtue of the suspension will be attributed to a special reserve and, if not absorbed by subsequent losses, will be paid as dividends as soon as the financial condition of the corporation permits the payments.
102
Payment of Dividends
We are required by the Brazilian Corporate Law and by our bylaws to hold an annual shareholders’ meeting by the end of the fourth month after the end of each fiscal year at which, among other things, the shareholders have to decide on the payment of an annual dividend. The payment of annual dividends is based on our parent company financial statements prepared under IFRS for the relevant fiscal year. Brazilian companies, including us, are permitted to make a special distribution to shareholders referred to as interest on shareholders’ equity, which may be distributed cumulatively or in lieu of dividends as part of the mandatory distributable amount. Subject to certain limitations set forth by legislation, distribution of interest on shareholders’ equity can be treated as a tax-deductible expense for IRPJ and CSLL purposes. Under the Brazilian Corporate Law, dividends generally are required to be paid within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which, in either case, must occur prior to the end of the fiscal year in which the dividend was declared. A shareholder has a three-year period from the dividend payment date to claim dividends (or payments of interest on shareholders’ equity) in respect of its shares, after which the amount of the unclaimed dividends reverts to the Company.
The Brazilian Corporate Law allows a company to pay interim dividends out of preexisting and accumulated profits determined under IFRS for the preceding fiscal year or semester, based on financial statements approved by its shareholders. According to our bylaws, the shareholders may declare, at any time, interim dividends based on the preexisting and accumulated profits, provided that the mandatory dividend has already been distributed to the shareholders. Our bylaws also permit us to prepare financial statements semiannually and for shorter periods. Our board of directors may approve the distribution of dividends calculated with reference to those financial statements, even before they have been approved by the shareholders. However, the dividends cannot exceed the amount of capital reserves.
In general, shareholders who are not residents of Brazil must register with the Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside of Brazil. The common shares underlying our ADSs will be held in Brazil by Banco Itaú S.A., also known as the custodian, as agent for the depositary, which will be the registered owner on the records of the registrar for our shares. Our current registrar is Itaú Corretora de Valores S.A. The depositary electronically registers the common shares underlying our ADSs with the Central Bank and, therefore, is able to have dividends, sales proceeds or other amounts with respect to these shares eligible to be remitted outside Brazil.
Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the custodian on behalf of the depositary, which will then convert the proceeds into U.S. dollars and will cause the U.S. dollars to be delivered to the depositary for distribution to holders of ADSs. Under current Brazilian law, dividends paid to shareholders who are not Brazilian residents, including the holders of ADSs, will not be subject to Brazilian withholding income tax, except for dividends declared based on profits generated prior to December 31, 1995. For additional information on Brazilian taxes, see “Item 10. Additional Information—E. Taxation—Material Brazilian Tax Consequences.”
History of Dividend and Interest on Shareholders’ Equity Payments and Dividend Policy
Law No. 9,249, dated December 26, 1995, as amended, provides for distribution of interest on shareholders’ equity as an alternative form of payment to shareholders and treats those payments as a deductible expense for purposes of calculating Brazilian corporate income tax and social contribution on net profits. These distributions may be paid in cash. The interest is limited to the daily pro rata variation of the TJLP (long term interest rate) and cannot exceed the greater of:
• | 50% of net income (after the deduction of social contribution on net profits, but before taking into account the provision for corporate income tax and the amounts attributable to shareholders as net interest on shareholders’ equity) for the period in respect of which the payment is made; or |
• | 50% of the sum of retained profits and profit reserves as of the beginning of the period in respect of which the payment is made. |
103
Any payment of interest on shareholders’ equity to holders of ADSs or common shares, whether or not they are Brazilian residents, is subject to Brazilian withholding income tax at the rate of 15% or 25% if the beneficiary is resident in a tax haven jurisdiction, that is, a country or location that does not impose any income tax or which imposes the tax at a maximum rate of less than 20%, or in which the domestic legislation imposes restrictions on the disclosure of the shareholding composition or the ownership of the investment. For additional information on Brazilian taxes, see “Item 10. Additional Information—E. Taxation—Material Brazilian Tax Consequences.” The amount paid to shareholders as interest on shareholders’ equity, net of any withholding tax, may be included as part of any mandatory distributable amount.
Under Brazilian law, we are obligated to distribute to shareholders an amount sufficient to ensure that the net amount received by them, after payment by us of applicable Brazilian withholding taxes in respect of the distribution of interest on shareholders’ equity, plus the amount of declared dividends, is at least equal to the mandatory distributable amount. When we distribute interest on shareholders’ equity, and that distribution is not accounted for as part of the mandatory distribution, Brazilian withholding tax will apply. All payments to date were accounted for as part of the mandatory distribution.
We have not made any payments in 2022, 2021 and 2020.
No dividends nor interest on shareholders’ equity were approved for 2022, 2021 and 2020. In 2022, 2021 and 2020, we did not distribute interest on shareholders’ equity and interim dividends. In 2018, we distributed US$11.9 million in interest on shareholders’ equity and interim dividends approved by Statutory Board of Directors in connection with shareholders’ equity reserves. In 2017, we distributed US$47.3 million in interest on shareholders’ equity in connection with profits generated in the year ended December 31, 2017. For additional information on mandatory distribution of dividends, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends and Dividend Policy—Mandatory Distribution.”
Our functional currency is the U.S. dollar. Since we are established and domiciled in Brazil, the components of our shareholders’ equity are required under Brazilian Corporate Law to be measured accounted and maintained in Brazilian reais, including amounts to be distributed to shareholders (dividends and interest on own capital). Such a requirement is different from our original accounting records in its functional currency, which is prepared and maintained in historical U.S. dollars. Net earnings or losses incurred by us at the end of each fiscal year in U.S. dollars are translated to Brazilian reais for Corporate Law accounting purposes at average exchange rate observed for that period, and then distributed, retained or absorbed by the statutory reserves. We file audited consolidated financial statements in Brazil (translated to Brazilian reais based on requirements of IAS 21), which discloses the components of shareholders’ equity accounted as required by the Brazilian Corporate Law.
In 2022, the losses incurred of US$185.4 million reduced again the retained earnings in historical U.S. dollars to US$1,116.1 million, out of which US$862.7 million would be available for distribution in case no restriction exist, but such losses in the amount of R$953.7 million as translated to reais further increased the retained losses translated to reais to R$2,376.6 million.
As of January 1, 2020, we had retained earnings recorded in the statutory reserves in the historical amount of US$2,110.0 million, out of which US$1,856.7 million would be available for distribution under our by-laws. These components in historical reais as of January 1, 2020 were R$2,595.4 million and R$2,058.2 million, respectively. Mainly as a result of losses incurred in 2020 of US$731.9 million, the statutory reserves reduced to US$1,377.8 million, however in reais the reserves were fully absorbed due to the translation of losses incurred at average exchange rate observed in 2020, which cause the losses translated to reais of R$3,616.0 million to be higher than the previously accumulated statutory reserves. Therefore, we presented retained losses of R$ 1,021.0 million as of December 31, 2020 under the Brazilian Corporate Law requirements, which restricts us to distribute earnings to shareholders while the accumulated retained losses are not consumed by future net earnings. In 2021, the losses incurred of US$44.7 million reduced the statutory reserve (retained earnings) in historical U.S. dollars to US$ 1,301.5 million, out of which US$1,048.1 million would be available for distribution in case no restriction exist, but such losses in the amount of R$274.8 million as translated to reais further increased the retained losses translated to reais to R$1,423.0 million.
104
We intend to declare and pay dividends and/or interest on shareholders’ equity, as required by the Brazilian Corporate Law and our bylaws. Our board of directors may approve the distribution of dividends and/or interest on shareholders’ equity, calculated based on our semiannual or quarterly financial statements. The declaration of annual dividends, including dividends in excess of the mandatory distribution, requires approval by the vote of the majority of the holders of our common shares. The amount of any distributions will depend on many factors, including our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and shareholders. Within the context of our tax planning, we may in the future continue to determine that it is in our benefit to distribute interest on shareholders’ equity.
B. | Significant Changes |
Except as otherwise disclosed in our audited consolidated financial statements and in this annual report, there have been no significant changes in our business, financial condition or results of operations since December 31, 2022. For further information, see Note 37 to our 2022 audited consolidated financial statements.
Item 9. | THE OFFER AND LISTING |
A. Offer and Listing Details
Our ADSs are listed on the New York Stock Exchange, or NYSE, under the symbol “ERJ.” In addition, our common shares are traded on the B3 under the symbol “EMBR3.” Each ADS represents four common shares.
Our ADSs began trading on the NYSE on June 5, 2006, with each ADS representing four common shares issued by us. The ADSs are issued under a deposit agreement and JPMorgan Chase Bank N.A., or JP Morgan, serves as depositary under that agreement.
B. Plan of Distribution
Not applicable.
C. Markets
Trading on the B3
In 2000, the São Paulo Stock Exchange, currently called the B3, was reorganized through the execution of memoranda of understanding by the Brazilian stock exchanges. Under the memoranda, all securities are now traded only on the B3, with the exception of electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange.
Our common shares are listed and traded on the Novo Mercado segment of the B3. Trades in our common shares on the B3 settle in one business day after the trade date. Delivery of and payment for shares is made through the facilities of the CBLC – Companhia Brasileira de Liquidação e Custódia (clearinghouse for the B3), which maintains accounts for member brokerage firms.
In order to better control volatility, the B3 adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of this stock exchange fall below the limit of 10% and 15%, respectively, in relation to the closing value of the index registered in the previous trading session.
105
The B3 is less liquid than the NYSE and other major exchanges in the world. As of December 31, 2022, the B3 had an aggregate market capitalization of approximately R$4.2 trillion, equivalent to US$0.8 trillion. In comparison, the NYSE had a market capitalization of approximately US$24.1 trillion on the same date. Although any of the outstanding shares of a listed company may trade on the B3, in most cases less than one-half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling persons, by governmental entities or by one principal shareholder. As of December 31, 2022, we accounted for approximately 0.3% of the market capitalization of all listed companies on the B3. There is also significantly greater concentration in the Brazilian securities markets than in the NYSE or other major exchanges
Trading on the B3 by non-residents of Brazil is subject to limitations under Brazilian foreign investment legislation.
Novo Mercado Corporate Governance Practices
In 2000, the B3 introduced three special listing segments, known as Levels 1 and 2 of Differentiated Corporate Governance Practices and the Novo Mercado, aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the B3, by prompting these companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.
To become a Level 1 (Nível 1) company, in addition to the obligations imposed by current Brazilian law, an issuer must agree to (i) ensure that shares of the issuer representing 25% of its total capital are effectively available for trading, (ii) adopt offering procedures that favor widespread ownership of shares whenever making a public offering, (iii) comply with minimum quarterly disclosure standards, (iv) follow stricter disclosure policies with regards to contracts with related parties, material contracts and transactions made by controlling shareholders, directors and officers involving securities issued by the issuer, (v) submit any existing shareholders’ agreements and stock option plans to the B3 and (vi) make a schedule of corporate events available to shareholders.
To become a Level 2 (Nível 2) company, in addition to the obligations imposed by current Brazilian law, an issuer must agree to (i) comply with all of the listing requirements for Level 1 companies, (ii) grant tag-along rights for all shareholders in connection with a transfer of control of the company, offering the same price paid per share for controlling block, (iii) grant voting rights to holders of common shares in connection with certain corporate restructurings and related-party transactions, including (1) any transformation of the company into another corporate form, (2) any merger, consolidation or spin-off of the company, (3) approval of any transactions between the company and its controlling shareholder, including parties related to the controlling shareholder, (4) approval of any valuation of assets to be delivered to the company in payment for shares issued in a capital increase, (5) appointment of an expert firm to ascertain the fair value of the company in connection with any deregistration and delisting tender offer, and (6) any changes to these voting rights, (iv) have a board of directors composed of at least five members, of which 20% must be independent directors, with a term limited to two years, (v) prepare annual financial statements in English, including cash flow statements, in accordance with international accounting standards, such as U.S. GAAP or IFRS, (vi) if it elects to delist from the Level 2 segment, hold a tender offer by the company’s controlling shareholder (the minimum price of the shares to be offered will be determined by an appraisal process), and (vii) adhere exclusively to the rules of the B3 Arbitration Chamber for resolution of disputes between the company and its investors.
To be listed on the Novo Mercado, an issuer must meet all of the requirements described above, in addition to (i) issuing only voting shares, (ii) have at least two, or the equivalent of 20% of the board members, whichever is bigger, independent members on the board of directors, with a term limited to two years, (iii) follow stricter disclosure policies with regards to the company’s policies, the internal rules of procedures, the code of business conduct and periodic reports of the audit committee, and (iv) adopt stricter compliance procedures, including an audit committee, an internal audit and other risk management controls.
106
Regarding the obligation to ensure that shares of the issuer representing 25% of its total capital are effectively available for trading, for the companies listed on the Novo Mercado, the threshold might be reduced to 15% of its capital stock, provided its average daily trading volume remains equal to or greater than R$25.0 million, taking into account the trades performed during the previous 12 months. Our shares are listed on the Novo Mercado segment.
Regulation of Brazilian Securities Markets
The Brazilian securities markets are regulated by the CVM (the Brazilian Securities and Exchange Commission), which has regulatory authority over stock exchanges and the securities markets generally, and by the Brazilian Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.
Under the Brazilian Corporate Law, a corporation is either publicly held (companhia aberta), like us, or closely held (companhia fechada). All publicly held companies, including us, are registered with the CVM and are subject to reporting requirements. Our shares are listed and traded on the Novo Mercado segment of the B3 and may be traded privately subject to limitations.
We have the option of asking for the trading of our securities on the B3 to be suspended in anticipation of a material announcement. Trading may also be suspended on the initiative of the B3 or the CVM, among other reasons, based on or due to a belief that the company has provided inadequate information regarding a material event or has provided inadequate responses to the inquiries by the CVM or the B3.
Trading on the B3 by non-residents of Brazil is subject to limitations under Brazilian foreign investment and tax legislation. The Brazilian custodian for our common shares and the depositary for our ADSs has obtained an electronic certificate of registration from the Brazilian Central Bank to remit U.S. dollars abroad for payments of dividends, any other cash distributions, or upon the disposition of the shares and sales proceeds thereto. Pursuant to CMN Resolution No. 4,373, in order for an investor to surrender ADSs for the purpose of withdrawing the shares represented thereby, the investor is required to appoint a Brazilian financial institution duly authorized by the Brazilian Central Bank and the CVM to act as its legal representative, who shall be responsible, among other things, for keeping and updating the investors’ certificates of registrations with the Brazilian Central Bank, which entitles registered foreign investors to trade the underlying shares directly on the B3.
Disclosure Requirements
Pursuant to CVM Resolution No 44, of August 23, 2021, the CVM revised and consolidated the requirements regarding the disclosure and use of information related to material facts and acts of publicly held companies, including the disclosure of information on the trading and acquisition of securities issued by publicly held companies.
These requirements include provisions that:
• | establish the concept of a material fact that gives rise to reporting requirements. Material facts include decisions made by the controlling shareholders, resolutions of the general meeting of shareholders and of management of the company, or any other facts related to the company’s business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade those securities or to exercise any of those securities’ underlying rights; |
• | specify examples of facts that are considered to be material, which include, among others, the execution amendment or termination of a shareholders’ agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies; |
107
• | oblige the investor relations officer, controlling shareholders, other officers, directors, members of the audit committee and other advisory boards to disclose material facts; |
• | require simultaneous disclosure of material facts to all markets in which the corporation’s securities are admitted for trading; |
• | require the acquirer of a controlling stake in a corporation to publish material facts, including its intentions as to whether or not to de-list the corporation’s shares, within one year; |
• | establish rules regarding disclosure requirements in the acquisition and disposal of a material stockholding stake; |
• | restrict the use of insider information; and |
• | prohibits the company controlling shareholders, directors, members of the board of directors and the supervisory board to carry out any trading with the securities issued by the company, or related to them, during the period that comes before the date of disclosure of the information quarterly accounting and annual financial statements of the company. |
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. | ADDITIONAL INFORMATION |
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Set forth below is certain information concerning our capital stock, and a brief summary of certain significant provisions of our bylaws, the Brazilian Corporate Law, the relevant rules and regulations of the CVM, and the relevant Novo Mercado rules applicable to our capital stock. This description does not purport to be complete and is qualified by reference to our bylaws and to Brazilian law.
Corporate Purpose
We are a corporation duly incorporated with a principal place of business and jurisdiction in the city of São José dos Campos, São Paulo, Brazil, governed mainly by our bylaws and the Brazilian Corporate Law. According to article I of our bylaws, our corporate purpose is to (i) design, build and market aircraft and aerospace materials and related accessories, components and equipment, according to the highest standards of technology and quality, (ii) perform and carry out technical activities related to the manufacturing and servicing of aerospace materials, (iii) contribute to the training of technical personnel as necessary for the aerospace industry, (iv) engage in other technological, manufacturing and business activities in connection with the aerospace industry, and to provide services therefore, (v) design, build and trade equipment, materials, systems, software, accessories and components for the defense, security and power industries, as well as to perform and carry out technical activities related to the manufacturing and maintenance activities, according to the highest standards of technology and quality, and (vi) conduct other technological, manufacturing and trade activities and services related to the defense, security and power industries.
108
Description of Capital Stock
General
As of December 31, 2022, our capital stock consisted of a total of 740,465,044 issued common shares, without par value, including 5,832,238 common shares held in treasury and one special class of common shares known as the “golden share,” held by the Brazilian government. Our bylaws authorize the board of directors to increase the capital stock up to 1,000,000,000 common shares, irrespective of any amendment to our bylaws and of shareholder approval. As of March 30, 2023, we had 734,632,806 outstanding common shares, which were fully paid. Our shareholders must approve at a shareholders’ meeting any capital increase that exceeds the above-referenced authorized capital stock. Our shareholders are not liable for further capital calls. Their liability is limited to the amount of any portion of our capital stock which they have subscribed but have not fully paid in.
Share Buyback
On November 12, 2020, our board of directors approved a share buyback program for our common shares, in compliance with Instrução CVM No. 77, for the purpose of adding value to our shareholders through the management of our capital structure. We were authorized to buy back up to an aggregate of 7,000,000 common shares. Our common shares outstanding totaled 736,143,105 as of November 12, 2020 and our total of treasury shares as of this date was 4,291,938 which was based on the shareholder base of November 12, 2020. The acquisition of 7,000,000 common shares had a maximum duration, within the buyback program, of 12 months and expired on November 12, 2021. In 2021, we bought back 1,540,300 shares which is the total of the shares repurchased in the aforementioned program.
Common Shares
Each common share is generally empowered with one vote at our shareholders’ meetings. Pursuant to our bylaws and the B3 listing agreement in connection with the listing of our shares on the Novo Mercado, we cannot issue shares without voting rights or with restricted voting rights.
Changes to rights granted to common shares under our bylaws would generally require an amendment to our bylaws. Under the Brazilian Corporate Law, an amendment to our bylaws requires shareholder approval in a shareholders’ meeting. Changes to our bylaws would generally require approval by a simple majority vote of holders of common shares, except for matters that require the approval of shareholders representing at least one-half of the issued and outstanding voting shares or for matters subject to the approval of our golden share. For additional information on qualified quorum matters and on voting rights relating to the golden share, see “—Voting Rights of Shares—Qualified Quorum Matters” and “—Voting Rights of Shares—Golden Share,” respectively.
The Brazilian Corporate Law and our bylaws require that all our shareholders’ meetings be called by publication of a notice in a newspaper of general circulation in the city where our headquarters are located, in a summarized form and with simultaneous disclosure of the full text of the documents on the page of the same newspaper online, which must provide digital certification of the authenticity of the documents kept on the page issued by a certifying authority accredited by the Brazilian Public Key Infrastructure (ICP-Brazil), currently the O Vale in São José dos Campos, at least 30 days prior to the meeting. In addition, publications are made in another newspaper of general circulation in São Paulo, where the São Paulo Stock Exchange is located, currently the Valor Econômico. The quorum to hold a shareholders’ meetings at first call is the presence of shareholders representing at least 25% of the common shares (except for meetings convened to amend our bylaws or to waive the public tender offer required for delisting from Novo Mercado, which require a quorum of at least two-thirds of the common shares at first call); and at second call the meeting can be held with the presence of any number of shareholders.
109
According to our bylaws, in order to attend a shareholders’ meeting, a shareholder must show the evidence of ownership of the shares it intends to vote by showing an identification document and a proof of share ownership. Our shareholders may be represented at shareholders’ meetings by a proxy, issued within a one-year period prior to the meeting to (1) one of our directors or officers, (2) a lawyer or (3) a financial institution. Notwithstanding the above, the CVM decided on November 4, 2014 that shareholders that are legal entities may be represented at shareholders’ meetings by their legal representatives or by a duly appointed attorney-in-fact, pursuant to the bylaws and related corporate instruments of the legal entities and pursuant to the Brazilian Civil Code. Investment funds must be represented by their administrator.
Alternatively, the shareholders might participate in a shareholders’ meetings through a remote voting mechanism, which is regulated by CVM Resolution No. 80, as amended, and aims to facilitate the participation of shareholders in general meetings either through the vote or through the submission of proposals and candidates for the election of members of the board of directors or fiscal council. For this purpose, this regulation provided the following:
• | the remote voting bulletin through which shareholders may exercise their right to vote prior to the date the shareholders’ meeting is held; |
• | the possibility of inclusion of candidates and proposals of deliberation of minority shareholders in that bulletin, with due observance of certain percentages of equity interest, in order to facilitate shareholders’ participation in shareholders’ meetings; and |
• | the deadlines, procedures and ways of sending this bulletin, which may be forwarded by the shareholder: (a) to the custodian (if the shares held by the shareholder are kept at a centralized deposit) or; (b) to the book-entry agent of the shares issued by the company (if such shares are not kept at a centralized deposit); or (c) directly to the company. |
According to the Brazilian Corporate Law, the common shares are entitled to dividends in proportion to their share of the amount available for distribution. For additional information on payment of dividends on our shares, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends and Dividend Policy.” In addition, upon any liquidation of the company, the common shares are entitled to return of capital in proportion to their share of our shareholders’ equity.
According to the Brazilian Corporate Law, neither our bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder of the following rights:
• | the right to participate in the distribution of profits; |
• | the right to participate equally and proportionally in any remaining residual assets in the event of liquidation of the company; |
• | preemptive rights in the event of issuance of shares, convertible debentures or warrants, except in some specific circumstances under Brazilian law described in “—Preemptive Rights”; |
• | the right to supervise our management in accordance with Article 109 of the Brazilian Corporate Law; and |
• | the right to appraisal rights in the cases specified in the Brazilian Corporate Law, which are described in “—Redemption and Right of Withdrawal.” |
Golden Share
The golden share is held by the Federative Republic of Brazil. For a discussion of the rights to which the golden share is entitled, see “—Voting Rights of Shares—Golden Share.”
110
Voting Rights of Shares
Each common share is generally empowered with one vote at the general shareholders’ meeting. Pursuant to our bylaws and the B3 listing agreement in connection with the listing of our shares on the Novo Mercado listing segment of B3, we cannot issue shares without voting rights or with restricted voting rights.
Qualified Quorum Matters
Under the Brazilian Corporate Law, the approval of shareholders representing at least one-half of the issued and outstanding voting shares is required for the matters described below:
• | reducing the mandatory distribution of dividends; |
• | changing our corporate purpose; |
• | merging into or consolidating with another company, subject to the conditions set forth in the Brazilian Corporate Law; |
• | transferring all of our shares to another company or receiving shares of another company in order to make the company whose shares were transferred a wholly owned subsidiary of the other company, known as a merger of shares (incorporação de ações); |
• | participating in a centralized group of companies as defined under the Brazilian Corporate Law and subject to the conditions set forth therein; |
• | conducting a spin-off; |
• | dissolving or liquidating us; |
• | canceling any ongoing liquidation of us; or |
• | creating preferred shares with greater privileges than the existing shares or changing a priority, preference, privilege or condition of redemption or amortization of preferred shares. |
In the event of the last item described above, the approval of shareholders representing the majority of issued and outstanding shares of the affected class would also be required. Our bylaws currently provide that our capital stock shall be divided exclusively into common shares and the only special class is our golden share. For additional information on the golden share, see “—Golden Share.”
Limitations on the Voting Rights of Certain Holders of Common Shares
Our bylaws provide that, at any shareholders’ meeting, no shareholder or group of shareholders, including brokers acting on behalf of one or more holders of ADSs, may exercise votes representing more than 5% of the quantity of shares into which our capital stock is divided. Votes that exceed this 5% threshold will not be considered.
For purposes of our bylaws, two or more of our shareholders are considered to be a “group of shareholders” if:
• | they are parties to a voting agreement; |
• | one of them is, directly or indirectly, a controlling shareholder or controlling parent company of the other, or the others; |
• | they are companies directly or indirectly controlled by the same person/entity, or group of persons/entities, which may or may not be shareholders; or |
111
• | they are companies, associations, foundations, cooperatives and trusts, investment funds or portfolios, universalities of rights or any other forms of organization or undertaking (i) with the same administrators or managers, or further (ii) whose administrators or managers are companies that are directly or indirectly controlled by the same person/entity, or group of persons/entities, which may or may not be shareholders. |
In the case of investment funds having a common administrator, only funds with policies of investment and of exercise of voting rights at shareholders’ meetings that fall under the responsibility of the administrator on a discretionary basis will be considered to be a group of shareholders.
In addition, shareholders represented by the same proxy, administrator or representative on any account at any shareholders’ meeting will be considered to be a group of shareholders, except for holders of our ADSs when represented by the relevant depositary. All signatories to a shareholders’ agreement that addresses the exercise of voting rights will also be considered to be a group of shareholders for purposes of the foregoing limitation.
This limitation on the voting rights of certain holders of common shares is illustrated in the following table:
Equity Interest of Shareholder or Group of Shareholders |
Voting Rights as a Percentage of our Capital Stock | |
1% |
1% | |
2% |
2% | |
3% |
3% | |
4% |
4% | |
5% |
5% | |
> 5% |
5% |
Limitations on the Voting Rights of Non-Brazilian Shareholders
In accordance with the edital (invitation to bid) issued by the Brazilian government in connection with the privatization of Embraer in 1994, voting participation of non-Brazilian holders of Embraer common shares was limited to 40% of Embraer common shares votes at shareholders’ meeting.
Our bylaws provide that, at any shareholders’ meeting, non-Brazilian shareholders and groups of non-Brazilian shareholders may not exercise voting rights representing more than two-thirds of the total votes of all of the Brazilian shareholders present at the meeting. The total number of votes that may be exercised by Brazilian shareholders and by non-Brazilian shareholders will be assessed after giving effect to the 5% voting limitation described above in “—Limitations on the Voting Rights of Certain Holders of Common Shares.” Votes of non-Brazilian shareholders that exceed this two-thirds threshold will not be considered. If the total vote of non-Brazilian shareholders at any shareholders’ meeting exceeds two-thirds of the votes that may be exercised by the Brazilian shareholders present at such meeting, the number of votes of each non-Brazilian shareholder will be proportionately reduced so that the total vote of non-Brazilian shareholders does not exceed two-thirds of the total votes that can be exercised by Brazilian shareholders present at the shareholders’ meeting.
The fraction of two-thirds effectively limits the voting rights of non-Brazilian shareholders and groups of non-Brazilian shareholders to 40% of share capital represented at the shareholders’ meeting. The objective of this limitation is to ensure that Brazilian shareholders constitute a majority of the total votes cast at any shareholders’ meeting. This limitation will effectively prevent our takeover by non-Brazilian shareholders and limit the ability of non-Brazilian shareholders to control us.
For purposes of our bylaws, the following are considered to be “Brazilian shareholders”:
• | Brazilian individuals, whether native or naturalized, resident in Brazil or abroad; |
112
• | legal private entities organized under the laws of Brazil that have their administrative head offices in Brazil and (i) do not have a foreign controlling parent company, unless the parent company meets the requirements of clause (ii) of this item, and (ii) are controlled, directly or indirectly, by one or more Brazilian individuals, whether native or naturalized, resident in Brazil or abroad; and |
• | investment funds or clubs organized under the laws of Brazil that have their administrative head office in Brazil and whose managers and/or investors holding the majority of their equity interests are persons/entities referred to above. |
A Brazilian shareholder will be required to provide evidence to us and the depositary agent for the book-entry registry that such shareholder satisfies the foregoing requirements and only after this evidence is given will the shareholder be included in the records of Brazilian shareholders.
For purposes of our bylaws, “non-Brazilian shareholders” are any individuals, legal entities, investment funds or clubs and any other organizations that are not considered Brazilian shareholders and that cannot evidence that they satisfy the requirements to for registration as Brazilian shareholders, according to our bylaws.
A “group of shareholders,” as defined above, will be considered to be non-Brazilian whenever one or more of its members is a non-Brazilian shareholder.
The effect of this limitation on the voting rights of non-Brazilian shareholders (i.e., their participation) is illustrated in the following table, where the column “Non-Brazilian Shareholder Participation” indicates the maximum percentage of votes a non-Brazilian shareholder may cast:
Brazilian Shareholder Participation |
Non-Brazilian Shareholder Participation | Non-Brazilian Shareholder Participation(1) | ||
(% of capital stock) | (% of capital stock) | (%) | ||
90 |
10 | 10.00 | ||
80 |
20 | 20.00 | ||
70 |
30 | 30.00 | ||
60 |
40 | 40.00 | ||
59 |
41 | 39.33 | ||
50 |
50 | 33.33 | ||
40 |
60 | 26.67 | ||
30 |
70 | 20.00 | ||
20 |
80 | 13.33 | ||
10 |
90 | 6.67 |
(1) | Number of votes calculated based on two-thirds of the Brazilian shareholders’ votes. |
The tables below illustrate, in different situations, the voting system that will apply at our shareholders’ meetings.
Example 1
All Brazilian shareholders hold less than 5% and non-Brazilian shareholders hold a total of 40%, but without any individual holdings higher than 5%. This example shows a situation where the general restriction for non-Brazilian shareholders does not affect the voting ratio.
Shareholder |
% Shares Attending |
Effective % of Votes After 5% Vote Restriction |
Effective % of Votes After Non- Brazilian Restriction |
% of Valid Votes |
Vote Ratio (Votes/ Share) |
|||||||||||||||
Brazilian A |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian B |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian C |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian D |
5 | 5 | 5 | 5 | 1.00 |
113
Shareholder |
% Shares Attending |
Effective % of Votes After 5% Vote Restriction |
Effective % of Votes After Non- Brazilian Restriction |
% of Valid Votes |
Vote Ratio (Votes/ Share) |
|||||||||||||||
Brazilian E |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian F |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian G |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian H |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian I |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian J |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian K |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Brazilian L |
5 | 5 | 5 | 5 | 1.00 | |||||||||||||||
Total Brazilians |
60 | 60 | 60 | 60 | 1.00 | |||||||||||||||
Non-Brazilians(1) |
40 | 40 | 40 | 40 | (2) | 1.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
100 | 100 | 100 | 100 | 1.00 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Assumes that no individual non-Brazilian shareholder holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, this shareholder will also be subject to the 5% voting restriction on such holding. |
(2) | Two-thirds of 60 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 40 votes. |
Example 2
One Brazilian shareholder holds more than 5% of our capital, the other Brazilian shareholders hold 5% and non-Brazilian shareholders hold a total of 50%, but without any individual holdings higher than 5%.
Shareholder |
% Shares Attending |
Effective % of Votes After 5% Vote Restriction |
Effective % of Votes After Non- Brazilian Restriction |
% of Valid Votes |
Vote Ratio (Votes/ Share) |
|||||||||||||||
Brazilian A |
20 | 5 | 5.0 | 8.57 | 0.25 | |||||||||||||||
Brazilian B |
5 | 5 | 5.0 | 8.57 | 1.00 | |||||||||||||||
Brazilian C |
5 | 5 | 5.0 | 8.57 | 1.00 | |||||||||||||||
Brazilian D |
5 | 5 | 5.0 | 8.57 | 1.00 | |||||||||||||||
Brazilian E |
5 | 5 | 5.0 | 8.57 | 1.00 | |||||||||||||||
Brazilian F |
5 | 5 | 5.0 | 8.57 | 1.00 | |||||||||||||||
Brazilian G |
5 | 5 | 5.0 | 8.57 | 1.00 | |||||||||||||||
Total Brazilians |
50 | 35 | 35.0 | 59.99 | 1.00 | |||||||||||||||
Non-Brazilians(1) |
50 | 50 | 23.3 | (2) | 40.00 | 0.47 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
100 | 85 | 58.3 | (2) | 100.00 | 0.58 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Assumes that no individual non-Brazilian shareholder holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, this shareholder will also be subject to the 5% voting restriction on the holding. |
(2) | Two-thirds of 35 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 23 votes. |
Example 3
No Brazilian shareholders hold more than 5% of our capital, a non-Brazilian shareholder holds 30% and other non-Brazilian shareholders hold a total of 40%, but without any individual holdings higher than 5%.
Shareholder |
% Shares Attending |
Effective % of Votes After 5% Vote Restriction |
Effective % of Votes After Non- Brazilian Restriction |
% of Valid Votes |
Vote Ratio (Votes/ Share) |
|||||||||||||||
Brazilian A |
5 | 5 | 5.0 | 10.0 | 1.00 | |||||||||||||||
Brazilian B |
5 | 5 | 5.0 | 10.0 | 1.00 | |||||||||||||||
Brazilian C |
5 | 5 | 5.0 | 10.0 | 1.00 | |||||||||||||||
Brazilian D |
5 | 5 | 5.0 | 10.0 | 1.00 | |||||||||||||||
Brazilian E |
5 | 5 | 5.0 | 10.0 | 1.00 |
114
Shareholder |
% Shares Attending |
Effective % of Votes After 5% Vote Restriction |
Effective % of Votes After Non- Brazilian Restriction |
% of Valid Votes |
Vote Ratio (Votes/ Share) |
|||||||||||||||
Brazilian F |
5 | 5 | 5.0 | 10.0 | 1.00 | |||||||||||||||
Total Brazilians |
30 | 30 | 30.0 | 60.0 | 1.00 | |||||||||||||||
Non-Brazilians A |
30 | 5 | 2.2 | (2) | 4.4 | 0.07 | ||||||||||||||
Non-Brazilians(1) |
40 | 40 | 17.8 | (2) | 35.6 | 0.44 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
100 | 75 | 50.0 | 100.0 | 0.50 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Assumes that no individual non-Brazilian shareholder (except Non-Brazilian A) holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, this shareholder will also be subject to the 5% voting restriction on the holding. |
(2) | Two-thirds of 30 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 20 votes, proportionally divided between Non-Brazilian A and the other non-Brazilians. |
Example 4
Two Brazilian shareholders holding more than 5% of our capital, three Brazilian shareholders holding 5% and non-Brazilian shareholders holding a total of 30%, but without individual holdings higher than 5%.
Shareholder |
% hares Attending |
Effective % of Votes After 5% Vote Restriction |
Effective % of Votes After Non- Brazilian Restriction |
% of Valid Votes |
Vote Ratio (Votes/ Share) |
|||||||||||||||
Brazilian A |
30 | 5 | 5.0 | 12 | 0.17 | |||||||||||||||
Brazilian B |
25 | 5 | 5.0 | 12 | 0.20 | |||||||||||||||
Brazilian C |
5 | 5 | 5.0 | 12 | 1.00 | |||||||||||||||
Brazilian D |
5 | 5 | 5.0 | 12 | 1.00 | |||||||||||||||
Brazilian E |
5 | 5 | 5.0 | 12 | 1.00 | |||||||||||||||
Total Brazilians |
70 | 25 | 25.0 | 60 | 1.00 | |||||||||||||||
Non-Brazilians(1) |
30 | 30 | 16.7 | (2) | 40 | 0.56 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
100 | 55 | 41.7 | 100 | 0.42 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Assumes that no individual non-Brazilian shareholder (except Non-Brazilian A) holds more than 5% of our capital. If a non-Brazilian shareholder holds more than 5% of our capital, this shareholder will also be subject to the 5% voting restriction on the holding. |
(2) | Two-thirds of 25 (total votes of the Brazilian shareholders after application of the 5% voting restriction) equals 16.7 votes. |
Shareholders’ Agreement
Our bylaws limit any shareholder or group of shareholders from exercising voting control over us.
Golden Share
The golden share is held by the Federative Republic of Brazil. The golden share is entitled to the same voting rights as the holders of common shares. In addition, the golden share entitles the holder thereof to veto rights over the following corporate actions:
• | change of our name and corporate purpose; |
• | modification and/or application of our logo; |
• | creation and/or alteration of military programs (whether or not involving Brazil); |
• | development of third-party skills in technology for military programs; |
115
• | discontinuance of the supply of spare parts and replacement parts for military aircraft; |
• | transfer of our control; |
• | any amendments to the list of corporate actions over which the golden share carries veto rights, including the right of the Brazilian government to appoint one acting member to our board of directors and the right of our employees to appoint two acting members to our board of directors and to the rights conferred to the golden share; and |
• | changes to certain provisions of our bylaws pertaining to voting restrictions, rights of the golden share and the mandatory tender offer requirements applicable to holders of 35% or more of our outstanding shares. |
The matters listed above are subject to prior approval by our board of directors, followed by prior notices to the Brazilian government and to the Brazilian Ministry of Finance. Within 30 days from the notice, the Brazilian government, as holder of the golden share, may exercise its veto rights. After such period or the pronouncement from the Brazilian government, the board of directors shall meet. In case of rejection of the Brazilian government, the board of directors shall reconsider the previous resolution. In case of approval or in the absence of a response from the Brazilian government within the 30-day period, the previous resolution will be ratified and will be deemed to have been approved by our board of directors. In certain cases, pursuant to our bylaws or applicable law, the matter must be subject to approval at a shareholders’ meeting, and the Brazilian government shall also be entitled to exercise its veto rights related to that matter.
Disclosure of Significant Interest
Brazilian Requirements
Brazilian law provides that all shareholders or groups of shareholders will be required to disclose, through notice to us and to the stock exchanges on which our securities are traded, the negotiation of securities that results in the shareholder surpassing or falling below the thresholds of 5%, 10%, 15%, and so on, of participation in a certain class or type of share representative of a company’s capital stock. In addition, our bylaws provide that all shareholders or groups of shareholders will be required to disclose, through notice to us and to the stock exchanges on which our securities are traded, the acquisition of shares that, together with those already held by them, exceed 5% of our capital stock. A violation of these disclosure obligations could result in the suspension of rights, including voting rights, by a resolution of shareholders at a shareholders’ meeting.
Certain U.S. Legal Requirements
In addition, the U.S. Exchange Act imposes reporting requirements on shareholders or groups of shareholders who acquire beneficial ownership (as this term is defined under Rule 13d-3 of the U.S. Exchange Act) of more than 5% of our common shares. In general, shareholders must file, within ten days after the acquisition, a report of beneficial ownership with the SEC containing the information prescribed by the regulations under the U.S. Exchange Act. This information is also required to be sent to us and to each U.S. securities exchange on which our common shares are traded. Shareholders should consult with their own legal advisor regarding their reporting obligations under the U.S. Exchange Act.
Form and Transfer
As our shares are in registered book-entry form, the transfer of shares is governed by the rules of Article 35 of the Brazilian Corporate Law. This Article provides that a transfer of shares is effected by an entry made by Banco Itaú S.A., also known as the registrar, in its books, by debiting the share account of the transferor and crediting the share account of the transferee. Banco Itaú S.A. also performs all the services of safe-keeping and transfer of shares and related services for us.
116
Transfers of shares by a non-Brazilian shareholder are made in the same way and entered into by that shareholder’s local agent on the shareholder’s behalf except that if the original investment was registered with the Brazilian Central Bank pursuant to Resolution No. 4,373, the foreign investor must also seek amendment, if necessary, through its local agent, of the electronic registration to reflect the new ownership.
The B3 operates as a central clearing system. A holder of our shares may choose, in its discretion, to participate in this system and all shares elected to be put into this system will be deposited in the custody of the B3 (through a Brazilian institution duly authorized to operate by the Brazilian Central Bank and having a clearing account with the B3). The fact that those shares are held in the custody of the B3 will be reflected in our register of shareholders. Each participating shareholder will, in turn, be registered in our register of beneficial shareholders maintained by the B3 and will be treated in the same way as registered shareholders.
Board of Directors
According to the Brazilian Corporate Law, our officers and directors are prohibited from voting on, or acting in, matters in which their interests conflict with ours.
Our bylaws provide that the shareholders are responsible for determining the global remuneration of the members of our management bodies. Our board of directors is responsible for dividing the remuneration among the members of management. There are no specific provisions regarding the directors’ power to vote on their compensation in the absence of an independent quorum.
With respect to the borrowing powers of the board of directors, the board of directors has the power to authorize the borrowing of funds, either in the form of bonds, notes, commercial paper or other instruments of regular use in the market. Other financing arrangements, including bank loans, may be entered into by us upon the joint signatures of (i) two executive officers, (ii) one officer and one attorney-in-fact or (iii) two attorneys-in-fact.
There is no requirement under the Brazilian Corporate Law or our bylaws that directors retire upon reaching a certain age. In addition, our bylaws do not provide for the re-election of directors at staggered intervals.
For additional information on our board of directors, see “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Board of Directors” and “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
Election of Board of Directors
The election of members of our board of directors, absent a request to adopt a cumulative voting system, will be conducted under a system of slate voting whereby voting will be based on a slate of directors and no voting will be allowed on individual candidates. Our board of directors is appointed by our shareholders for a two-year term and three reserved seats as follows: (i) one acting member (and his or her alternate) to be appointed by the Brazilian government, as holder of the “golden share” and (ii) two acting members (and his or her alternate) to be appointed by our employees (one board member and his or her alternate will be appointed by the Employee Investment Club of the Company (CIEMB - Clube de Investimentos dos Empregados da Embraer), and one Board member and his or her alternate will be appointed by the non-shareholder employees of the Company). The remaining eight acting directors are elected in accordance with the slate voting or cumulative voting rules contained in our bylaws. A candidate may participate in two or more different slates. Each shareholder may only vote on one slate and the slate that receives the highest number of votes shall be declared elected.
Any shareholder or group of shareholders has a right to propose and submit a slate of members for election to the board of directors different than the slate provided according to our bylaws (i.e., proposed by the board of directors). The same shareholder or group of shareholders may not submit more than one slate. Our bylaws also contain a provision whereby a shareholder that intends to appoint an alternative slate must
117
send written notice at least ten days prior to the general meeting at which the members of the board of directors will be elected, providing us with the name and other particulars and professional resume of the candidates. In case we receive this notice, we must publish a press release to our shareholders, which also must be available on our website within at least eight days before the date of the general meeting, informing shareholders how to obtain a copy of the proposed slate.
Alternatively, the election of members of the board of directors may be conducted under a system of cumulative voting. According to the regulations of the CVM and to our bylaws, adoption of a resolution for cumulative voting depends on a written request by shareholders representing at least 5% of our capital stock, submitted at least 48 hours in advance of the time for which the general shareholders’ meeting has been called, including through a remote voting mechanism. Under the cumulative voting system, each share is entitled to the same number of votes as the number of board members to be elected (subject to the restriction on shareholders holding greater than 5% of the common shares and restrictions on non-Brazilian shareholders as per our by-laws), and each shareholder is entitled to concentrate votes in just one candidate or to distribute the votes among more than one or all of the candidates. Any vacant offices not filled due to a tie in the voting will be subject to a new vote, under the same process.
Preemptive Rights
Each of our shareholders has a general preemptive right to subscribe for shares in the event of any capital increase, or securities convertible into shares, in proportion to its shareholding, except in the event of the grant and exercise of any option to acquire shares of our capital stock. A period of at least 30 days following the publication of notice of the issuance of shares or securities convertible into shares is allowed for exercise of the right, and the right is negotiable. According to the Brazilian Corporate Law and our bylaws, the board of directors may, in its discretion, eliminate the preemptive rights of the shareholders in the event that we issue shares, debentures convertible into shares, or subscription warrants that will be offered either through a stock exchange or in a public offering, or through an exchange of shares in a public offering, the purpose of which is to acquire control of another company, as established by law.
In the event of a capital increase by means of the issuance of new shares, holders of ADSs, or of common shares, would, except under the circumstances described above, have preemptive rights to subscribe to any class of our newly issued shares. However, a holder may not be able to exercise the preemptive rights relating to the common shares underlying the ADSs unless a registration statement under the Securities Act is effective with respect to those shares to which the rights relate or an exemption from the registration requirements of the Securities Act is available. For additional information on the risks related to our preemptive rights, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Common Shares and ADSs—Holders of our ADSs might be unable to exercise preemptive rights with respect to the common shares.
Redemption and Right of Withdrawal
The Brazilian Corporate Law provides that, under limited circumstances, a shareholder has the right to withdraw from the company and to receive payment for his shares. This right of withdrawal may be exercised by dissenting shareholders if at least half of voting shares outstanding authorize us to:
• | reduce the mandatory distribution of dividends; |
• | change our corporate purpose; |
• | merge into or consolidate with another company, subject to the conditions set forth in the Brazilian Corporate Law; |
• | transfer all of our shares to another company or receive shares of another company in order to make the company whose shares were transferred a wholly owned subsidiary of the other company, known as a merger of shares (incorporação de ações); |
118
• | acquire control of another company at a price which exceeds the limits set forth in the Brazilian Corporate Law; |
• | participate in a centralized group of companies as defined under the Brazilian Corporate Law and subject to the conditions set forth therein; or |
• | conduct a spin-off that results in (i) a change of our corporate purposes, except if the assets and liabilities of the spun-off company are contributed to a company that is engaged in substantially the same activities, (ii) a reduction in the mandatory dividend or (iii) any participation in a centralized group of companies, as defined under the Brazilian Corporate Law. |
In addition, if the entity resulting from a merger, merger of shares (incorporação de ações), as described above, or a consolidation or a spin-off of a listed company fails to become a listed company within 120 days of the shareholders’ meeting at which this decision was taken, the dissenting shareholders may also exercise their right of withdrawal.
The dissenting shareholders may exercise the right of withdrawal only in relation to the shares held on the date that is the earliest between the date of the publication of the first call notice for the shareholders’ meeting that approved the resolution giving rise to the right of withdrawal, or on the date of publication of the material fact in relation to such resolution.
The Brazilian Corporate Law contains provisions that restrict withdrawal rights and allow companies to redeem their shares at their economic value, subject to certain requirements. As our bylaws currently do not provide that our shares would be redeemable at their economic value, our shares would be redeemable at their book value, determined on the basis of the last statement of financial position approved by the shareholders. If the shareholders’ meeting giving rise to withdrawal rights occurs more than 60 days after the date of the last approved statement of financial position, a shareholder may demand that its shares be valued on the basis of a new statement of financial position that is as of a date within 60 days of such shareholders’ meeting.
According to the Brazilian Corporate Law, in events of consolidation, merger, merger of shares (incorporação de ações), participation in a group of companies, and acquisition of control of another company, the right to withdraw does not apply if the shares in question meet certain tests relating to market liquidity and float. Shareholders would not be entitled to withdraw their shares if the shares are a component of a general stock index and shares held by persons unaffiliated with the controlling shareholder represent more than half of the outstanding shares of the relevant type or class. According to CVM Resolution No.78, the applicable general stock index is the Bovespa index, or Ibovespa, of which we are a component.
Mechanism to Promote Dispersed Ownership of Our Shares
Our bylaws contain provisions that have the effect of avoiding concentration of our shares in the hands of an investor or a small group of investors in order to promote more dispersed ownership of our shares. To this end, these provisions place certain obligations on a shareholder or group of shareholders that becomes a holder of 35% or more of our total capital stock, or an Acquiring Shareholder. Not later than 15 days after a shareholder becomes an Acquiring Shareholder, this shareholder must submit a request to the Brazilian government, through the Ministry of Finance, to make a public tender offer to acquire all of our capital stock. The Brazilian government will have full discretion to accept or deny this request. The Acquiring Shareholder may not purchase any additional shares until the Brazilian government provides its opinion on the public offer. If the request is accepted by the Brazilian government, the Acquiring Shareholder must make a public offer for all shares within 60 days of acceptance. The offer must be made in accordance with the CVM and the B3 regulations and the provisions of our bylaws. If the request is denied by the Brazilian government, the Acquiring Shareholder must sell all shares the Acquiring Shareholder owns in excess of 35% of our total capital stock within 30 days. Failure to comply with these provisions will subject the Acquiring Shareholder to the potential suspension of all voting rights inherent to the shares the Acquiring Shareholder holds, if a resolution to this effect is approved at a general meeting of our shareholders called by our management. These provisions are not applicable to shareholders who become holders of 35% or more of our total capital stock in certain transactions specified in our bylaws as, for example, cancellation of our common shares held in treasury.
119
The public tender offer must be (i) directed to all of our shareholders, (ii) made through an auction to take place on the B3, (iii) launched at a set price calculated in accordance with the procedure set forth below, (iv) paid upfront, in reais, (v) made so as to assure equal treatment to all shareholders, (vi) irrevocable and not subject to any changes after publication of the bidding offer and (vii) based on a valuation report to be prepared in accordance with the rules set forth in our bylaws and in applicable CVM rules and regulations.
The price to be offered for the shares in the public tender offer will be calculated as follows:
• | Tender Offer Price = Value of the Share + Premium, |
where:
• | “Tender Offer Price” corresponds to the acquisition price for each share issued by us in the public offering of shares provided hereunder. |
• | “Value of the Share” corresponds to the greater of: |
(i) | the highest unit quotation obtained for the shares issued by us during the 12-month period prior to the tender offer among values recorded on any stock exchange on which the shares were traded; |
(ii) | the highest price paid by the Acquiring Shareholder, during the 36-month period prior to the tender offer, for a share or tranche of shares issued by us; |
(iii) | the amount equivalent to 14.5 times our Consolidated Average EBITDA, as defined below, reduced by our net consolidated indebtedness, divided by the total number of shares issued by us; or |
(iv) | the amount equivalent to 0.6 times the amount of our firm backlog orders, according to the last information disclosed by the latter, reduced by our net consolidated indebtedness, divided by the total number of shares issued by us. |
• | “Premium” corresponds to 50% of the Value of the Share. |
• | “Consolidated EBITDA” is our consolidated operating profit before net financial expenses, income tax and social contribution, depreciation, depletion and amortization, as assessed based on the audited statements for our most recent complete fiscal year. |
• | “Average Consolidated EBITDA” is the arithmetic average of our consolidated EBITDA for the two most recent complete fiscal years. |
The launch of a public tender offer does not preclude us or any of our shareholders from launching a competing public tender offer, in accordance with applicable regulations.
Arbitration
Any disputes or controversies relating to the Novo Mercado rules, our bylaws, the Brazilian Corporate Law, the rules published by the CMN, the Brazilian Central Bank, the CVM, and other rules applicable to the Brazilian capital markets in general, must be submitted to arbitration conducted in accordance with the rules of the B3 Arbitration Chamber (“Rules”).
120
According to item 1.4 of the Rules, unless otherwise agreed by the Parties, the parties should be bound by the Rules in force on the date of the request for arbitration. Any shareholder that becomes a holder of shares representing our control agrees to comply with the rules of the B3 Arbitration Chamber. These provisions will not apply, however, in the event of a dispute or controversy related to our golden share which shall be subject to the jurisdiction of the central courts of Brasília, Federal District of Brazil.
Going Private Process
If our shareholders determine to take us private and at that time we are controlled by a shareholder, or a group of shareholders, the controlling shareholder or group of shareholders is responsible for conducting a public tender offer for the acquisition of our shares. If our shareholders determine to take us private and at that time we are subject to widespread control, we must conduct the public tender offer, within the limits imposed by applicable law. In this case, we may only purchase shares from shareholders that have voted in favor of our Company becoming a private company after purchasing all shares from the other shareholders that did not vote in favor of the “going private” decision and that have accepted the public tender offer.
Thus, we may become a private company only if we or our controlling shareholders, as the case may be, conduct a public tender offer to acquire all of our outstanding shares (taking into account, for this purpose, the shares held by the shareholders that expressly agree with the ‘going private’ decision or sign up for the public tender offer), subject to prior approval of the public tender offer by the Brazilian government, as holder of the golden share, and in accordance with Brazilian Corporate Law, the CVM regulations and the Novo Mercado rules, as applicable.
The public tender offer must be made at a fair price based on a valuation report of the Company, which means that the offer for the purchase of the totality of shares must be equivalent to at least the value of the Company as appraised. According to our bylaws, the price per share shall be equivalent to, at least, the economic value of those shares as determined in a valuation report prepared by a specialized and independent company of recognized experience, which will be chosen at a shareholders’ meeting from a list of three institutions presented by our board of directors, by an absolute majority of the votes of the shareholders of our outstanding shares present at the meeting (excluding, for this purpose, the shares held by any controlling shareholder or group of shareholders at the time, if any, his/her partners and dependents as described in his/her income tax statement, if the controlling shareholder is an individual; treasury shares; shares held by our affiliates and by other companies that are a part of our economic group, as well as blank votes). All the expenses and costs incurred in connection with the preparation of the valuation report must be borne by the offeror.
Shareholders holding at least 10% of our outstanding shares (taking into account, for this purpose, all the Company’s shares, except for the shares held by the controlling shareholder; shares held by our affiliates and by other companies that are a part of our economic group; shares held by our officers and directors; and treasury shares) may require our management to call a special shareholders’ meeting to determine whether to perform another valuation using the same or a different valuation method. This request must be made within 15 days following the disclosure of the price to be paid for the shares in the public tender offer. The shareholders who make the request, as well as those who vote in its favor, must reimburse us for any costs involved in preparing the new valuation, if the new valuation price is not higher than the original valuation price. If the new valuation price is higher than the original valuation price, the public tender offer must be made at the higher price.
Delisting from the Novo Mercado
Our delisting from the Novo Mercado, either by voluntary or compulsory action or by virtue of corporate restructuring, shall observe the Novo Mercado rules. At any time, we may delist our shares from the Novo Mercado, provided that a public tender offer for the acquisition of our outstanding shares is carried out.
If we are controlled by a shareholder, or a group of shareholders, at the time of our delisting from the Novo Mercado, either for our shares to be traded outside the Novo Mercado or as a result of a corporate reorganization, the controlling shareholder or group of shareholders is responsible for conducting the public tender offer for the acquisition of our shares. If we are subject to widespread control at the time of our delisting from the Novo Mercado, either for our shares to be traded outside the Novo Mercado or as a result of a corporate reorganization, the shareholders present at the meeting may determine the persons responsible for carrying out the tender offer or decide to waive the tender offer.
121
If the public tender offer is carried out, our delisting in conditioned to shareholders representing more than 1/3 (one third) of our outstanding shares having (i) expressly agreed with the delisting decision or (ii) accepted the public tender offer (taking into account, for this purpose, the shares held by the shareholders that expressly agree with the delisting decision or sign up for the public tender offer). The decision of the shareholders must specify if the delisting will occur because the securities will no longer be traded on the Novo Mercado, or because we are going private. Our delisting from the Novo Mercado will not result in the loss of our registration as a publicly held company on the Brasil, Bolsa, Balcão, or B3.
According to our bylaws, the price per share for the public tender offer shall be equivalent to, at least, the economic value of those shares as determined in a valuation report prepared by a specialized and independent company of recognized experience, which will be chosen at a shareholders’ meeting from a list of three institutions presented by our board of directors, by an absolute majority of the votes of the shareholders of our outstanding shares present at the meeting (excluding, for this purpose, the shares held by any controlling shareholder or group of shareholders at the time, if any, his/her partners and dependents as described in his/her income tax statement, if the controlling shareholder is an individual; treasury shares; shares held by our affiliates and by other companies that are a part of our economic group, as well as blank votes). In addition, the Novo Mercado rules establish that the offer for the purchase of the totality of shares must be equivalent to at least the fair value of the Company as appraised. All the expenses and costs incurred in connection with the preparation of the valuation report must be paid by the offeror.
A voluntary delisting from the Novo Mercado may occur regardless of the completion of the tender offer mentioned above in the event of a waiver approved at a general shareholders’ meeting, which must observe the rules and conditions of the Novo Mercado Rules.
Pursuant to our bylaws, we may also be delisted if the São Paulo Stock Exchange decides to suspend trading of our shares on the Novo Mercado due to our non-compliance with the Novo Mercado rules. In this case, the chairman of the board of directors must call a shareholders’ meeting, within two days of the determination by the São Paulo Stock Exchange, in order to replace all members of our board of directors. If the chairman of the board of directors does not call the shareholders’ meeting, any shareholder may do so. The new board of directors will be responsible for the compliance with the requirements that resulted in the delisting.
Additionally, if we are delisted from the Novo Mercado (1) because a decision taken at a general shareholders’ meeting resulted in non-compliance with the Novo Mercado rules, the public tender offer must be conducted by the shareholders that voted in favor of the decision, or (2) as a result of our non-compliance with the Novo Mercado rules resulting from acts of our management, we must conduct the public tender offer in order to become a private company, within the limits imposed by law, if the Company is not controlled by a controlling shareholder or group of shareholders. Otherwise, the controlling shareholder or group of shareholders is responsible for conducting a public tender offer for the acquisition of the shares.
According to the Novo Mercado rules, in the event of a transfer of our shareholding control within 12 months following our delisting from the Novo Mercado, the selling controlling shareholders and the acquirer must offer to acquire the remaining shares for the same price and terms offered to the selling controlling shareholders, adjusted for inflation, or the surplus, if there is any, between the price per share offered at the public tender offer, adjusted for inflation, and the price per share received by the selling controlling shareholders due to the transfer of control.
Sarbanes Oxley Act of 2002
We maintain controls and procedures designed to ensure that we are able to collect the information required to disclose in the report we file with the SEC, and to process, summarize and disclose the information within the periods specified in the rules of the SEC. We have filed the relevant officer certifications under Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal controls over financial reporting as Exhibits 12.1 and 12.2 to this annual report.
122
C. Material Contracts
Not applicable.
D. Exchange Controls
There are no restrictions on ownership of our common shares by individuals or legal entities domiciled or headquartered outside Brazil. However, the registration of this investment with the Brazilian Central Bank is required and the right to convert dividend payments and proceeds from the sale of common shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation.
Pursuant to Brazilian law, investors may invest in common shares under Resolution No. 4,373, of September 29, 2014, issued by the CMN, governmental authority responsible for formulating the Brazilian monetary and credit policies. The rules of Resolution No. 4,373 allow foreign investors to invest in almost all financial assets and to engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled. In accordance with Resolution No. 4,373, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities domiciled or headquartered abroad.
Pursuant to the Resolution No. 4,373, foreign investors must: (i) appoint at least one representative in Brazil with powers to perform actions related to the foreign investment; (ii) provide all required information that shall be sent by the representative to the CVM through the CVM’s website; (iii) be registered as a foreign investor with the CVM and the Brazilian tax authorities; and (iv) register the foreign investment with the Brazilian Central Bank.
Securities and other financial assets held by foreign investors pursuant to Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM. In addition, securities trading for these investors is restricted to transactions carried out in the stock exchanges or organized over-the-counter markets licensed by the CVM.
Under Resolution No. 4,373, foreign investors registered with the CVM may buy and sell securities on Brazilian stock exchanges or organized over-the-counter markets without obtaining a separate certificate of registration for each transaction. Investors under these regulations are also generally entitled to favorable tax treatment.
Annex II to Resolution No. 4,373 provides for the issuance of depositary receipts in foreign markets in respect of Brazilian issuers’ securities.
In connection with equity offerings of our common shares, an electronic registration was issued in the name of the depositary with respect to the ADSs and is maintained by the custodian on behalf of the depositary. This electronic registration was carried out through the Brazilian Central Bank Information System. Pursuant to the registration, the custodian and the depositary are able to convert dividends and other distributions with respect to the common shares represented by ADSs into foreign currency and remit the proceeds outside Brazil, to the holder of ADSs. In the event that a holder of ADSs exchanges the ADSs for common shares, the custodian must update the registry of the investment with the Brazilian Central Bank within five business days after the exchange. In order to receive the common shares, the investor must have a registration with the Brazilian Central Bank and the CVM pursuant to Resolution 4,373. Until this registration has been obtained, the holder will not be able to receive the common shares.
123
In addition, if the foreign investor resides in a “tax haven” jurisdiction or is not an investor registered under Resolution No. 4,373, the investor will be subject to less favorable Brazilian tax treatment than a holder of ADSs.
For additional information on Brazilian taxes, see “Item 3. Key Information—D. Risk Factors—Risks Relating to our Common Shares and ADSs—If holders of our ADSs exchange the ADSs for common shares, they risk losing the ability to remit foreign currency abroad and Brazilian tax advantages” and “Item 10. Additional Information—E. Taxation—Material Brazilian Tax Consequences.”
E. Taxation
The following discussion, subject to the limitations set forth below, summarizes certain Brazilian and United States tax considerations relating to the ownership of our common shares or ADSs. This discussion does not purport to be a complete analysis of all tax considerations in those countries and does not address tax treatment of shareholders under the laws of other countries. Shareholders that are resident in countries other than Brazil and the United States, along with shareholders that are resident in those two countries, are urged to consult with their own tax advisors as to which countries’ tax laws could be relevant to them. This summary is based upon the tax laws of Brazil and the United States as in effect on the date of this annual report, which are subject to change, possibly with retroactive effect, and to differing interpretations. Any change in the law may change the consequences described below.
Although there presently is no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may result in this treaty. No assurance can be given, however, as to if or when a treaty will enter into force or how it will affect the U.S. holders of common shares or ADSs.
Material Brazilian Tax Consequences
General. The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of common shares or ADSs, as the case may be, by a holder that is not considered domiciled in Brazil, or a Non-Brazilian Holder, for purposes of Brazilian taxation.
This discussion is not a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase our common shares or ADSs and is not applicable to all categories of investors, some of which may be subject to special rules, and does not specifically address all of the Brazilian federal income tax considerations applicable to any particular holder. It is based on the tax laws of Brazil in effect on the date of this report, which are subject to change, possibly with retroactive effect, and to differing interpretations. Each prospective purchaser is urged to consult his own tax advisor about the particular Brazilian tax consequences of an investment in our common shares or ADSs.
Taxation of Dividends. Dividends, including stock dividends and other dividends paid in kind, paid by us to the depositary in respect of the ADSs, or to a Non-Brazilian Holder in respect of the common shares, are currently not subject to withholding tax, provided that they are paid out of profits generated as of January 1, 1996. There are some proposed bills under discussion in the Brazilian Congress which, if enacted, would revoke this exemption. Furthermore, the taxation of dividends has also been mentioned multiples times by the government and law makers as one of the items in the Brazilian tax reform agenda (and was included in the Federal Government’s proposition of the Income Tax Reform). Should any of these bills be passed by Congress and sanctioned by the president of Brazil, all dividends paid from Brazil would be subject to withholding tax in Brazil upon payment to Non-Brazilian Holders.
Taxation of Gains. According to Law No. 10,833, enacted on December 29, 2003, capital gains realized on the sale or disposition of assets located in Brazil by a Non-Brazilian Holder, regardless of whether the sale or the disposition is made to another non-Brazilian resident or to a Brazilian resident, is subject to taxation in Brazil. Accordingly, on the disposition of the common shares, which are considered assets located in Brazil, the Non-Brazilian Holder will be subject to income tax on the gains assessed, following the rules
124
described below, regardless of whether the transactions are conducted in Brazil or abroad and with a Brazilian resident or not. Regarding the ADSs, although the matter is not free from doubt, arguably the gains realized by a Non-Brazilian Holder on the disposition of ADSs should not be taxed in Brazil, based on the argument that ADSs would not constitute assets located in Brazil for purposes of Law No. 10,833, 2003. However, we cannot assure you about how Brazilian tax authorities and courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Brazilian Holder on the disposition of ADSs. Thus, the gain on a disposition of ADSs by a Non-Brazilian Holder may be subject to income tax in Brazil according to the rules described below for ADSs or those applicable to the disposition of common shares, when applicable. It is important to clarify that, for purposes of Brazilian taxation, the income tax rules on gains related to disposition of common shares or ADSs can vary depending on the domicile of the Non-Brazilian Holder, the form by which the Non-Brazilian holder has registered its investment with the Central Bank and/or how the disposition is carried out, as described below.
The deposit of common shares in exchange for ADSs may be subject to Brazilian income tax on capital gains at rates ranging from 15% to 22.5%, (or 25% in case of a Non-Brazilian Holder located in a Low or Nil Tax Jurisdiction as defined below), if the acquisition cost of the common shares is lower than (i) the average price per common share on a Brazilian stock exchange on which the greatest number of these shares were sold on the day of deposit or (ii) if no common shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of common shares were sold in the 15 trading sessions immediately preceding such deposit. In this case, the positive difference between the average price of the common shares, calculated as above, and the corresponding acquisition cost, may be considered a capital gain. In some circumstances, there may be arguments to support that such tax treatment is not applicable in case of Non-Brazilian Holders registered under Resolution No. 4,373/14 from the Brazilian Central Bank, or the 4,373 Holder, that are not resident in a Low or Nil Tax Jurisdiction (as defined below). Prospective holders of common shares should consult their own tax advisors as to the tax consequences of the deposit in exchange for ADSs. The withdrawal of ADSs in exchange for common shares should not be considered as giving rise to a capital gain subject to Brazilian income tax, as far as the regulatory rules in respect to the registration of the investment before the Central Bank are duly observed.
Gains assessed on the disposition of common shares carried out on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:
• | exempt from income tax when assessed by a Non-Brazilian Holder that (i) is a 4,373 Holder and (ii) is not resident in a Low or Nil Tax Jurisdiction (as defined below); or |
• | subject to income tax at a rate of up to 25% in any other case, including the gains assessed by a Non-Brazilian Holder that (i) is not a 4,373 Holder and/or or (ii) is a 4,373 Holder resident in a Low or Nil Tax Jurisdiction (as defined below). In these cases, a withholding income tax of 0.005% of the sale value shall be applicable and can be later offset with the eventual income tax due on the capital gain. Day trade transactions are subject to the rate of 1%. |
Any other gains assessed on a disposition of the common shares that is not carried out on Brazilian stock exchanges are subject to income tax at rates of up to 22.5%, except for a resident of a Low or Nil Tax Jurisdiction (as defined below) which, in this case, is subject to income tax at a rate of 25%. In case the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% on the sale value shall also be applicable and can be offset with the eventual income tax due on the capital gain. In the case of a redemption of common shares or ADSs or a capital reduction by a Brazilian corporation, the positive difference between the amount effectively received by the Non-Brazilian Holder and the proportional acquisition cost of the common shares or ADSs redeemed is treated as capital gain derived from sale or exchange of common shares not carried out in a Brazilian stock exchange market and is therefore subject to income tax at rates of up to 25%, as the case may be. As a general rule, the gains realized as a result of a disposition transaction of common shares or ADSs are determined by the difference between the amount realized on the sale or exchange of the shares or ADSs and their acquisition cost.
125
There can be no assurance that the current preferential tax treatment for Non-Brazilian Holders of ADSs and 4,373 Holder of common shares will continue.
Any exercise of preemptive rights relating to the common shares or ADSs will not be subject to Brazilian income tax. Any gain on the sale or assignment of preemptive rights relating to our common shares or the ADSs by a Non-Brazilian Holder of common shares will be subject to Brazilian income taxation according to the same rules applicable to the sale or disposition of these shares.
Taxation on Interest on Shareholders’ Equity. For additional information on taxation on interest on shareholders’ equity, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividends and Dividend Policy—History of Dividend and Interest on Shareholders’ Equity Payments and Dividend Policy.”
In accordance with Law No. 9,249, dated December 26, 1995, as amended, Brazilian corporations may make payments to shareholders characterized as distributions of interest on the company’s shareholders’ equity on top of or as an alternative to making dividend distributions. This interest is calculated by multiplying the TJLP as determined by the Central Bank from time to time by the sum of determined Brazilian company’s net equity accounts. Interest on Shareholders’ Equity are deductible for purposes of calculating the Brazilian corporate income tax and social contribution on net profits, as long as the following limits are observed:
• | 50% of net profits (after the social contribution on net profits but before taking such distribution and the provision for corporate income tax into account) related to the period for which the payment is made; and |
• | 50% of the sum of retained profits and profit reserves as of the date of the beginning of the period for which the payment is made. |
The Brazilian Corporate Law establishes that interest attributed to shareholders’ equity in respect of the common shares paid to shareholders who are Non-Brazilian holders, including Non-Brazilian holders of ADSs, are subject to Brazilian withholding income tax at the rate of 15%, (or 25% in case of a resident of a Low or Nil Tax Jurisdiction, as defined below). The distribution of interest on shareholders’ equity may be determined by our board of directors. We cannot assure you that our board of directors will not determine that future distributions of profits may be made by means of interest on shareholders’ equity instead of by means of dividends.
The amounts paid as distribution of interest on shareholders’ equity to a Non-Resident Holder located in a country that has a tax treaty with Brazil may be classified as (i) interest, (ii) dividends or (iii) other revenues. The classification will depend on the actual wording of the treaty. There are some proposed bills under discussion in the Brazilian Congress which, if enacted, would revoke the possibility of the company paying interest on shareholders’ equity. Furthermore, revoking the deductibility of the interest on shareholder’s equity has also been mentioned multiples times by the government and law makers as one of the items in the Brazilian tax reform agenda (and was included in the Federal Government’s proposition of the Income Tax Reform).
Low or Nil Taxation Jurisdictions. On June 4, 2010, Brazilian tax authorities enacted Normative Ruling No. 1,037 listing (i) the countries and jurisdictions considered as Low or Nil Taxation Jurisdiction or where the local legislation does not allow access to information related to the shareholding composition of legal entities, to their ownership or to the identity of the effective beneficiary of the income attributed to non-residents (Tax Favorable Jurisdictions) and (ii) the privileged tax regimes, or PTR, which definition is provided by Law No. 9,430, of 27 December, 1996. Brazilian tax authorities periodically update the list of countries/jurisdictions and regimes that shall be treated as Tax Favorable Jurisdiction and PTR.
The concept of PTR, encompasses structures that: (i) are not liable to tax on income or tax it at a maximum rate lower than 20%; (ii) grant tax benefits to non-residents (1) with no requirement to carry out substantial economic activity within the territory or (2) on the condition that they do not carry out substantial economic activity within the territory; (iii) do not tax income from outside its territory, or taxes it at less than 20%; or (iv) do not disclose certain information on the ownership and beneficial ownership of assets or on transactions within its territory, or imposes restrictions on disclosure of that information
126
On November 28, 2014 the Brazilian Revenue Service issued Rule 488 reducing the concept of Tax Favorable Jurisdictions and of PTR to those that tax the income below the rate of 17% (the previous concept adopted a 20% maximum rate for that purpose).
We believe that the best interpretation of the current tax legislation leads to the conclusion that the above-mentioned PTR concept should apply solely for purposes of Brazilian transfer pricing and thin capitalization rules. Currently, the understanding of the Brazilian tax authorities is in the sense that payment of interest to beneficiaries resident in PTRs is not subject to the same treatment applicable to beneficiaries in Tax Favorable Jurisdictions (Answer to Advance Tax Ruling Request COSIT n. 575, of December 20, 2017). Nevertheless, we cannot assure you that subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of a PTR provided by Law No. 9,430, of December 27, 1996 altered by Law No. 11,727 will also apply to a Non-Brazilian Holder on payments of interest on shareholders’ equity. Notwithstanding the above, we recommend that you consult your own tax advisors regarding the consequences of the implementation of Law No. 11,727, Normative Ruling No. 1,037 and Rule 488.
Taxation on Foreign Exchange Transactions, or IOF/Exchange. Pursuant to Decree No. 6,306/07, the conversion into foreign currency or the conversion into Brazilian currency of the proceeds received or remitted by a Brazilian entity from a foreign investment in the Brazilian securities market, including those in connection with the investment by a Non-Brazilian Holder in the common shares and ADSs may be subject to the IOF/Exchange. Currently applicable rate for most foreign currency exchange transactions is 0.38%.
However, currency exchange transactions carried out for the in-flow of resources into Brazil by a 4,373 Holder are subject to IOF/Exchange at (i) 0% rate in case of variable income transactions carried out on the Brazilian stock, futures and commodities exchanges, as well as in the acquisitions of shares of Brazilian publicly held companies in public offerings or subscription of shares related to capital contributions, provided that the issuer company has registered its shares for trading in the stock exchange, and (ii) 0% for the outflow of resources from Brazil related to these type of investments, including payments of dividends and interest on shareholders’ equity and the repatriation of funds invested in the Brazilian market. Furthermore, the IOF/Exchange is currently levied at a 0% rate on the withdrawal of ADSs into shares.
In any case, the Brazilian government may increase the rate at any time, up to 25.0%. However, any increase in rates may only apply to future transactions.
Tax on Transactions Involving Bonds and Securities, or IOF/Bonds. Pursuant to Decree 6,306/07 the IOF/Bonds may be imposed on any transactions involving bonds and securities, even if the transactions are carried out on a Brazilian stock exchange. The rate of IOF/Bonds applicable to transactions involving common shares and ADS is currently zero. In particular, the IOF/Bond also levies at a zero percent rate on the transfer of shares traded on the Brazilian stock exchange with the purpose of the issuance of depositary receipts to be traded outside Brazil. The Brazilian government may increase the rate of the IOF/Bonds at any time by up to 1.5% per day of the transaction amount, but only in respect of future transactions.
Other Brazilian Taxes. There are no Brazilian federal inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares or ADSs by a Non-Brazilian Holder. Gift and inheritance taxes, however, may be levied by some states of Brazil on gifts made or inheritances bestowed by Non-Brazilian Holders to individuals or entities resident or domiciled within those states in Brazil. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common shares or ADSs.
Brazilian Tax Reform. In addition to the potential effects already mentioned above about the taxation of dividends and revocation of the interest on shareholder’s equity, the Brazilian Government and Congress have been discussing several different bills and proposed amendments to the Federal Constitution in the context of the Brazilian tax reform. Some of these proposals may significantly change the Brazilian tax system and affect the way we calculate our direct and indirect taxes. At this point we cannot assure if, when and how any of these changes will be implemented and which effects it could have in our operations.
127
Material U.S. Federal Income Tax Consequences
The following discussion, subject to the limitations and conditions set forth herein, summarizes certain U.S. federal income tax consequences of the purchase, ownership and disposition of Embraer common shares and ADSs. This discussion only applies to beneficial owners of Embraer common shares or ADSs that are “U.S. Holders” (as defined below) that hold common shares or ADSs of Embraer as capital assets (generally for investment purposes). This discussion does not address all aspects of U.S. federal income taxation that may be applicable to a U.S. Holder, including, gift, estate, alternative minimum and Medicare contribution tax consequences, or the tax consequences to U.S. Holders subject to special treatment under U.S. federal income tax law, including:
• | partnerships and other entities classified as partnerships for U.S. federal income tax purposes; |
• | tax-exempt entities; |
• | dealers and traders in securities or foreign currencies; |
• | insurance companies; |
• | certain financial institutions; |
• | persons who own Embraer common shares or ADSs as part of an integrated investment, including a straddle, hedging or conversion transaction, comprising the Embraer common shares or ADSs and one or more other positions for tax purposes; |
• | U.S. Holders whose functional currency is not the U.S. dollar for U.S. federal income tax purposes; |
• | persons who actually or constructively own 10% or more of Embraer’s total combined vote or value of its outstanding common shares or ADSs; |
• | persons subject to special tax accounting rules under Section 451(b) of the Code; |
• | persons who acquired Embraer common shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation; and |
• | persons holding Embraer common shares or ADSs in connection with a trade or business conducted outside the United States. |
In addition, there is no discussion herein of state, local, or non-U.S. tax considerations of the purchase, ownership and disposition of Embraer common shares or ADSs. The discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, or Code, its legislative history, existing final, temporary, and proposed U.S. Treasury regulations, rulings and other pronouncements of the U.S. Internal Revenue Service, or IRS, and judicial decisions as of the date of this annual report. Such authorities may be repealed, revoked or modified (with possible retroactive effect) so as to result in U.S. federal income tax consequences different from those discussed below.
This discussion is also based in part on the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
Shareholders are urged to consult their own independent tax advisors concerning the U.S. federal income tax consequences of the ownership of Embraer common shares and ADSs in light of their particular situations, as well as any consequences arising under the laws of any other taxing jurisdiction.
128
As used herein, the term “U.S. Holder” means a beneficial owner of Embraer common shares or ADSs representing Embraer common shares for U.S. federal income tax purposes that is (i) an individual who is a citizen or resident of the United States, (ii) a corporation, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust (1) that is subject to the supervision of a court within the United States and the control of one or more U.S. persons as described in Section 7701(a)(30) of the Code or (2) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. Except where specifically described below, this discussion assumes that we are not a controlled foreign corporation or a passive foreign investment company, or PFIC, in either case, for U.S. federal income tax purposes.
If a partnership (or an entity treated as a partnership for U.S. federal income tax purposes) holds Embraer common shares or ADSs, the tax treatment of such partnership and each partner will generally depend upon the status of the partner in such partnership and upon the activities of the partnership. Partnerships that hold Embraer common shares or ADSs, and partners of a partnership holding such common shares or ADSs, are urged to consult their own tax advisors regarding the consequences of the purchase, ownership and disposition of Embraer common shares or ADSs.
In general, for U.S. federal income tax purposes, a U.S. Holder who is a beneficial owner of an ADS will be treated as the owner of the underlying Embraer common shares that are represented by such ADS.
Distributions on Embraer Common Shares or ADSs
For U.S. federal income tax purposes, the gross amount of any distributions (including distributions of notional interest charges attributed to shareholders’ equity) paid to U.S. Holders of Embraer common shares or ADSs (including Brazilian withholding taxes imposed on such distributions) will be treated as a dividend, to the extent paid out of current or accumulated earnings and profits of Embraer as determined under U.S. federal income tax principles. Such a dividend will be includable in the gross income of a U.S. Holder as ordinary income on the date received or accrued by the U.S. Holder. To the extent that the amount of any distribution exceeds Embraer’s current and accumulated earnings and profits for a taxable year (as determined under U.S. federal income tax principles), the distribution will first be treated as a tax-free return of capital to the extent of a U.S. Holder’s adjusted tax basis in the Embraer common shares or ADSs, and thereafter as capital gain. We do not expect to maintain calculations of earnings and profits in accordance with U.S. federal income tax principles, and unless and until such calculations are made, U.S. Holders should assume that a distribution is paid out of earnings and profits and will be treated as a dividend for U.S. federal income tax purposes.
Dividends paid by Embraer will not be eligible for the dividends-received deduction allowed to certain domestic corporations under the Code.
The amount of any cash distribution paid in reais will be included in a U.S. Holder’s gross income in an amount equal to the U.S. dollar value of the reais calculated by reference to the exchange rate in effect on the date the dividend is received or accrued by the U.S. Holder, in the case of Embraer common shares, and by the depositary, in the case of ADSs, regardless of whether the reais are converted into U.S. dollars. If the reais received as a dividend are not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the reais equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the reais will be treated as U.S. source ordinary income or loss for U.S. federal income tax purposes.
Dividends received with respect to the Embraer common shares or ADSs will be treated as foreign source income for U.S. federal income tax purposes, and will be “passive category income” for purposes of calculating foreign tax credits in most cases, subject to various limitations. U.S. regulations have imposed additional requirements that must be met for a foreign tax to be creditable (including requirements that a “covered withholding tax” be imposed on nonresidents in lieu of a generally applicable tax that satisfies the regulatory definition of an “income tax”, which may be unclear or difficult to determine). U.S. Holders may instead claim a deduction in respect of such Brazilian income taxes, provided that, if such withholding tax is a
129
“covered withholding tax”, the U.S. Holder elects to deduct (rather than credit) all foreign taxes paid or accrued for the taxable year. The rules relating to computing foreign tax credits or deducting foreign income taxes are extremely complex, and U.S. Holders are urged to consult their own independent tax advisors regarding the availability of foreign tax credits with respect to any Brazilian withholding taxes in regards of dividends paid on Embraer’s common shares or ADSs.
Subject to certain exceptions for short-term and hedged positions, the amount of dividends received by certain non-corporate U.S. holders (including individuals) with respect to the Embraer common shares or ADSs may be eligible for a reduced rate of taxation if the dividends represent “qualified dividend income.” Dividends paid on the Embraer common shares or ADSs will be treated as qualified dividend income if (i) the Embraer common shares or ADSs are readily tradable on an established securities market in the United States, (ii) the U.S. Holder meets the holding period requirement for the common shares or ADSs (generally more than 60 days during the 121-day period that begins 60 days before the ex-dividend date) and (iii) Embraer was not in the year prior to the year in which the dividend was paid (with respect to a U.S. Holder that held Embraer common shares or ADSs), and is not in the year in which the dividend is paid, a PFIC. Under guidance issued by the IRS, the ADSs of Embraer should qualify as readily tradable on an established securities market in the United States so long as they are listed on the NYSE. In the case of Embraer common shares held directly by U.S. Holders and not through an ADS, it is not clear whether dividends paid with respect to such shares will represent “qualified dividend income.” U.S. Holders holding Embraer common shares directly and not through an ADS are urged to consult their own independent tax advisors.
Based on its audited financial statements as well as relevant market and shareholder data, Embraer believes that it was not a PFIC for U.S. federal income tax purposes with respect to its 2022 taxable year. However, Embraer cannot assure you that it was not a PFIC with respect to its 2022 taxable year or that it is not or will not become a PFIC in 2023 or future years. See “—Passive Foreign Investment Company Rules.”
Sale, Exchange or Other Taxable Disposition of Embraer Common Shares or ADSs
A U.S. Holder will recognize a taxable gain or loss on any sale, exchange or other taxable disposition of Embraer common shares or ADSs in an amount equal to the difference between the amount realized on the sale, exchange or other taxable disposition and the U.S. Holder’s adjusted tax basis (determined in U.S. dollars) in the Embraer common shares or ADSs. Such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if the Embraer common shares or ADSs have a holding period of more than one year. Certain non-corporate U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. The deductibility of capital losses is subject to limitations under the Code.
Any gain or loss recognized by a U.S. Holder from the sale, exchange or taxable disposition of Embraer common shares or ADSs generally will be gain or loss from U.S. sources for U.S. foreign tax credit purposes. Consequently, if a Brazilian withholding tax or capital gains tax is imposed pursuant to a sale of Embraer common shares or ADSs, even if the Brazilian tax is otherwise a creditable tax, U.S. Holders who do not have sufficient foreign source income still might not be able to derive effective U.S. foreign tax credit benefit in respect of such Brazilian withholding tax or capital gains tax. The rules relating to foreign tax credits, including the amount of foreign income taxes that may be claimed as a credit in any given year, are extremely complex and subject to limitations. U.S. Holders are urged to consult their own independent tax advisor regarding the application of the foreign tax credit rules to their particular circumstances.
Deposits and withdrawals of Embraer common shares in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.
Passive Foreign Investment Company Rules
If, during any taxable year of a non-U.S. corporation, 75% or more of the corporation’s gross income consists of certain types of “passive” income, or the average value during a taxable year of the “passive assets” of the corporation (generally, assets that generate or are held to generate passive income) is 50% or more of the average value of all the corporation’s assets, the corporation will be treated as a PFIC under
130
U.S. federal income tax law. For this purpose, passive income generally includes, among other things, dividends, interest, rents, royalties and gains from the disposition of investment assets, subject to various exceptions. If the non-U.S. corporation owns at least 25% (by value) of the stock of another corporation, it will be treated, for purposes of the PFIC tests, as owning its proportionate share of the other corporation’s gross assets and receiving its proportionate share of the other corporation’s gross income. However, if the non-U.S. corporation owns less than 25% (by value) of the stock of another corporation, that stock may be treated as a passive asset.
If a corporation is treated as a PFIC, a U.S. Holder may be subject to increased tax liability upon the sale of its stock, or upon the receipt of certain dividends, unless such U.S. Holder makes an election to be taxed currently on its pro rata portion of the corporation’s income, whether or not such income is distributed in the form of dividends, or otherwise makes a “mark-to-market” election with respect to the corporation’s stock as permitted by the Code. Currently, a U.S. Holder who owns common shares or ADSs in any year that Embraer is a PFIC in excess of certain de minimis amounts and fails to qualify for certain other exemptions would be required to file IRS Form 8621 to report such holdings. In addition, as discussed above, a U.S. Holder would not be entitled to (if otherwise eligible for) the preferential reduced rate of tax payable on certain dividend income.
As stated above, although no assurances can be given, based on Embraer’s operations, projections and business plans and the other items discussed above, Embraer does not believe that it was a PFIC for 2022 or in prior years. Although Embraer is not aware that it will be a PFIC in 2023 or future years, this will depend on the nature, amount and value of Embraer’s operations, activities, assets and income as of the relevant time of determination. Accordingly, there can be no assurance that Embraer is not a PFIC or will not become a PFIC for 2023 or a future year.
U.S. Holders are urged to consult their own independent tax advisors regarding the potential application of the PFIC rules and related reporting requirements to the common shares or ADSs and the availability and advisability of making an election to avoid the adverse tax consequences of the PFIC rules should Embraer be considered a PFIC for any taxable year.
U.S. Tax Reform – Tax Cuts and Jobs Act of 2017 (TCJA) and U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the economic fallout of the COVID-19 pandemic. The CARES Act includes several provisions that affect Embraer. The act provided for an employee retention credit to assist with employers keeping employees on payroll even if they cannot physically report to work under the COVID-19 restrictions. The Act also included a five-year net operating loss carryback provision which enables companies to benefit from certain losses and re-measure certain deferred tax assets and liabilities at the former federal tax rate of 35%. In addition, the CARES Act provided a delay in making required payroll tax deposits, as well as extension and first quarter estimated tax payments. The purpose of this delay was to assist companies with cash flow issues. The provisions of the CARES Act did not have a significant impact on Embraer for the years ended December 31, 2022 and 2021.
The TCJA amended the Code section 174, requiring expenses which are categorized as research and experimental (R&E) to be capitalized for tax purposes. The new measure became effective as of January 1, 2022. Capitalized assets are then amortized over five years (or 15 years for expenditure attributable to foreign research). The impact of this change in 2022 was capitalization of US$99.7 million of expenses and amortization deduction of US$3.8 million. This legislation is currently under consideration, and congress could provide temporary Section 174 relief as of the Build Block Better Bill.
Information Reporting and Backup Withholding
In general, payments of dividends on Embraer common shares or ADSs, and payments of the proceeds of the sale, exchange or other taxable disposition of Embraer common shares or ADSs, paid within the United States or through certain U.S.-related financial intermediaries to a U.S. Holder are subject to
131
information reporting and may be subject to backup withholding at a current maximum rate of 24% unless the U.S. Holder (i) is a corporation or other exempt recipient or (ii) in the case of backup withholding, provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is timely provided to the IRS. A U.S. Holder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed its U.S. federal income tax liability by filing a timely refund claim with the IRS.
In addition, certain U.S. Holders are required to report to the IRS information relating to an interest in the common shares or ADSs, subject to exceptions (including an exception for common shares or ADSs held in accounts maintained by certain financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax returns for each year in which they held an interest in the common shares or ADSs. U.S. Holders are urged to consult their own tax advisors regarding the effect, if any, of this information reporting requirement on their acquisition, ownership and disposition of the common shares or ADSs.
Corporate Alternative Minimum Tax (CAMT)
The Inflation Reduction Act of 2022 created the CAMT. This imposes a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning in 2023. Based on our latest financial information, we believe that we should not be affected by the CAMT with respect to our 2022 taxable year. Although we are not aware that we will be affected by the CAMT with respect to 2022 or future years, this will depend on the relevant financial information at the time of determination. Accordingly, there can be no assurance that we will not be affected by the CAMT for 2023 or a future year.
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC. You may inspect and obtain copies, at prescribed rates, of reports and other information filed by us with the SEC at its Public Reference Room maintained at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. You may also inspect and copy this material at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
We file our annual report on Form 20-F, including our financial statements, and other reports, including our reports on Form 6-K, electronically with the SEC. These filings are available at www.sec.gov. We also file financial statements and other periodic reports electronically with the CVM at its website, www.cvm.gov.br. Copies of our annual reports on Form 20-F and documents referred to in this annual report and our bylaws will be available for inspection upon request at our principal executive office, located at Avenida das Nações Unidas, 8501, 30th floor, Eldorado Business Tower, 05425-070, Pinheiros, São Paulo, SP, Brazil.
I. Subsidiary Information
Not required.
132
J. Annual Report to Security Holders
Not applicable.
Item 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to various market risks, primarily related to potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We have established policies and procedures to manage sensitivity to interest rate and foreign currency exchange rate risk. These procedures include the monitoring of our levels of exposure to each market risk, including an analysis based on forecast of future cash flows, the funding of variable rate assets with variable rate liabilities, and limiting the amount of fixed rate assets which may be funded with floating rate liabilities. We may also use derivative financial instruments to mitigate the effects of interest rate fluctuations and to reduce our exposure to exchange rate risk. The following sections address the significant market risks associated with our financial activities.
Interest Rate Risk
Our exposure to market risk for interest rate fluctuations principally relates to changes in the market interest rates of our U.S. dollar-denominated and real-denominated monetary assets and liabilities, principally our short- and long-term debt obligations. Increases and decreases in prevailing interest rates generally translate into increases and decreases in interest expense. Additionally, the fair values of interest rate-sensitive instruments are also affected by general market conditions.
Our short- and long-term debt obligations totaled US$3.2 billion as of December 31, 2022 and were denominated in U.S. dollars, Brazilian reais and Euros. Of the total amount of debt denominated in U.S. dollars (i.e., US$3.1 billion), US$2.7 billion was subject to fixed rates. The remaining floating rate U.S. dollar-denominated debt, or US$483.9 million, which corresponds to 15.1% of our debt denominated in U.S. dollars, was indexed to LIBOR or SIFMA. We will have to transition away from LIBOR as a benchmark to our debt in 2023, since the banks’ obligations to report information used to set LIBOR will cease by then. While we are taking actions together with the counterparty financial institutions to mitigate potential impacts due to the reform and discontinuation of LIBOR, we not expect material impacts nor expect an impact on existing hedge agreements.
Of our US$10.3 million Brazilian real-denominated debt as of December 31, 2022, US$3.9 million bears interest at a variable rate based on the TJLP, IPCA and CDI, and US$6.4 million bears interest at a fixed rate. Of our US$31.3 million euro-denominated debt as of December 31, 2022, US$4.4 million bears interest at a variable rate based on EURIBOR, and US$26.9 million bears interest at a fixed rate.
The table below provides information about our short-term debt obligations as of December 31, 2022, which are sensitive to changes in interest rates and foreign currency exchange rates.
Weighted Average Interest Rate 2022(1) |
Total Amount Outstanding |
Total Fair Value |
||||||||||
(%) | (in US$ millions) | |||||||||||
Short-Term Debt |
||||||||||||
U.S. dollars (Fixed indexed) |
5.8 | % | 252.7 | 256.2 | ||||||||
U.S. dollars (Floating indexed) |
5.2 | % | 21.0 | 36.3 | ||||||||
Euros (Fixed rate) |
3.0 | % | 26.9 | 24.9 | ||||||||
Euros (Floating indexed) |
1.3 | % | 1.4 | 1.4 | ||||||||
Reais (Fixed rate) |
3.5 | % | 6.4 | 6.3 | ||||||||
Reais (Floating indexed) |
16.6 | % | 0.1 | 0.3 | ||||||||
|
|
|
|
|||||||||
Total short-term debt |
308.5 | 325.4 | ||||||||||
|
|
|
|
(1) | The interest rate refers exclusively to the weighted average of our indebtedness (short-term and long-term). It does not represent the indexed rates as of December 31, 2022. |
133
The table below provides information about our long-term debt obligations as of December 31, 2022, which are sensitive to changes in interest rates and foreign currency exchange rates:
Weighted Average Interest Rate 2022(1) |
Total Amount Outstanding |
2024 | 2025 | 2026 | 2027 | 2028 and thereafter |
Total Fair value |
|||||||||||||||||||||||||
(%) | (in US$ millions) | |||||||||||||||||||||||||||||||
Long-Term Debt |
||||||||||||||||||||||||||||||||
U.S. dollars (Fixed rate) |
5.7 | % | 2,487.9 | 9.5 | 958.8 | — | 728.6 | 791.0 | 2,431.5 | |||||||||||||||||||||||
U.S. dollars (Floating indexed) |
3.5 | % | 400.0 | 300.0 | — | — | 100.0 | 355.1 | ||||||||||||||||||||||||
Euros (Floating indexed) |
1.3 | % | 3.0 | — | — | 3.0 | — | — | 2.5 | |||||||||||||||||||||||
Reais (Floating indexed) |
16.6 | % | 3.8 | — | — | 3.8 | — | — | 3.0 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total long-term debt |
2,894.7 | 309.5 | 958.8 | 6.8 | 828.6 | 791.0 | 2,792.1 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The interest rate refers exclusively to the weighted average of our indebtedness (short-term and long-term). It does not represent the indexed rates as of December 31, 2022. |
The table below provides information about our short-term debt obligations as of December 31, 2022, after taking into account the effects of the aforementioned derivative transactions:
Weighted Average Interest Rate 2022(1) |
Total Amount Outstanding |
Total Fair Value |
||||||||||
(%) | (in US$ millions) | |||||||||||
Short-Term Debt |
||||||||||||
U.S. dollars (Fixed rate) |
5.8 | % | 252.7 | 256.2 | ||||||||
U.S. dollars (Floating indexed) |
5.2 | % | 21 | 36.3 | ||||||||
Euros (Fixed rate) |
3.0 | % | 26.9 | 24.9 | ||||||||
Euros (Floating indexed) |
1.3 | % | 1.4 | 1.4 | ||||||||
Reais (Fixed rate) |
3.5 | % | 6.4 | 6.3 | ||||||||
Reais (Floating indexed) |
16.6 | % | 0.1 | 0.3 | ||||||||
|
|
|
|
|||||||||
Total short-term debt |
308.5 | 325.4 | ||||||||||
|
|
|
|
(1) | The interest rate refers exclusively to the weighted average of our indebtedness (short-term and long-term). It does not represent the indexed rates as of December 31, 2022. |
The table below provides information about our long-term debt obligations as of December 31, 2022, after taking into account the effects of the aforementioned derivative transactions:
Weighted Average Interest Rate 20221) |
Total Amount Outstanding |
2024 | 2025 | 2026 | 2027 | 2028 and There- after |
Total Fair value |
|||||||||||||||||||||||||
(%) | (in US$ millions) | |||||||||||||||||||||||||||||||
Long-Term Debt |
||||||||||||||||||||||||||||||||
U.S. dollars (Fixed rate) |
5.7 | % | 2,487.9 | 9.5 | 958.8 | — | 728.6 | 791.0 | 2,431.5 | |||||||||||||||||||||||
U.S. dollars (Floating indexed) |
3.5 | % | 400.0 | 300.0 | — | — | 100.0 | — | 355.1 | |||||||||||||||||||||||
1.3%3.0-3.0-2.5Euros (Floating indexed) |
1.3 | % | 3.0 | — | — | 3.0 | — | — | 2.5 | |||||||||||||||||||||||
Reais (Floating indexed) |
16.6 | % | 3.8 | — | — | 3.8 | — | — | 3.0 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total long-term debt |
2,894.7 | 309.5 | 958.8 | 6.8 | 828.6 | 791.0 | 2,792.1 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The interest rate refers exclusively to the weighted average of our indebtedness (short-term and long-term). It does not represent the indexed rates as of December 31, 2022. |
For further information, see Note 25.3.4(a) to our 2022 audited consolidated financial statements included elsewhere in this annual report.
134
Foreign Exchange Rate Risk
In managing our foreign currency risk, we focus on balancing our non-U.S. dollar-denominated assets against our non—U.S. dollar-denominated liabilities plus shareholders’ equity in relation to our forecasts of future cash flows. Beyond the foreign currency exposure related to our debt obligations as summarized above, we also have other assets and liabilities denominated in currencies other than the U.S. dollar. These monetary assets and liabilities are primarily cash and cash equivalents, financial assets, accounts receivable and payable, deferred income taxes, dividends and certain other assets and liabilities and are primarily denominated in Brazilian reais. The effects on these assets and liabilities of the appreciation or devaluation of other foreign currencies against the U.S. dollar result in foreign exchange gains (losses) recognized as interest income (expense), net. The translation gains and losses arising from the remeasurement of our financial statements to U.S. dollars are recognized on our statement of income as foreign exchange gain (loss), net.
Our cash flow exposure comes as a result of the fact that 7.6% of our revenues and 11.1% of our total costs are denominated in reais. Having more real denominated costs than revenues generates the exposure. For additional information on our hedges and derivate instruments, see Note 8 to our 2022 audited consolidated financial statements.
The table below provides information about our assets and liabilities exposed to foreign currency risk as of December 31, 2022, as well as the derivative transactions outstanding at the same date:
Financial instruments indexed to currencies other than the U.S. dollar Outstanding Amount by Year of Maturity |
||||||||||||||||||||||||||||
Total Outstanding Amount |
2023 | 2024 | 2025 | 2026 | There- after |
Total Fair Value |
||||||||||||||||||||||
(in US$ millions) | ||||||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||||||
Cash and cash equivalents and financial investments |
||||||||||||||||||||||||||||
In Reais |
131.3 | 131.3 | — | — | — | — | 131,3 | |||||||||||||||||||||
In Euro |
62.0 | 62.0 | — | — | — | — | 62.0 | |||||||||||||||||||||
In other currencies |
4.1 | 4.1 | — | — | — | — | 4.1 | |||||||||||||||||||||
Trade accounts receivable |
||||||||||||||||||||||||||||
In Reais |
96.9 | 96.9 | — | — | — | — | 96.9 | |||||||||||||||||||||
In Euro |
25.4 | 25.4 | — | — | — | — | 25.4 | |||||||||||||||||||||
In other currencies |
0.4 | 0.4 | — | — | — | — | 0.4 | |||||||||||||||||||||
Other assets |
||||||||||||||||||||||||||||
In Reais |
278.1 | 179.6 | 98.5 | — | — | — | 278.1 | |||||||||||||||||||||
In Euro |
34.4 | 33.3 | 1.1 | — | — | — | 34.4 | |||||||||||||||||||||
In other currencies |
0.7 | 0.7 | — | — | — | — | 0.7 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets in Reais |
506.3 | 407.8 | 98.5 | — | — | — | 506.3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets in Euro |
121.8 | 120.7 | 1.1 | — | — | — | 121.8 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets in other currencies |
5.2 | 5.2 | — | — | — | — | 5.2 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
LIABILITIES |
||||||||||||||||||||||||||||
Loans |
||||||||||||||||||||||||||||
In Reais |
10.2 | 6.4 | — | — | 3.8 | — | 10.2 | |||||||||||||||||||||
In Euro |
31.1 | 28.1 | 1.4 | 1.4 | 0.2 | — | 31.1 | |||||||||||||||||||||
Accounts payable to suppliers |
||||||||||||||||||||||||||||
In Reais |
89.9 | 89.9 | — | — | — | — | 89.9 | |||||||||||||||||||||
In Euro |
44.9 | 44.9 | — | — | — | — | 44.9 | |||||||||||||||||||||
In other currencies |
2.4 | 2.4 | — | — | — | — | 2.4 | |||||||||||||||||||||
Customer advances |
||||||||||||||||||||||||||||
In Reais |
760.5 | 620.9 | 139.6 | — | — | — | 760.5 | |||||||||||||||||||||
In Euro |
51.2 | 51.2 | — | — | — | — | 51.2 | |||||||||||||||||||||
In other currencies |
1.5 | 1.5 | — | — | — | — | 1.5 | |||||||||||||||||||||
Other accounts payable & accrued liabilities |
||||||||||||||||||||||||||||
In Reais |
430.2 | 268.7 | 161.5 | — | — | — | 430.2 | |||||||||||||||||||||
In Euro |
39.9 | 37.9 | 2.0 | — | — | — | 39.9 | |||||||||||||||||||||
In other currencies |
3.4 | 3.1 | 0.3 | — | — | — | 3.4 |
135
Financial instruments indexed to currencies other than the U.S. dollar Outstanding Amount by Year of Maturity |
||||||||||||||||||||||||||||
Total Outstanding Amount |
2023 | 2024 | 2025 | 2026 | There- after |
Total Fair Value |
||||||||||||||||||||||
(in US$ millions) | ||||||||||||||||||||||||||||
Taxes and payroll charges payable |
||||||||||||||||||||||||||||
In Reais |
55.2 | 38.1 | 17.1 | — | — | — | 55.2 | |||||||||||||||||||||
In Euro |
6.2 | 6.2 | — | — | — | — | 6.2 | |||||||||||||||||||||
Accrued taxes on income |
||||||||||||||||||||||||||||
In Reais |
5.7 | 5.7 | — | — | — | — | 5.7 | |||||||||||||||||||||
In Euro |
0.9 | 0.9 | — | — | — | — | 0.9 | |||||||||||||||||||||
In other currencies |
4.0 | 4.0 | — | — | — | — | 4.0 | |||||||||||||||||||||
Contingencies |
||||||||||||||||||||||||||||
In Reais |
52.0 | 14.1 | 5.9 | 5.9 | 5.9 | 20.2 | 52.0 | |||||||||||||||||||||
In Euro |
1.9 | 0.7 | 0.2 | 0.2 | 0.2 | 0.6 | 1.9 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities in Reais |
1,403.7 | 1,043.8 | 324.1 | 5.9 | 9.7 | 20.2 | 1,403.7 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities in Euro |
176.1 | 169.9 | 3.6 | 1.6 | 0.4 | 0.6 | 176.1 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total liabilities in other currencies |
11.3 | 11.0 | 0.3 | — | — | — | 11.3 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total exposure in Reais |
(897.4 | ) | (636.0 | ) | (225.6 | ) | (5.9 | ) | (9.7 | ) | (20.2 | ) | (897.4 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total exposure in Euro |
(54.3 | ) | (49.2 | ) | (2.5 | ) | (1.6 | ) | (0.4 | ) | (0.6 | ) | (54.3 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total exposure in other currencies |
(6.1 | ) | (5.8 | ) | (0.3 | ) | — | — | — | (6.1 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For further information, see Note 25.3.4(b) to our 2022 audited consolidated financial statements included elsewhere in this annual report.
Credit Risk
We may incur losses if counterparties to our various contracts do not pay amounts that are owed to us. In that regard, our primary credit risk derives from the sales of aircraft, spare parts and related services to customers, including the financial obligations related to those sales in the cases where we provide guarantees for the benefit of the providers of finance to the aircraft purchases of our customers. We are also exposed to the credit risk of the counterparties to our financial instruments.
Financial instruments which may potentially subject us to credit risk concentration include (i) financial investments and other financial instruments, (ii) trade accounts receivable, (iii) customer commercial financing and (iv) advances to suppliers. We seek to limit our credit risk associated with cash and cash equivalents by placing the investments we make with those instruments with investment-grade ratings following the guidelines of our financial management policy. With respect to trade accounts receivable and customer commercial financing, we seek to limit our credit risk by performing ongoing credit evaluations. All these customers are currently meeting their commitments with us, are operating within the established credit limits that we assign to them and are considered by management to represent an acceptable credit risk level to us. Advances to suppliers are made only to select, long-standing suppliers. We analyze the financial condition of those suppliers on an ongoing basis with a view to limiting credit risk.
We may also have credit risk related to the sale of aircraft during the period in which their purchasers are finalizing the financing arrangements for their aircraft purchases from us. In order to try to minimize these risks, we continuously monitor customer credit analyses and work closely with financial institutions to facilitate customer aircraft financing.
For further information, see Note 25.3.2 to our 2022 audited consolidated financial statements included elsewhere in this annual report.
136
Item 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Depositary Fees and Charges
The depositary may charge, and collect from, (i) each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect to share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us, or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or the deposited securities, and (ii) each person surrendering ADSs for withdrawal of deposited securities or whose ADSs are canceled or reduced for any other reason, US$5.00 for each 100 ADSs (or portion thereof) issued, delivered, reduced, canceled or surrendered (as the case may be). The depositary may sell (by public or private sale) sufficient securities and property received in respect of share distributions, rights and other distributions prior to the deposit to pay the charge.
The following additional charges shall be incurred by ADS Holders, the beneficial owners of, or in, ADSs, by any party depositing or withdrawing shares or by any party surrendering ADSs, to whom ADSs are issued (including, without limitation, issuances pursuant to a stock dividend or stock split declared by us or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs pursuant to section 10 of the deposit agreement, whichever is applicable:
• | a fee of US$0.05 or less per ADS for any cash distribution made pursuant to the deposit agreement; |
• | a fee of US$1.50 per ADS or ADSs or transfers made pursuant to section 3 of the deposit agreement; |
• | a fee for the distribution or sale of securities pursuant to section 10 of the deposit agreement, this fee being in an amount equal to the fee for the execution and delivery of ADSs, referred to above which would have been charged as a result of the deposit of the securities (for purposes of section 7 of the deposit agreement treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to ADS holders entitled thereto; |
• | an aggregate fee of US$0.05 per ADS per calendar year (or portion thereof) for the services performed by the depositary in administering the ADSs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders as of the record date or record dates set by the depositary during each calendar year and shall be payable at the sole discretion of the depositary by billing such holders or by deducing such charge from one or more cash dividends or other cash distributions); and |
• | a fee for the reimbursement of those fees, charges and expenses as are incurred by the depositary and/or any of its agents (including, without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or other |
137
deposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable laws, rules or regulations (which fees and charges shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions), including, without limitation, any amounts charged by any governmental authorities or other institutions such as the Brazilian Clearing and Depository Corporation (Companhia Brasileira de Liquidação e Custódia) or the B3 S.A. – Brasil, Bolsa, Balcão, the stock exchange on which the shares are registered for trading. |
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary, except:
• | stock transfer or other taxes and other governmental charges (which are payable by holders or persons depositing shares); |
• | SWIFT, cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or holders delivering shares, ADSs or deposited securities (which are payable by such persons or holders); and |
• | transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities (which are payable by persons depositing shares or holders withdrawing deposited securities.; |
These charges may at any time and from time to time be changed by agreement between us and the depositary.
Depositary Payments for the Year December 31, 2022
According to our contractual arrangements with JPMorgan, in 2022, JPMorgan paid us a gross amount of US$1.2 million in connection with investor relations related expenses of Embraer incurred in 2022.
Part II
Item 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
No matters to report.
Item 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Material Modifications to the Rights of Security Holders
Not applicable.
Use of Proceeds
Not applicable.
138
Item 15. | CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required financial disclosure.
Under the supervision and with the participation of our management, including our principal executive officers and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2022. Based on this evaluation, our principal executive officers and principal financial officer have concluded, together with management, that our disclosure controls and procedures were not effective as of December 31, 2022, due to material weaknesses, as described below.
As discussed elsewhere in this Annual Report on Form 20-F, our subsidiary Eve Holding, Inc. (“Eve Holding”), formerly known as EVE UAM, LLC (“EVE”), completed a business combination on May 9, 2022 (“Business Combination”) with Zanite Acquisition Corporation (“Zanite”), a special purpose acquisition company (“SPAC”). The Business Combination was considered to be a significant unusual transaction. As disclosed in Eve Holding’s Form 10-Q/A filed on December 8, 2022, errors in the initial accounting for the Business Combination led to the restatement of Eve Holding’s interim financial statements of as of and for the three-month and six-month periods ended June 30, 2022.
At the Embraer level, while our management had performed an analysis of the accounting effects of the Business Combination, after engaging in consultation with external specialists, the aforementioned errors also led to related errors in our consolidated financial statements, which have been corrected by our management in our financial statements as of and for the year ended December 31, 2022.
Notwithstanding the material weaknesses in internal controls over financial reporting identified in our Management’s Annual Report on Internal Controls Over Financial Reporting (see “—Item 15. (b) Management’s Annual Report on Internal Controls Over Financial Reporting”), our management performed additional analysis as deemed necessary to ensure that our consolidated financial statements as of and for the year ended December 31, 2022 were prepared in accordance with IFRS. Accordingly, our management believes that the consolidated financial statements included in this annual report present fairly, in all material respects, our financial position, results of operations, and cash flows of the periods presented in accordance with IFRS.
(b) Management’s Annual Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with IFRS. Our internal controls over financial reporting include those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In this context, our management, with the participation of the chief executive officer and chief financial officer, under the oversight of our Audit Committee, assessed the effectiveness of our internal controls over financial reporting as of December 31, 2022 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of December 31, 2022, our internal controls over financial reporting were not effective due to the material weaknesses described below.
A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We did not have sufficient personnel with appropriate qualifications, experience and training related to certain complex accounting matters. As a result, there was ineffective risk assessment such that certain process-level controls were not designed, implemented or operated effectively related to the accounting for the Business Combination between Eve Holding and Zanite.
These deficiencies resulted in material misstatements in our consolidated financial statements during the year ended December 31, 2022, related to the Business Combination that have been corrected by our management. Because there is a reasonable possibility that a material misstatement in the consolidated financial statements may not be prevented or detected on a timely basis, management concluded these deficiencies represent material weaknesses in our internal controls over financial reporting.
(c) Report of the Independent Registered Public Accounting Firm on Internal Controls over Financial Reporting
Our independent registered public accounting firm, KPMG Auditores Independentes Ltda (“KPMG”), who audited the consolidated financial statements included in this Annual Report on Form 20-F, issued an audit report expressing an adverse opinion on the effectiveness of the Company’s internal controls over financial reporting as of December 31, 2022. KPMG’s report appears on page F-6 of this Annual Report on Form 20-F.
(d) Management’s Remediation Plan
In order to address the material weaknesses in internal controls over financial reporting described above, our management, under the oversight of our Audit Committee, is in the process of developing and implementing remediation plans to address the control deficiencies that led to these material weaknesses. We are committed to ensuring that our internal controls over financial reporting are effective. Our remediation plan includes:
• | Improvements in our policies and procedures with respect to significant unusual transactions; |
• | Engagement of external consultants to assist in the design, implementation, documentation, and recommendations of internal controls with respect to complex accounting matters concerning business combinations, restructuring or acquisitions, and other significant unusual transactions. |
• | Regular technical training for our employees, mainly those involved with the financial reporting process at the Embraer level in main subsidiaries, regarding accounting practices and standards; |
• | Enhancement of a global training program and communication plan for all Embraer group. |
Changes in Internal Controls over Financial Reporting
Except for the material weaknesses identified above, there was no change in our internal controls over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
139
Item 16. |
Reserved |
16A. |
AUDIT COMMITTEE FINANCIAL EXPERT |
16B. |
CODE OF ETHICS |
16C. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Principal accountant fees and services |
Year ended December 31, |
|||||||
2022 |
2021 |
|||||||
(in US$ thousands) |
||||||||
Audit Fees |
2,993.3 | 3,611.6 | ||||||
Audit-Related Fees |
449.2 | 1,528.1 | ||||||
Tax Fees |
102.6 | 40.3 | ||||||
All Other Fees |
1,280.1 | 40.4 | ||||||
Total |
4,825.2 |
5,220.4 |
||||||
16D. |
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
16E. |
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
16F. |
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
16G. |
CORPORATE GOVERNANCE |
16H. |
MINE SAFETY DISCLOSURE |
16I. |
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Part III
Item 17. | FINANCIAL STATEMENTS |
We have responded to Item 18 in lieu of responding to this item.
Item 18. | FINANCIAL STATEMENTS |
Our audited consolidated financial statements, together with the reports of the Independent Registered Public Accounting Firms thereon, are filed as part of this annual report and are located following the signature page hereof.
Item 19. | EXHIBITS |
145
Exhibit Number |
Description | |
101.CAL | XBRL Taxonomy Extension Scheme Calculation Linkbase.* | |
101.DEF | XBRL Taxonomy Extension Scheme Definition Linkbase.* | |
101.LAB | XBRL Taxonomy Extension Scheme Label Linkbase.* | |
101.PRE | XBRL Taxonomy Extension Scheme Presentation Linkbase.* |
* | Filed herewith. |
146
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
EMBRAER S.A. | ||
By: | /s/ FRANCISCO GOMES NETO | |
Name: | Francisco Gomes Neto | |
Title: | President and Chief Executive Officer | |
By: | /s/ ANTONIO CARLOS GARCIA | |
Name: | Antonio Carlos Garcia | |
Title: | Executive Vice President, Financial and Investor Relations |
Date: March 30, 2023
Page | ||
F-7 | ||
F-9 | ||
F-10 | ||
F-11 | ||
F-12 | ||
F-13 |
• | inspecting contracts signed between the Company and customers to evaluate the effects of the relevant contractual clauses |
• | analyzing underlying documentation for a sample of actual costs incurred to date |
• | performing a retrospective analysis comparing costs budgeted to be incurred up to December 31, 2022 with costs actually incurred through that date to assess the Company’s ability to accurately forecast. |
/s/ |
PricewaterhouseCoopers |
Auditores Independentes Ltda. |
São José dos Campos, Brazil |
March 31, 2022 |
ASSETS |
Note |
12.31.2022 |
12.31.2021 |
|||||||||
CURRENT |
||||||||||||
Cash and cash equivalents |
5 | |||||||||||
Financial investments |
6 | |||||||||||
Trade accounts receivable, net |
7 | |||||||||||
Derivative financial instruments |
8 | |||||||||||
Customer and commercial financing |
9 | |||||||||||
Contract assets |
29.b | |||||||||||
Inventories |
10 | |||||||||||
Income tax and social contribution |
||||||||||||
Other assets |
11 | |||||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
Assets held for sale |
15 | — | ||||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
NON-CURRENT |
||||||||||||
Financial investments |
6 | |||||||||||
Trade accounts receivable, net |
7 | — | ||||||||||
Derivative financial instruments |
8 | — | ||||||||||
Customer and commercial financing |
9 | |||||||||||
Contract assets |
29.b | — | ||||||||||
Deferred income tax and social contribution |
23.1 | |||||||||||
Other assets |
11 | |||||||||||
Investments |
||||||||||||
Property, plant and equipment, net |
14 | |||||||||||
Intangible assets, net |
16 | |||||||||||
Right of use |
||||||||||||
|
|
|
|
|||||||||
|
|
|
|
|||||||||
TOTAL ASSETS |
||||||||||||
|
|
|
|
LIABILITIES |
Note |
12.31.2022 |
12.31.2021 |
|||||||||
CURRENT |
||||||||||||
Trade accounts payable |
18 | |||||||||||
Trade accounts payable - Supplier finance |
19 | |||||||||||
Lease liability |
20 | |||||||||||
Loans and financing |
20 | |||||||||||
Other payables |
21 | |||||||||||
Contract liabilities |
29.b | |||||||||||
Derivative financial instruments |
8 | |||||||||||
Taxes and payroll charges payable |
22 | |||||||||||
Income tax and social contribution |
||||||||||||
Unearned income |
||||||||||||
Provision |
24.1 | |||||||||||
Liabilities held for sale |
15 | — | ||||||||||
NON-CURRENT |
||||||||||||
Lease liability |
20 | |||||||||||
Loans and financing |
20 | |||||||||||
Other payables |
21 | |||||||||||
Contract liabilities |
29.b | |||||||||||
Derivative financial instruments |
8 | |||||||||||
Taxes and payroll charges payable |
22 | |||||||||||
Income tax and social contribution |
23.4 | — | ||||||||||
Deferred income tax and social contribution |
23.1 | |||||||||||
Unearned income |
||||||||||||
Provision |
24.1 | |||||||||||
TOTAL LIABILITIES |
||||||||||||
SHAREHOLDERS’ EQUITY |
||||||||||||
Capital |
26.1 | |||||||||||
Treasury shares |
26. 3 |
( |
) | ( |
) | |||||||
Revenue reserves |
||||||||||||
Share-based remuneration |
||||||||||||
Other comprehensive loss |
( |
) | ( |
) | ||||||||
Result in transactions with non controlling interest |
( |
) | ||||||||||
Non-controlling interests |
||||||||||||
TOTAL SHAREHOLDERS’ EQUITY |
||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Note |
12.31.2022 |
12.31.2021 |
12.31.2020 |
|||||||||||
REVENUE |
29 .a |
|||||||||||||
Cost of sales and services |
( |
) | ( |
) | ( |
) | ||||||||
GROSS PROFIT |
||||||||||||||
OPERATING INCOME (EXPENSE) |
||||||||||||||
Administrative |
30 | ( |
) | ( |
) | ( |
) | |||||||
Selling |
30 | ( |
) | ( |
) | ( |
) | |||||||
Expected credit (losses) reversals over financial assets and contract assets |
30 | ( |
) | ( |
) | |||||||||
Research |
30 | ( |
) | ( |
) | ( |
) | |||||||
Other operating expense, net |
31 | ( |
) | ( |
) | ( |
) | |||||||
Equity in associates |
30 | |||||||||||||
OPERATING INCOME (LOSS) BEFORE FINANCIAL RESULT |
( |
) |
( |
) | ||||||||||
Financial income |
32 | |||||||||||||
Financial expenses |
32 | ( |
) | ( |
) | ( |
) | |||||||
Foreign exchange gain (loss), net |
33 | ( |
) | |||||||||||
INCOME (LOSS) BEFORE INCOME TAX |
( |
) |
( |
) | ||||||||||
Income tax expense |
23.3 | ( |
) | ( |
) | |||||||||
LOSS FOR THE YEAR |
( |
) |
( |
) |
( |
) | ||||||||
Attributable to : |
||||||||||||||
Owners of Embraer |
( |
) | ( |
) | ( |
) | ||||||||
Non-controlling interests |
( |
) | ||||||||||||
Earnings (loss) per share - basic in US$ |
28 | ( |
) | ( |
) | ( |
) | |||||||
Earnings (loss) per share - diluted in US$ |
28 | ( |
) | ( |
) | ( |
) |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
LOSS FOR THE YEAR |
( |
) |
( |
) |
( |
) | ||||||
ITEMS THAT WILL NOT BE RECLASSIFIED THROUGH PROFIT OR LOSS |
||||||||||||
Remeasurement of post-employment benefit |
( |
) | — | |||||||||
Listing expenses |
— | — | ||||||||||
ITEMS THAT MAY BE SUBSEQUENTLY RECLASSIFIED THROUGH PROFIT OR LOSS |
||||||||||||
Financial instruments - Cash flow hedge |
( |
) | ||||||||||
Other comprehensive income |
— | — | ||||||||||
Translation adjustments |
( |
) | ( |
) | ||||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX EFFECTS |
( |
) |
||||||||||
TOTAL OF COMPREHENSIVE LOSS |
( |
) |
( |
) |
( |
) | ||||||
Attributable to: |
||||||||||||
Owners of Embraer |
( |
) | ( |
) | ( |
) | ||||||
Non-controlling interests |
( |
) | ||||||||||
( |
) |
( |
) |
( |
) | |||||||
Revenue reserves |
Other comprehensive (loss) |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital |
Treasury shares |
Share-based remuneration |
Government grants |
Legal reserve |
For investment and working capital |
Result in transactions with non-controlling interest |
Retained earnings |
Post- employment benefit |
Cumulative translation adjustment |
Financial instruments |
Total |
Non- controlling interest |
Total shareholders’ equity |
|||||||||||||||||||||||||||||||||||||||||||
At December 31, 2019 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||||||||||||||
Loss for the year |
— | — | — | — | — | — | — | ( |
) | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Financial instruments - Cash flow hedge |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total of comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
) |
— |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||||||||||
Stock options grants exercised |
— | — | — | — | — | — | ( |
) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
PUT options of non-controlling interest |
— | — | — | — | — | — | ( |
) | — | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||||||||
Allocation of profits: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Absorption of reserves by loss year |
— | — | — | — | — | ( |
) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||||||||||||||||
Loss for the year |
— | — | — | — | — | — | — | ( |
) | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Actuarial loss on post employment benefit obligation |
— | — | — | — | — | — | — | — | ( |
) | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
Financial instruments - Cash flow hedge |
— | — | — | — | — | — | — | — | — | — | ( |
) | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||||||||
Total of comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||||||||
Repurchases of common shares |
— | ( |
) | — | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||||||||
PUT options of non-controlling interest |
— | — | — | — | — | — | ( |
) | — | — | — | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||||||||||||
Allocation of profits: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Absorption of reserves by loss for the year |
— | — | — | — | — | ( |
) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
( |
) |
( |
) |
— |
( |
) |
( |
) |
( |
) |
|||||||||||||||||||||||||||||||||||||||||||||
Loss for the year |
— | — | — | — | — | — | — | ( |
) | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
Actuarial loss on post employment benefit obligation |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Financial instruments - Cash flow hedge |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Listing expenses |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Total of comprehensive loss |
— |
— |
— |
— |
— |
— |
— |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||||||||||||||
Share-based remuneration |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Result in transactions with non controlling interest |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Absorption of reserves by loss for the year |
— | — | — | — | — | ( |
) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
At December 31, 2022 |
( |
) |
— |
( |
) |
( |
) |
|||||||||||||||||||||||||||||||||||||||||||||||||
Note |
12.31.2022 |
12.31.2021 |
12.31.2020 |
|||||||||||
OPERATING ACTIVITIES |
||||||||||||||
Loss for the year |
( |
) | ( |
) | ( |
) | ||||||||
ADJUSTMENT TO NET INCOME FOR ITEMS NOT AFFECTING CASH |
||||||||||||||
Depreciation of property plant and equipment |
||||||||||||||
Realization of government grants |
( |
) | ( |
) | ( |
) | ||||||||
Amortization of intangible assets |
16 | |||||||||||||
Realization of contribution from suppliers |
16 | ( |
) | ( |
) | ( |
) | |||||||
EVE transaction |
12.3 | — | — | |||||||||||
Gain and loss on shareholding |
( |
) | — | — | ||||||||||
Loss (reversal) for inventory obsolescence |
( |
) | ( |
) | ||||||||||
Adjustment to fair value, inventory, property plant and equipment and intangible |
( |
) | ||||||||||||
Adjustment to fair value - Financial investments |
( |
) | ( |
) | ||||||||||
Expect credit losses (reversal) and receivables written-off |
( |
) | ||||||||||||
Losses on fixed assets disposal |
||||||||||||||
Deferred income tax and social contribution |
23.3 | ( |
) | |||||||||||
Accrued interest |
||||||||||||||
Interest on marketable securities, net |
( |
) | ( |
) | ( |
) | ||||||||
Share-based remuneration |
— | — | ||||||||||||
Equity in associates gains and losses |
( |
) | ( |
) | ( |
) | ||||||||
Foreign exchange gain (loss), net |
33 | ( |
) | ( |
) | |||||||||
Mark to market of the residual value guarantees |
— | ( |
) | ( |
) | |||||||||
Other provisions |
||||||||||||||
Non-controlling interests |
( |
) | ( |
) | ||||||||||
CHANGES IN ASSETS |
||||||||||||||
Financial investments |
( |
) | ( |
) | ||||||||||
Derivative financial instruments |
( |
) | ( |
) | ||||||||||
Accounts receivable |
( |
) | ||||||||||||
Contract assets |
( |
) | ||||||||||||
Customer and commercial financing |
( |
) | ( |
) | ||||||||||
Inventories |
( |
) | ( |
) | ||||||||||
Other assets |
( |
) | ( |
) | ||||||||||
CHANGES IN LIABILITIES |
||||||||||||||
Trade accounts payable |
( |
) | ( |
) | ||||||||||
Trade accounts payable - Supplier finance |
— | |||||||||||||
Other payables |
( |
) | ( |
) | ( |
) | ||||||||
Income tax and social contribution paid |
( |
) | ( |
) | ( |
) | ||||||||
Interest paid |
( |
) | ( |
) | ( |
) | ||||||||
Contract liabilities |
( |
) | ||||||||||||
Taxes and payroll charges payable |
||||||||||||||
Financial guarantees |
( |
) | ( |
) | ( |
) | ||||||||
Unearned income |
( |
) | ( |
) | ||||||||||
NET CASH GENERATED (USED) IN OPERATING ACTIVITIES |
( |
) | ||||||||||||
INVESTING ACTIVITIES |
||||||||||||||
Acquisition of property, plant and equipment |
14 | ( |
) | ( |
) | ( |
) | |||||||
Proceeds from sale of property, plant and equipment |
14 | |||||||||||||
Additions to intangible assets |
16 | ( |
) | ( |
) | ( |
) | |||||||
Additions investments in subsidiaries and affiliates |
( |
) | ( |
) | ( |
) | ||||||||
Investment sale |
— | — | ||||||||||||
Acquisition of subsidiary, net of cash acquired |
— | — | ( |
) | ||||||||||
Acquisition of non controlling interest |
— | ( |
) | — | ||||||||||
Financial investments |
( |
) | ||||||||||||
Dividends received |
||||||||||||||
NET CASH USED IN INVESTING ACTIVITIES |
( |
) |
( |
) |
( |
) | ||||||||
FINANCING ACTIVITIES |
||||||||||||||
Proceeds from borrowings |
||||||||||||||
Repayment of borrowings |
( |
) | ( |
) | ( |
) | ||||||||
Proceeds from stock options exercised |
— | — | ||||||||||||
Receipt in the offering of subsidiary shares |
— | — | ||||||||||||
Costs in the offering of subsidiary shares |
( |
) | — | — | ||||||||||
Repurchases of common shares |
— | ( |
) | — | ||||||||||
Lease payments |
( |
) | ( |
) | ( |
) | ||||||||
NET CASH GENERATED (USED) IN FINANCING ACTIVITIES |
( |
) |
( |
) |
||||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
( |
) |
( |
) |
( |
) | ||||||||
Effects of exchange rate changes on cash and cash equivalents |
( |
) | ||||||||||||
Cash and cash equivalents at the beginning of the period |
||||||||||||||
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD |
||||||||||||||
Included in cash and cash equivalents per the statements of financial position |
||||||||||||||
Included in assets held for sale - Evora Companies |
— | — | ||||||||||||
Including cash overdraft classified as liability |
( |
) | — | — |
1. |
Operations |
(i) |
To design, build and market aircraft and aerospace materials and related accessories, components and equipment. |
(ii) |
To perform and carry out technical activities related to the manufacturing and servicing of aerospace materials. |
(iii) |
To contribute to the training of technical personnel as necessary for the aerospace industry. |
(iv) |
To engage in and provide services for other technological, industrial, commercial and service activities related to the aerospace industry. |
(v) |
To design, build and trade in equipment, materials, systems, software, accessories and components for the defense, security and energy industries, as well as promote and carry out technical activities related to the manufacturing and servicing thereof. |
(vi) |
To conduct other technological, manufacturing, trading and services activities related to the defense, security and energy industries. |
2. |
Presentation of the Financial Statements and Accounting Practices |
Entity |
Interest Embraer |
Country |
Core activities | |||||
Airholding S.A. |
% |
|||||||
OGMA - Indústria Aeronáutica de Portugal S.A. |
% | |||||||
ELEB Equipamentos Ltda. |
% |
industry | ||||||
Embraer Aircraft Holding, Inc. |
% |
|||||||
Embraer Aircraft Customer Services, LLC |
% | Caribbean | ||||||
Embraer Aircraft Maintenance Services, LLC |
% | |||||||
Embraer Business Innovation Center, Inc. |
% | |||||||
Embraer Executive Jet Services, LLC |
% | |||||||
Embraer Executive Aircraft, Inc. |
% | |||||||
Embraer Engineering & Technology Center USA, Inc. |
% | |||||||
Embraer Defense and Security, Inc. |
% | |||||||
Embraer CAE Training Services, LLC |
% | |||||||
EVE Holding, Inc |
% | the full interest of EVE UAM, LLC. | ||||||
EVE UAM, LLC. |
% | support of aircraft and urban air traffic management solutions related to urban air mobility. | ||||||
EVE Soluções De Mobilidade Aérea Urbana Ltda. |
% | |||||||
Embraer Aviation Europe – EAE |
% |
|||||||
Embraer Aviation International – EAI |
% | East | ||||||
Embraer Europe SARL |
% | Middle East | ||||||
Embraer Defesa e Segurança Participações S.A. |
% |
|||||||
Atech - Negócios em Tecnologias S.A. |
% | intelligence services | ||||||
Visiona Tecnologia Espacial S.A. |
% | |||||||
Visiona Internacional B.V. |
% | |||||||
Tempest Serviços de Informática S.A. |
% | Technology, Information Security and Intelligence | ||||||
Tempest Security Intelligence Limited |
% | services | ||||||
EZS Informática S.A. |
% | services | ||||||
ID IT Tecnologia da Informação Ltda. |
% | information technology consulting, data processing, application service providers and internet hosting services | ||||||
Embraer GPX Ltda. |
% |
|||||||
Embraer Netherlands Finance B.V. |
% |
Group | ||||||
Embraer Netherlands B.V. |
% |
used aircraft | ||||||
Embraer Asia Pacific PTE. Ltd. |
% | |||||||
Embraer Portugal S.A. |
% | Portugal | ||||||
Embraer (China) Aircraft Technical Services Co. Ltd. |
% | |||||||
EZ Air Interior Limited |
% | |||||||
Embraer Overseas Ltd. |
% |
Group | ||||||
Embraer Spain Holding Co. SL |
% |
|||||||
ECC Investment Switzerland AG |
% | |||||||
ECC Insurance & Financial Company Limited. |
% | |||||||
Embraer Finance Ltd. |
% | |||||||
Fundo de Investimento em Participações Embraer Ventures |
% |
financial aggregation based on investment and support to small and medium-sized companies focused on disruptive innovation in areas related to the A&D sector. | ||||||
Yaborã Indústria Aeronáutica S.A. |
% |
Commercial Aviation |
Entity |
Interest Embraer |
Country |
Core activities | |||||
Airholding S.A. |
% |
|||||||
OGMA - Indústria Aeronáutica de Portugal S.A. |
% | |||||||
Yaborã Indústria Aeronáutica S.A. |
% |
Commercial Aviation | ||||||
ELEB – Equipamentos Ltda. |
% | |||||||
Embraer Overseas Ltd. |
% | |||||||
Embraer Netherlands Finance B.V. |
% | |||||||
Embraer Netherlands B.V. |
% | aircraft | ||||||
Embraer Asia Pacific PTE. Ltd. |
% | |||||||
Embraer Portugal S.A. |
% | Portugal | ||||||
Embraer - Portugal Estruturas Metálicas S.A |
% | |||||||
Embraer - Portugal Estruturas em Compósitos S.A. |
% | |||||||
Embraer (China) Aircraft Technical Services Co. Ltd. |
% | |||||||
EZ Air Interior Limited |
% | |||||||
Embraer Aircraft Holding Inc. |
% |
|||||||
Embraer Aircraft Customer Services, Inc. |
% | Caribbean | ||||||
Embraer Aircraft Maintenance Services Inc. |
% | |||||||
Embraer Business Innovation Center, Inc. |
% | |||||||
Embraer Executive Jet Services, LLC |
% | |||||||
Embraer Executive Aircraft, Inc. |
% | |||||||
Embraer Engineering & Technology Center USA, Inc. |
% | |||||||
Embraer Defense and Security Inc. |
% | |||||||
Embraer CAE Training Services LLC |
% | |||||||
Embraer Solutions, LLC |
% | |||||||
EVE UAM, LLC. |
% | support and solutions for urban air traffic management, related to Urban Air Mobility (UAM) | ||||||
EVE Soluções De Mobilidade Aérea Urbana Ltda. |
% | |||||||
Embraer Aviation Europe - EAE |
% |
|||||||
Embraer Aviation International - EAI |
% | East | ||||||
Embraer Aviation France - EAF |
% | |||||||
Embraer Europe SARL |
% | Middle East | ||||||
Embraer Defesa & Segurança Participações S.A. |
% |
|||||||
Atech - Negócios em Tecnologias S.A. |
% | services | ||||||
Visiona Tecnologia Espacial S.A. |
% | |||||||
Visiona Internacional B.V. |
% | |||||||
Tempest Serviços de Informática S.A. |
% | Technology, Information Security and Intelligence | ||||||
Tempest Security Intelligence Limited |
% | services | ||||||
EZS Informática S.A. |
% | services | ||||||
ID IT Tecnologia da Informação Ltda. |
% | information technology consulting, data processing, application service providers and internet hosting services | ||||||
Embraer GPX Ltda |
% |
|||||||
Embraer Spain Holding Co. SL |
% |
|||||||
ECC Investment Switzerland AG |
% | |||||||
ECC Insurance & Financial Company Limited. |
% | |||||||
Embraer Finance Ltd. |
% | |||||||
Fundo de Investimento em Participações Embraer Ventures |
% |
financial aggregation based on investment and support to small and medium-sized companies focused on disruptive innovation in areas related to the A&D sector. |
• |
Currency that most influences the prices of goods and services; this is the currency in which the sales price of its goods and services are expressed and settled. |
• |
Currency of the country whose competitive forces and regulations most influence the Company’s business. |
• |
Currency that most influences the costs of providing goods or services, i.e., the currency in which the Company’s costs are normally expressed and settled. |
• |
Currency in which the Company largely obtains funds for financial operations and in which it normally receives for its sales and accumulates cash. |
• |
Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statements of financial position. |
• |
Income and expenses for each statement of income and statements of comprehensive income are translated at monthly average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and |
• |
All resulting exchange differences are recognized in the statements of comprehensive income in the line of translation adjustments. |
• |
The asset is held within a business model whose objective is to collect the contractual cash flows; and |
• |
The contractual terms give rise to cash flows, at specific dates, which relate only to the payments of principal and interest. |
• |
The current financial policy and the objectives set for portfolio management, which includes assessing whether the strategy focuses on contractual interest income, maintaining a determined interest rate profile, the relationship between the duration of the financial assets and related liabilities, expected cash outflows, or the collection of cash flows through the sale of underlying financial assets. |
• |
How portfolio performance is assessed and reported to Management. |
• |
Risks that affect the performance of the business model and how they are managed. |
• |
The frequency, volume and timing of assets sales in prior periods, the reasons for such transactions and future expectations. |
a) |
Land - |
b) |
Buildings and land improvements - |
c) |
Facilities - |
d) |
Machinery and equipment - |
e) |
Furniture and fixtures |
f) |
Vehicles - |
g) |
Aircraft - |
h) |
Computers and peripherals - |
i) |
Tooling - |
j) |
Property, plant and equipment in progress - |
k) |
Exchange pool program - |
i) |
Discount rate - brings future benefit flows to present value and is defined based on the ratio of Brazilian government securities. |
ii) |
Increase of medical costs rate - represents the increase in the value of medical care and is not applied linearly, as the companies historically tend to take measures to reduce the cost, or even change health plan providers. |
iii) |
Morbidity rate (aging factor) - measures the increased use of health plans considering the aging population. |
iv) |
Mortality rate - uses the RP-2000 generational table provided by Society of Actuaries (SOA), which shows the rate by age and sex. |
v) |
Probability of Retirement - estimates the probability of retirement by age group. |
vi) |
Termination rate - uses the T-3 Table Service available from the Society of Actuaries (SOA), which shows the average rate of termination of employees by age. |
c) |
Revenue from long-term contracts (Defense & Security) |
d) |
Contract assets and liabilities |
e) |
Costs to obtain a contract |
a) |
Material - |
b) |
Labor - |
c) |
Depreciation - |
d) |
Amortization - |
e) |
Product warranties - |
f) |
Multiple-element arrangements |
3. |
Critical accounting estimates and significant judgements |
a) |
Gross expected cash flow - |
b) |
Growth rates - |
c) |
Discount rates - |
d) |
Foreign exchange rate USD/BRL |
4. |
New standards and interpretations |
• |
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2. |
• |
Definition of Accounting Estimates - Amendments to IAS 8. |
• |
Insurance Contracts - IFRS 17. |
• |
Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12. |
• |
Classification of liabilities as current or non-current - Amendments to IAS 1. |
5. |
Cash and cash equivalents |
12.31.2022 |
12.31.2021 |
|||||||
Cash and banks |
||||||||
Cash equivalents |
||||||||
Bank deposit certificate (i) |
||||||||
Fixed deposits (ii) |
||||||||
(-) Reclassification - Assets held for sale |
( |
) | ||||||
(i) | Applications in Bank Deposit Certificates (CDBs), issued by financial institutions in Brazil, available for redemption in up to 90 days at time of purchase without impact on contracted remuneration. |
(ii) | Fixed term deposits in U.S. dollars with original maturities of |
6. |
Financial investments |
12.31.2022 |
12.31.2021 |
|||||||||||||||||||||||||||||||
Amortized cost |
Fair value through other comprehensive income |
Fair value through profit or loss |
Total |
Amortized cost |
Fair value through other comprehensive income |
Fair value through profit or loss |
Total |
|||||||||||||||||||||||||
Financial instruments |
||||||||||||||||||||||||||||||||
Public securities (i) |
— | — | — | — | ||||||||||||||||||||||||||||
Private securities (ii) |
— | — | — | — | — | |||||||||||||||||||||||||||
Structured Notes (iii) |
— | — | ||||||||||||||||||||||||||||||
Investment funds |
— | — | — | — | ||||||||||||||||||||||||||||
Fixed-Term Deposits (iv) |
— | — | ||||||||||||||||||||||||||||||
Others (v) |
— | — | — | — | ||||||||||||||||||||||||||||
Current portion |
||||||||||||||||||||||||||||||||
Non-current |
— | — | — | — |
(i) | Debt securities issued by the Brazilian government with maturity in |
(ii) | Debt securities issued by certain financial institutions with long-term maturities. |
(iii) | Structured notes associated with the credit risk of financial institution issuer and the Brazilian government. |
(iv) | Fixed-term deposits in U.S. dollars issued by financial institutions, with a maturity of |
(v) | It mainly relates to shares of the Republic Airways Holdings, arising from the request for the judicial reorganization of the former entity Republic Airways and received by the Company. |
7. |
Trade accounts receivable, net |
12.31.2022 |
12.31.2021 |
|||||||
Foreign customers |
||||||||
Brazilian Air Force |
||||||||
Domestic customers |
||||||||
Expected credit losses |
( |
) | ( |
) | ||||
Current portion |
||||||||
Non-current portion |
— |
12.31.2022 |
12.31.2021 |
|||||||
Not due |
||||||||
Up to 90 days |
||||||||
From 91 to 180 days |
||||||||
More than 180 days |
||||||||
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Beginning balance |
( |
) |
( |
) |
( |
) | ||||||
Additions/Reversal |
( |
) | ( |
) | ||||||||
Write-off |
||||||||||||
Reclassification |
— | — | ||||||||||
Foreign exchange variation |
( |
) | ||||||||||
Assets held for sale |
— | — | ( |
) | ||||||||
Ending balance |
( |
) |
( |
) |
( |
) | ||||||
8. |
Derivative financial instruments |
• | Swap operations, with the main objective of changing the debts index, from floating rates to fixed interest rates or vice versa, exchange of Real to U.S. dollars and vice versa. The fair values of these instruments are measured by the future cash flow, determined by applying contractual interest rates to maturity, and discounted to present value at the date of the financial statements by the prevailing market rates. |
• | Purchase of sell and by currency options, in order to protect cash flows for the parent company’s wage costs denominated in Reais, against the risk of currency fluctuations. The financial instrument used by the Company is a zero-cost collar, which consists of the purchasing of a put option and the sale of a call option, contracted with the same counterparty and with a zero-net premium. The fair value of this instrument is determined by the observable market pricing model (through market information providers). |
• | Non-deliverable forward (NDF), with the purpose of protecting the Company against the risks of exchange rate fluctuations. The fair value is determined by the observable market pricing model. |
Purpose |
Risk |
Instrument |
Notional |
Settlement date |
12.31.2022 |
12.31.2021 |
||||||||||||||
Cash flow hedge designated as hedge accounting |
( |
) | ||||||||||||||||||
Payroll expenses settled in Brazilian Reais |
Exchange rate | — | ||||||||||||||||||
— | — | ( |
) | |||||||||||||||||
Fair value hedge designated as hedge accounting |
||||||||||||||||||||
Project development |
Interest rate | interest rate debt in Brazilian Reais for a floating rate CDI. |
||||||||||||||||||
Others derivatives not designated as hedge accounting |
( |
) |
( |
) | ||||||||||||||||
Acquisition of property, plant and equipment |
Interest rate | — | — | ( |
) | |||||||||||||||
Export |
Exchange rate | ( |
) | — | ||||||||||||||||
Export |
Interest rate | ( |
) | |||||||||||||||||
Equity |
Embraer Share Price | ( |
) | — | ||||||||||||||||
EVE Shares (i) |
EVE Share Price | ( |
) | — | ||||||||||||||||
EVE Shares (i) |
EVE Share Price | ( |
) | — | ||||||||||||||||
EVE Shares (i) |
EVE Share Price | ( |
) | — | ||||||||||||||||
( |
) |
( |
) | |||||||||||||||||
(i) | The Company recognized derivative financial liabilities measured at fair value through profit or loss related to warrants issued by subsidiary EVEX, which became exercisable on |
12.31.2022 |
12.31.2021 |
|||||||
Assets |
||||||||
Current portion |
||||||||
Non-current |
— | |||||||
Liabilities |
||||||||
Current portion |
( |
) | ( |
) | ||||
Non-current |
( |
) | ( |
) | ||||
Net derivative financial instruments |
( |
) |
( |
) | ||||
31.12.2022 |
31.12.2021 |
|||||||
Reclassified items for results |
||||||||
Cash Flow Hedge |
||||||||
Hedge reserve |
( |
) | ||||||
(-) Reclassified for results |
9. |
Customer and commercial financing |
12.31.2022 |
12.31.2021 |
|||||||
Aircraft (i) |
||||||||
Spare parts (ii) |
||||||||
Expected credit losses |
( |
) | ( |
) | ||||
Current portion |
||||||||
Non-current portion |
(i) |
Aircraft – Customer financing related to the acquisition of aircraft. The fair value of used aircraft provided as collateral in the used aircraft customer financing structure, which could minimize the losses in case of default (collateral assets), were considered to reduce the expected credit losses (ECL) for such transaction. |
(ii) | Spare parts and services – Customer financing provided as a result of the COVI D-19 impacts over certain customers of the Commercial Aviation segment related to the supply of spare parts and services mainly provided during the year of 2020. The agreement establishes interest and annual principal payments until the final maturity date ( |
12.31.2022 |
12.31.2021 |
|||||||
Beginning balance |
( |
) |
( |
) | ||||
(Additions)/Reversal |
( |
) | ||||||
Ending balance |
( |
) |
( |
) | ||||
Year |
||||
2024 |
||||
2025 |
||||
2026 |
||||
10. |
Inventories |
12.31.2022 |
12.31.2021 |
|||||||
Raw materials |
||||||||
Work in process |
||||||||
Spare parts |
||||||||
Finished goods (i) |
||||||||
Held by third parties |
||||||||
Advances to suppliers |
||||||||
Inventory in transit |
||||||||
Consumption materials |
||||||||
Used aircraft |
||||||||
Loss on adjustment to fair value (ii) |
( |
) | ( |
) | ||||
Loss due to obsolescence (iii) |
( |
) | ( |
) | ||||
( |
) |
( |
) | |||||
(i) | The following aircrafts were held in the finished goods inventory: |
• | December 31, 2022: |
• | December 31, 2021: |
(ii) | Changes in the provision for adjustments to the realizable value of work in process, finished goods and used aircraft were as follows: |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Beginning balance |
( |
) |
( |
) |
( |
) | ||||||
Additions |
( |
) | ( |
) | ( |
) | ||||||
Disposals |
||||||||||||
Assets held for sale |
( |
) | ||||||||||
Ending balance |
( |
) |
( |
) |
( |
) | ||||||
(iii) | Changes in the provision for obsolescence were as follows: |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Beginning balance |
( |
) |
( |
) |
( |
) | ||||||
Additions |
( |
) | ( |
) | ( |
) | ||||||
Disposals |
||||||||||||
Reversals |
||||||||||||
Foreign exchange |
( |
) | ||||||||||
Assets held for sale |
( |
) | ||||||||||
Ending balance |
( |
) |
( |
) |
( |
) | ||||||
11. |
Other assets |
12.31.2022 |
12.31.2021 |
|||||||
Taxes recoverable (i) |
||||||||
Prepaid expenses |
||||||||
Other debtors (ii) |
||||||||
Loan with a joint operation |
||||||||
Court-mandated escrow deposits (iii) |
||||||||
Advances to employees |
||||||||
Advances for services to be rendered |
||||||||
Guarantee deposits |
||||||||
Collateralized accounts receivable |
||||||||
Others |
||||||||
Current portion |
||||||||
Non-current portion |
(i) | Taxes recoverable |
12.31.2022 |
12.31.2021 |
|||||||
ICMS (State Value-added Tax) and IPI (Excise Tax) |
||||||||
PIS (Social Integration Program) and COFINS (Contribution for Social Security) |
||||||||
Value added tax |
||||||||
Income tax and social security on net income withheld |
||||||||
Advance service tax (ISS- Service tax) |
||||||||
Others |
||||||||
Current portion |
||||||||
Non-current portion |
(ii) | Corresponds mainly to rework done on materials and parts received from suppliers, which will be reimbursed in cash by the supplier or through credits granted that can be used to offset trade accounts payable when requested by the Company and approved by the supplier. |
(iii) | Refers to deposits arising from lawsuits, substantially to federal taxes and contributions, in which there is a liability recorded Note 24. |
12. |
Interest in entities |
• | Economic Risks: potential losses from fluctuations in market conditions (price of products, exchange rate and interest). |
• | Operational risk: potential losses resulting from the emergence of new technologies or failure of current processes. |
• | Credit risk: potential losses that might occur if a third party (customer) becomes unable to meet its obligations, and |
• | Liquidity risk: financial inability to meet financial obligations. |
12.31.2022 |
||||||||||||||||||||
Entity |
Country |
Interest Embraer Group |
Non-controlling interest |
Income (loss) |
||||||||||||||||
OGMA - Indústria Aeronáutica de Portugal S.A. |
% | % | ( |
) | ||||||||||||||||
Visiona Tecnologia Espacial S.A. |
% | % | ( |
) | ||||||||||||||||
Embraer CAE Training Services |
% | % | ||||||||||||||||||
Tempest Serviços de Informática S.A. |
% | % | ||||||||||||||||||
EVE Holding Inc. |
% | % | ( |
) | ||||||||||||||||
EVE Holding Inc. - Listing Expenses |
% | % | ||||||||||||||||||
12.31.2021 |
||||||||||||||||||||
Entity |
Country |
Interest Embraer Group |
Non-controlling interest |
Income (loss) |
||||||||||||||||
OGMA - Indústria Aeronáutica de Portugal S.A. |
% | % | ( |
) | ||||||||||||||||
Visiona Tecnologia Espacial S.A. |
% | % | ( |
) | ||||||||||||||||
Embraer CAE Training Services |
% | % | ||||||||||||||||||
Tempest Serviços de Informática S.A. |
% | % | ( |
) | ||||||||||||||||
• |
OGMA - Indústria Aeronáutica de Portugal S.A. |
12.31.2022 |
12.31.2021 |
|||||||
Cash and cash equivalents |
||||||||
Current assets |
||||||||
Non-current assets |
||||||||
Current liabilities |
||||||||
Non-current liabilities |
||||||||
Noncontrolling interest |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Revenue |
||||||||||||
Net Income (loss) for the year |
( |
) | ( |
) |
• |
Eve Holding, Inc. |
12.31.2022 |
||||
Cash and cash equivalents |
||||
Current assets |
||||
Non-current assets |
||||
Current liabilities |
||||
Non-current liabilities |
||||
Noncontrolling interest |
||||
Net loss for the year |
( |
) |
12.3 |
Completion of the transaction with Zanite Acquisition Corp. and changes in the ownership of Eve |
12.3.1 |
Background |
13. |
Related parties |
(i) | Assets: (i) accounts receivable for spare parts, aircraft sales and product development, under conditions agreed between the parties, considering the volumes, risks involved and corporate policies (ii) balances of financial investments; and (iii) bank deposits. |
(ii) | Liabilities: (i) purchase of aircraft components and spare parts, under conditions agreed between the parties, considering the volumes, risks involved, and corporate policies (ii) advances received on sales contracts, according to contractual agreements; (iii) commission for sale of aircraft and spare parts (iv) financing for research and product development at market rates for this kind of financing (v) loans and financing; and (vi) export financing, and |
(iii) | Profit or Loss: (i) purchases and sales of aircraft, components and spare parts and development of products for the defense and security market; (ii) financial income and expenses from financial investments and expenses from loans and financing, and (iii) supplementary pension plan. |
• |
Major customer for Defense & Security products (through the Brazilian Air Force, Brazilian Army, and Brazilian Navy). |
• |
Source of research and development financing through technology development institutions ( Financiadora de Estudos e Projetos |
• |
Export credit agency (through the BNDES), and |
• |
Source of short-term and long-term financing and a provider of asset management and commercial banking services (through Banco do Brasil). |
Current |
Non-current |
Financial |
Operating |
|||||||||||||||||||||
Assets |
Liabilities |
Assets |
Liabilities |
Results |
Results |
|||||||||||||||||||
Banco do Brasil S.A. |
— | — | — | |||||||||||||||||||||
Banco Nacional de Desenvolvimento Econômico e Social – BNDES |
— | — | ( |
) | — | |||||||||||||||||||
Comando da Aeronáutica (Brazilian Air Force) |
— | — | — | |||||||||||||||||||||
Exército Brasileiro (Brazilian Army) |
— | — | — | |||||||||||||||||||||
Embraer Prev - Sociedade de Previdência Complementar |
— | — | — | — | ( |
) | ||||||||||||||||||
Ez Air Interior Limited |
— | — | ||||||||||||||||||||||
Financiadora de Estudo e Projetos – FINEP |
— | — | ( |
) | — | |||||||||||||||||||
FIP Aeroespacial |
— | — | — | — | — | |||||||||||||||||||
Governo Brasileiro - Bonds (Brazilian government -Bonds) |
— | — | — | |||||||||||||||||||||
Marinha do Brasil (Brazilian Navy) |
— | — | — | ( |
) | |||||||||||||||||||
Current |
Non-current |
Financial |
Operating |
|||||||||||||||||||||
Assets |
Liabilities |
Assets |
Liabilities |
Results |
Results |
|||||||||||||||||||
Banco do Brasil S.A. |
— | ( |
) | — | ||||||||||||||||||||
Banco Nacional de Desenvolvimento Econômico e Social – BNDES |
— | — | ( |
) | — | |||||||||||||||||||
Comando da Aeronáutica (Brazilian Air Force) |
— | — | — | ( |
) | |||||||||||||||||||
Embraer Prev - Sociedade de Previdência Complementar |
— | — | — | — | ( |
) | ||||||||||||||||||
Exército Brasileiro (Brazilian Army) |
— | — | — | |||||||||||||||||||||
Ez Air Interior Limited |
— | — | ||||||||||||||||||||||
Financiadora de Estudo e Projetos – FINEP |
— | — | ( |
) | — | |||||||||||||||||||
FIP Aeroespacial |
— | — | — | — | ||||||||||||||||||||
Marinha do Brasil (Brazilian Navy) |
— | — | — | ( |
||||||||||||||||||||
( |
) |
( |
) | |||||||||||||||||||||
Financial Results |
Operating Results |
|||||||
Banco do Brasil S.A. |
( |
) | — | |||||
Banco Nacional de Desenvolvimento Econômico e Social – BNDES |
( |
) | — | |||||
Comando da Aeronáutica (Brazilian Air Force) |
— | ( |
) | |||||
Marinha do Brasil (Brazilian Navy) |
— | ( |
) | |||||
Embraer Prev - Sociedade de Previdência Complementar |
— | ( |
) | |||||
Exército Brasileiro (Brazilian Army) |
— | |||||||
Financiadora de Estudo e Projetos – FINEP |
( |
) | — | |||||
( |
) |
( |
) | |||||
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Short-term benefits (i) |
||||||||||||
Share based payment (ii) |
( |
) | ( |
) | ||||||||
Labor contract termination |
||||||||||||
Total remuneration |
||||||||||||
(i) | Includes wages, salaries, profit sharing, bonuses and indemnities distributed to the key management personnel, which are settled in Brazilian Real, as well as the compensation of external members engaged in the statutory advisory committees. |
(ii) | Accounts payable were reduced in 2022 and increased in 2021 due to the stock price of the Company in each period, which is applied to measure the share-based payment plan settled in cash, as disclosed in Note 27. |
14 |
Property, plant and equipment |
Class of assets |
Estimated life | |
Buildings and improvements |
||
Installations |
||
Machinery and equipment |
||
Furniture and fixtures |
||
Vehicles |
||
Aircraft |
||
Computers and peripherals |
||
Tooling |
||
Exchange pool program assets |
12.31.2022 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Land |
Buildings and improvements |
Installations |
Machinery and equipment |
Furniture and fixtures |
Vehicles |
Aircraft |
Computers and peripherals |
Tooling |
Other assets |
Exchange pool program assets |
Construction in progress |
Total |
||||||||||||||||||||||||||||||||||||||||
Cost |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Additions |
— | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Disposals |
— | ( |
) | — | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||
Reclassifications* |
— | ( |
) | ( |
) | — | ( |
) | ( |
) | — | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
Translation adjustments |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | ( |
) | — | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||
At December 31, 2022 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||||||
Depreciation |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||
Disposals |
— | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Reclassifications* |
— | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Interest on capitalized assets |
— | ( |
) | — | — | — | — | — | — | — | — | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2022 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||||||
Net |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2022 |
— |
12.31.2021 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Land |
Buildings and improvements |
Installations |
Machinery and equipment |
Furniture and fixtures |
Vehicles |
Aircraft |
Computers and peripherals |
Tooling |
Other assets |
Exchange pool program assets |
Construction in progress |
Total |
||||||||||||||||||||||||||||||||||||||||
Cost |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Additions |
— | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Disposals |
( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
Impairment |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Reclassifications* |
— | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Assets held for sale |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||||||
Depreciation |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||
Disposals |
— | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Impairment |
— | — | — | ( |
) | — | — | — | — | ( |
) | — | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||
Reclassifications* |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Interest on capitalized assets |
— | ( |
) | — | — | — | — | — | — | — | — | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Assets held for sale |
— | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||||||
Net |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
— |
12.31.2020 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Land |
Buildings and improvements |
Installations |
Machinery and equipment |
Furniture and fixtures |
Vehicles |
Aircraft |
Computers and peripherals |
Tooling |
Other assets |
Exchange pool program assets |
Construction in progress |
Total |
||||||||||||||||||||||||||||||||||||||||
Cost |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2019 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Additions |
— | |||||||||||||||||||||||||||||||||||||||||||||||||||
Additions - business combination |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Disposals |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
Impairment |
— | — | — | — | — | ( |
) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Reclassifications* |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Assets held for sale |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated depreciation |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2019 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||||||
Depreciation |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||
Depreciation - business combination |
— | ( |
) | — | ( |
) | ( |
) | — | — | ( |
) | — | — | — | — | ( |
) | ||||||||||||||||||||||||||||||||||
Disposals |
— | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Reclassifications* |
— | — | — | — | ( |
) | — | |||||||||||||||||||||||||||||||||||||||||||||
Interest on capitalized assets |
— | ( |
) | — | — | — | — | — | — | — | — | — | — | ( |
) | |||||||||||||||||||||||||||||||||||||
Translation adjustments |
— | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||
Assets held for sale |
— | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | — | ( |
) | |||||||||||||||||||||||||||||
At December 31, 2020 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||||||||
Net |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2019 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
* | Non-cash transactions (reclassification between accounts within property, plant and equipment and inventories). |
15 |
Assets held for sale |
ASSETS HELD FOR SALE |
04.30.2022 |
12.31.2021 |
LIABILITIES HELD FOR SALE |
04.30.2022 |
12.31.2021 |
|||||||||||||
Cash and cash equivalents |
Trade accounts payable | |||||||||||||||||
Trade accounts receivable, net |
Other payables | |||||||||||||||||
Inventories |
Taxes and payroll charges payable | |||||||||||||||||
Income tax and social contribution |
Income tax and social contribution | |||||||||||||||||
Other assets |
Unearned income | |||||||||||||||||
Guarantee deposits |
||||||||||||||||||
Deferred income tax and social contribution |
||||||||||||||||||
Property, plant and equipment, net* |
||||||||||||||||||
Intangible assets, net |
Net assets to be disposed | |||||||||||||||||
Total |
Total |
|||||||||||||||||
* | Property, plant and equipment included in the assets held for sale (US$ |
16 |
Intangible assets |
12.31.2022 |
||||||||||||||||||||||||||||||||||||||||
Internally developed |
Acquired from third party |
|||||||||||||||||||||||||||||||||||||||
Commercial |
Executive |
Defense and Security |
Service and Support |
Others |
Development |
Software |
Goodwill |
Others |
Total |
|||||||||||||||||||||||||||||||
Intangible cost |
||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
— |
|||||||||||||||||||||||||||||||||||||||
Additions |
— | — | — | |||||||||||||||||||||||||||||||||||||
Disposals |
— | — | — | — | — | — | ( |
) | — | ( |
) | ( |
) | |||||||||||||||||||||||||||
Reclassifications |
( |
) | — | — | ( |
) | ( |
) | — | ( |
) | ( |
) | |||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | — | ( |
) | — | ||||||||||||||||||||||||||||||||
At December 31, 2022 |
||||||||||||||||||||||||||||||||||||||||
Accumulated amortization |
||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
( |
) |
( |
) |
( |
) |
— |
( |
) |
( |
) |
( |
) |
— |
( |
) |
( |
) | ||||||||||||||||||||||
Amortization |
( |
) | ( |
) | ( |
) | — | ( |
) | — | ( |
) | — | ( |
) | ( |
) | |||||||||||||||||||||||
Amortization of contribution from suppliers |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Disposals |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Reclassifications |
( |
) | ( |
) | — | — | — | |||||||||||||||||||||||||||||||||
Interest on capitalized assets |
— | ( |
) | — | — | — | — | — | — | — | ( |
) | ||||||||||||||||||||||||||||
Translation adjustments |
— | — | ( |
) | — | — | — | — | — | |||||||||||||||||||||||||||||||
At December 31, 2022 |
( |
) |
( |
) |
( |
) |
— |
( |
) |
— |
( |
) |
— |
( |
) |
( |
) | |||||||||||||||||||||||
Intangible, net |
||||||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
— | |||||||||||||||||||||||||||||||||||||||
At December 31, 2022 |
— |
12.31.2021 |
||||||||||||||||||||||||||||||||||||
Internally developed |
Acquired from third party |
|||||||||||||||||||||||||||||||||||
Commercial |
Executive |
Defense and Security |
Others |
Development |
Software |
Goodwill |
Others |
Total |
||||||||||||||||||||||||||||
Intangible cost |
||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
||||||||||||||||||||||||||||||||||||
Additions |
— | — | ||||||||||||||||||||||||||||||||||
Disposals |
— | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||
Impairment |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||
Interest on capitalized assets |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
Assets held for sale |
— | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||||||||||||||||||
Accumulated amortization |
||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Amortization |
( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | — | ( |
) | ( |
) | ||||||||||||||||||||
Amortization of contribution from suppliers |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Disposals |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Impairment |
— | ( |
) | — | — | — | — | — | — | ( |
) | |||||||||||||||||||||||||
Interest on capitalized assets |
— | ( |
) | — | — | — | — | — | — | ( |
) | |||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||
Assets held for sale |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||
At December 31, 2021 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Intangible, net |
||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
||||||||||||||||||||||||||||||||||||
At December 31, 2021 |
12.31.2020 |
||||||||||||||||||||||||||||||||||||
Internally developed |
Acquired from third party |
|||||||||||||||||||||||||||||||||||
Commercial |
Executive |
Defense and Security |
Others |
Development |
Software |
Goodwill |
Others |
Total |
||||||||||||||||||||||||||||
Intangible cost |
||||||||||||||||||||||||||||||||||||
At December 31, 2019 |
— |
|||||||||||||||||||||||||||||||||||
Additions |
— | |||||||||||||||||||||||||||||||||||
Additions - business combination |
— | — | — | — | — | |||||||||||||||||||||||||||||||
Disposals |
— | — | — | — | ( |
) | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||
Impairment |
— | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
Interest on capitalized assets |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Assets held for sale |
— | — | — | — | ||||||||||||||||||||||||||||||||
At December 31, 2020 |
||||||||||||||||||||||||||||||||||||
Accumulated amortization |
||||||||||||||||||||||||||||||||||||
At December 31, 2019 |
— |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
— |
( |
) |
( |
) | ||||||||||||||||||||
Amortization |
( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | — | ( |
) | ( |
) | ||||||||||||||||||||
Amortization - business combination |
— | — | — | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||
Amortization of contribution from suppliers |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Disposals |
— | — | — | — | — | — | ||||||||||||||||||||||||||||||
Interest on capitalized assets |
— | ( |
) | — | — | — | — | — | — | ( |
) | |||||||||||||||||||||||||
Translation adjustments |
— | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||
Assets held for sale |
( |
) | ( |
) | — | — | — | ( |
) | — | ( |
) | ( |
) | ||||||||||||||||||||||
At December 31, 2020 |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Intangible, net |
||||||||||||||||||||||||||||||||||||
At December 31, 2019 |
||||||||||||||||||||||||||||||||||||
At December 31, 2020 |
17 |
Impairment of assets |
12.31.2020 |
Additions |
Reversal |
Amortization |
12.31.2021 |
||||||||||||||||
Cash-generating units |
||||||||||||||||||||
Mid-Size / Super Mid-Size Platform |
( |
) | ( |
) | ||||||||||||||||
Satellites |
||||||||||||||||||||
( |
) |
( |
) |
|||||||||||||||||
Allocation of impairment losses |
||||||||||||||||||||
Fixed assets - Machinery and equipment |
||||||||||||||||||||
Fixed assets - Tooling |
||||||||||||||||||||
Intangibles - Internally developed |
||||||||||||||||||||
Operating segments (Note 3 6 ) |
||||||||||||||||||||
Executive Aviation |
||||||||||||||||||||
Defense & Security |
||||||||||||||||||||
Key assumption |
Factor |
Sensitivity |
Impact in impairment test | |||
useful life of platform up to 2045 and keeping current market share |
— | |||||
Discount rate |
||||||
Foreign exchange rate (US$/R$) – rate applied to translate cash flows generated in foreign currency (R$) to the functional currency (US$) |
R$ |
• |
Impairment tests as of December 31, 2022 were prepared based on value-in-use value-in-use |
• |
The Company identified a new CGU as of December 31, 2022. The “E1 Cargo” UGC is linked to the “Services & Support” segment and encompasses the commercialization, development, certification, and conversion of E195-E1 and E190-E1 to freighter version and after-sales cargo. |
• | Future cash flows were projected for a period of |
• | Part of the future cash flows were budgeted in Reais and translated to the Company’s functional currency (U.S. dollar) based on the observable rate on 12/31/2022 of R$ |
18 |
Trade accounts payable |
12.31.2022 |
12.31.2021 |
|||||||
Foreign suppliers |
||||||||
Domestic suppliers |
||||||||
Risk partners |
||||||||
19 |
Trade accounts payable – Supplier finance arrangements |
20 |
Loans and financing |
Contractual |
Effective |
|||||||||||||||||
Currency |
interest rate - % |
interest rate - % |
Maturity |
12.31.2022 |
12.31.2021 |
|||||||||||||
Other currencies: |
||||||||||||||||||
Guaranteed notes |
US$ | (i) | ||||||||||||||||
Working capital |
Libor 1M + |
|||||||||||||||||
US$ | Libor 1M + |
|||||||||||||||||
Libor 6M + |
||||||||||||||||||
SOFR + |
||||||||||||||||||
Euro | Euribor 12 M + |
|||||||||||||||||
Export financing |
US$ | Libor 3 M + |
(ii) | |||||||||||||||
Property. plant and equipment |
US$ | SIFMA + |
||||||||||||||||
Others |
US$ | |||||||||||||||||
In local currency: |
||||||||||||||||||
Working capital |
R$ | CDI + |
||||||||||||||||
Project development |
||||||||||||||||||
IPCA + |
||||||||||||||||||
Total |
||||||||||||||||||
Current portion |
||||||||||||||||||
Non-current portion |
(i) | Issuance of Bonds: |
(ii) | It refers to financing contracts for working capital for exports totaling US$ |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Opening balance |
||||||||||||
Principal addition |
||||||||||||
Interest addition |
||||||||||||
Principal payment |
( |
) | ( |
) | ( |
) | ||||||
Interest payment |
( |
) | ( |
) | ( |
) | ||||||
Foreign exchange |
( |
) | ||||||||||
Liabilities held for sale |
( |
) | ||||||||||
Business Combination |
||||||||||||
Transfer |
( |
) | ||||||||||
Total |
||||||||||||
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Opening balance |
||||||||||||
Additions |
||||||||||||
Additions - business combination |
||||||||||||
Disposals |
( |
) | ( |
) | ( |
) | ||||||
Interest expense |
||||||||||||
Payments |
( |
) | ( |
) | ( |
) | ||||||
Assets and liabilities held for sale |
||||||||||||
Translation adjustments |
( |
) | ( |
) | ( |
) | ||||||
Total |
||||||||||||
Current portion |
||||||||||||
Non-current portion |
Year |
||||
2024 |
||||
2025 |
||||
2026 |
||||
Thereafter 2026 |
||||
21 |
Other payables |
12.31.2022 |
12.31.2021 |
|||||||
Provisions related to payroll |
||||||||
Provision for employee profit sharing |
||||||||
Long-term incentive (i) |
||||||||
Other accounts payable (ii) |
||||||||
Non-controlling purchase options - Tempest (iii) |
||||||||
Non-controlling purchase options - EVE (iv) |
||||||||
Mutual with jointly controlled operation |
||||||||
Contractual obligations (v) |
||||||||
Commission payable |
||||||||
Insurance |
||||||||
Training simulator |
||||||||
Recourse and non-recourse debt |
||||||||
Accounts payable from financial guarantees |
||||||||
Brazilian air force |
||||||||
Facility accounts payable |
||||||||
Accounts payable of acquisitions (deferred consideration) |
||||||||
Current portion |
||||||||
Non-current portion |
(i) |
Accounts payable of the share-based payment program granted to certain employees of the Company in the form of phantom shares as described in Note 27 |
(ii) |
Represents, substantially, provision for expenses already incurred as of the date of the consolidated financial statements and for which payments are made during the following month. |
(iii) |
As part of the acquisition of control of Tempest Serviços de Informática S.A. (2020), the Company received call options and granted put options to non-controlling shareholders in symmetrical and exercisable terms after the lock-up period at fair value for the purposes of the purchase of non-controlling interest. The Company recorded this derivative financial instrument as a reduction of shareholders’ equity held by controlling shareholders, taking the risks and benefits of minority interests that continue to be held by non-controlling shareholders. |
(iv) |
Refers to the purchase option of certain minority shareholders of Eve Holding, Inc., recorded as a reduction in the non-controlling interest, as per Note 12.3.2. |
(v) |
Represents amounts recorded regarding contractual obligations assumed by the Company in contracts with customers mainly related to commercial concessions and costs to obtain contracts. |
22 |
Taxes and payroll charges payable |
12.31.2022 |
12.31.2021 |
|||||||
INSS (social security contribution) (i) |
||||||||
IRRF (withholding tax) |
||||||||
PIS and COFINS |
||||||||
IPI (manufacturing tax) |
||||||||
FGTS (government employee severance indemnity fund) |
||||||||
Others |
||||||||
Current portion |
||||||||
Non-current portion |
(i) | Corresponds substantially to: |
• | The Company is challenging in court the levy of social contributions on the prior notice, among other indemnity amounts. The partial success was confirmed in November 2017. Currently, the remaining amount involved in the discussion, regarding the prior notice established in the collective agreement and 1/3 of vacation, among other amounts, is US$ |
• |
The Company has a discussion to ensure the right not to pay social security contributions according to the system established by Law 12,546/2011 during the month of July 2017. On December 31, 2022, the amount involved and respectively provisioned is US$ |
23 |
Income taxes |
12.31.2022 |
12.31.2021 |
|||||||
Temporarily non-deductible provisions (i) |
||||||||
Tax loss carryforwards |
||||||||
Functional currency effect of the non monetary assets |
( |
) | ( |
) | ||||
Gains not realized from sales of the Company to subsidiaries |
||||||||
Effect of differences by fixed asset |
( |
) | ( |
) | ||||
Other differences between basis: account x tax (ii) |
( |
) | ( |
) | ||||
Assets and liabilities held for sale |
( |
) | ||||||
Deferred tax assets (liabilities), net |
( |
) |
( |
) | ||||
Total deferred tax asset |
||||||||
Total deferred tax liability |
( |
) | ( |
) |
(i) |
Temporarily non-deductible provision includes accounting provisions, foreign exchange rate gains or losses included in income tax calculation when cash-settled and other differences which will be included or excluded in income tax calculation when realized for fiscal purposes. |
(ii) |
Refers to differences between the accounting and tax bases of assets and liabilities, such as adjustments to Contract revenues, Borrowing costs, Impairment, among others. |
From the statement of income |
Other comprehensive income |
Total |
||||||||||
At December 31, 2019 |
( |
) |
( |
) | ||||||||
Temporarily non-deductible provisions |
— | |||||||||||
Tax loss carryforwards |
— | |||||||||||
Functional currency effect of the non-monetary assets |
( |
) | — | ( |
) | |||||||
Gains not realized from sales of Parent Company to subsidiaries |
( |
) | — | ( |
) | |||||||
Effect of differences by fixed asset |
— | |||||||||||
Other differences between basis: account x tax |
||||||||||||
At December 31, 2020 |
( |
) |
( |
) | ||||||||
Temporarily non-deductible provisions |
— | |||||||||||
Tax loss carryforwards |
— | |||||||||||
Functional currency effect of the non-monetary assets |
( |
) | — | ( |
) | |||||||
Gains not realized from sales of Parent Company to subsidiaries |
— | |||||||||||
Effect of differences by fixed asset |
( |
) | — | ( |
) | |||||||
Differences between basis: account x tax |
( |
) | ( |
) | ||||||||
Discontinued operation |
( |
) | ( |
) | ||||||||
At December 31, 2021 |
( |
) |
( |
) | ||||||||
Temporarily non-deductible provisions |
( |
) | — | ( |
) | |||||||
Tax loss carryforwards |
— | |||||||||||
Functional currency effect of the non-monetary assets |
— | |||||||||||
Gains not realized from sales of Parent Company to subsidiaries |
— | |||||||||||
Effect of differences by fixed asset |
( |
) | — | ( |
) | |||||||
Other differences between basis: account x tax |
( |
) | ||||||||||
At December 31, 2022 |
( |
) |
( |
) | ||||||||
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Loss before income tax |
( |
) | ( |
) | ||||||||
Income tax and social contribution at the nominal Brazilian enacted tax rate - 34% |
( |
) |
||||||||||
Tax on profits of overseas subsidiaries |
( |
) | ( |
) | ( |
) | ||||||
Transfer Pricing and Thin Capitalization |
( |
) | ( |
) | ( |
) | ||||||
Functional currency effect of the non-monetary assets |
( |
) | ( |
) | ||||||||
Research and development tax incentives |
||||||||||||
Equity in the earnings of subsidiaries |
||||||||||||
Fiscal assets (non recognized) |
( |
) | ( |
) | ( |
) | ||||||
Tax rate difference |
||||||||||||
Other differences between accounting and fiscal basis |
( |
) | ||||||||||
Effects of Dropdown |
( |
) | ||||||||||
( |
) |
( |
) |
( |
) | |||||||
Income tax and social contribution income (expense) benefit as reported |
( |
) |
( |
) | ||||||||
Current income tax and social contribution expense as reported |
( |
) |
( |
) |
||||||||
Deferred income tax and social contribution income (expense) benefit as reported |
( |
) |
( |
) | ||||||||
Effective rat e |
- |
% | - |
% | % |
24 |
Provisions and contingent liabilities |
12.31.2022 |
12.31.2021 |
|||||||
Product warranties (i) |
||||||||
Provisions for labor, taxes and civil (ii) |
||||||||
Taxes (iii) |
||||||||
Post retirement benefits |
||||||||
Provision of third-party materials |
||||||||
Environmental provision |
||||||||
Others |
||||||||
Current portion |
||||||||
Non-current portion |
(i) |
Recorded to cover product-related expenditure, including warranties and contractual obligations to implement improvements to aircraft delivered in order to meet performance targets. |
(ii) |
Provisions for labor, tax or civil contingencies, as shown in the table below Note 24.1.1. |
(iii) |
Accrual of tax provisions mainly relates to indirect taxes recognized in relation to revenue recognition of long-term contracts. |
Product warranties |
Provisions labor, taxes and civil |
Post retirement benefits |
Taxes |
Environment provision |
Provision of third- party materials |
Others |
Total |
|||||||||||||||||||||||||
At December 31, 2019 |
||||||||||||||||||||||||||||||||
Additions |
||||||||||||||||||||||||||||||||
Interest |
||||||||||||||||||||||||||||||||
Used/payments |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Reversals |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Translation adjustments |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Reclassification - Liabilities held for sale |
||||||||||||||||||||||||||||||||
At December 31, 2020 |
||||||||||||||||||||||||||||||||
Additions |
||||||||||||||||||||||||||||||||
Interest |
||||||||||||||||||||||||||||||||
Used/payments |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Reversals |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
Translation adjustments |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||||||||||||||
Additions |
||||||||||||||||||||||||||||||||
Interest |
||||||||||||||||||||||||||||||||
Used/payments |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
Reversals |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
Translation adjustments |
( |
) | ||||||||||||||||||||||||||||||
At December 31, 2022 |
||||||||||||||||||||||||||||||||
12.31.2022 |
12.31.2021 |
|||||||
Tax related |
||||||||
IRRF (i) |
||||||||
PIS and COFINS (ii) |
||||||||
Social security contributions (iii) |
||||||||
Import taxes (iv) |
||||||||
Others |
||||||||
Labor related |
||||||||
Plurimas 461/1379 (v) |
||||||||
Class action 1379/1991 (vi) |
||||||||
Reintegration (vii) |
||||||||
Overtime (viii) |
||||||||
Dangerousness (ix) |
||||||||
Insalubrity (x) |
||||||||
Indemnity (xi) |
||||||||
Third parties (xii) |
||||||||
Others (xiii) |
||||||||
Civil related |
||||||||
Indemnity (xiv) |
||||||||
Current portion |
||||||||
Non-current portion |
(i) |
The Company has obtained an injunction to suspend income tax collection related to certain operations of transfers abroad. The related legal demand is pending completion. |
(ii) |
Since 2013, the Company has been discussing with Brazilian Tax Authorities the appropriation of extemporaneous PIS and COFINS credits in the non-cumulative regime, the discussions are segregated into several lawsuits and this item shows the amount of the provisioned lawsuits that are in the judicial stage. Also, under this heading there are other provisions related to federal taxes. |
(iii) |
The company has INSS discussions derived from notifications which are divided into several notifications related to the withholding of . |
(iv) |
Deficiency and Penalty Notices issued against the Company involving the drawback regime, disputing possible differences in relation to the tax classification of certain products and is at the analysis stage in the Federal Supreme Court - STJ ( Supremo Tribunal de Justiça |
(v) |
It refers to claims for backdated salary increases and productivity payments, on salaries from former employees. |
(vi) |
Class action filed by the Metalworkers Union of São José dos Campos with a request for retroactive salary readjustments and productivity payments. |
(vii) |
It refers to labor lawsuits from former employees claiming reinstatement with the Company for various reasons. |
(viii) |
It reflects several requests for payment of alleged differences due to allegations of overtime hours. |
(ix) |
It refers to requests that seek recognition of hazardous activities. |
(x) |
Requests that seek recognition of the activity in unhealthy conditions and the respective payments. |
(xi) |
Indemnity claims in connection with alleged work-related accidents or work-related illness. |
(xii) |
Those are requests for various orders, filed by employees of third-party companies that had some legal relationship with the Company seeking the subsidiary conviction of the Company in the event of default by their employer. |
(xiii) |
Other labor lawsuits refer to general matters different from the categories above-mentioned, such as, salary parity, salary differences, and others. |
(xiv) |
Other indemnity claims brought by parties that had some type of legal relationship with the Company. |
(i) | The Company has a legal dispute over AIIM on SAT / Agentes Nocivos |
(ii) | The Company is involved in a legal dispute related to tax credits paid by its subsidiaries abroad amounting to US$ |
(iii) | The Company has a dispute on the 2007 Tax Assessment Notice regarding the validity of the provisions contained in the Normative Instruction No. 213/02, which determined the taxation of profits from abroad through the application of Brazilian rules. The dispute involves transfer pricing in loans between associates, equity method, among other. On September 1, 2010, decadence had been accepted to exclude the requirements of the first three quarters of 2002, and it was determined to carry out diligence to collect information requested by the National Treasury Attorney ( Procuradoria da Fazenda Nacional |
(iv) | The Company has a discussion on the disallowance of credits launched in several PERDCOMPs (electronic request for reimbursement or refund and tax offset statement program in Brazil) in the amount of US$ |
(v) | The Company is discussing administratively and judicially the disallowance of appropriation of extemporaneous PIS/COFINS credits, this discussion is guaranteed by surety bond in the amount of US$ . |
(vi) | The Company is discussing the non-approval of offsetting PIS/COFINS Import credits arising from a final and unappealable court decision, totaling the historic amount of US$ |
(vii) | Other tax lawsuits in the amount of US$ |
(viii) | The Company has a legal discussion in Tax Enforcement questioning the requirement of the ICMS (Tax on Commerce and Services) for the period from April/2017 to October/2017, the value of the discussion on December 31, 2022, is US$ |
(ix) | The Company has an administrative discussion whose object of the AIIM (Deficiency Notice) is related to the requirement of ISS (Tax on Services) by the municipality of São José dos Campos/SP, supposedly due in the performance of after-sales services, whose value of the discussion on December 31,2022 is US$ |
(x) | The Company has contingent liabilities related several labor claims amounting to US$ |
25 |
Financial instruments |
12.31.2022 |
||||||||||||||||||||
Note |
Amortized cost |
Fair value through other comprehensive income |
Fair value through profit or loss |
Total |
||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
5 | — | — | |||||||||||||||||
Financial investments |
6 | |||||||||||||||||||
Trade accounts receivable, net |
7 | — | — | |||||||||||||||||
Customer and commercial financing |
9 | — | — | |||||||||||||||||
Derivative financial instruments |
8 | — | — | |||||||||||||||||
Other assets |
— | — | ||||||||||||||||||
Liabilities |
||||||||||||||||||||
Loans and financing |
20 | — | ||||||||||||||||||
Trade accounts payable |
18 | — | — | |||||||||||||||||
Trade accounts payable supplier finance |
19 | — | — | |||||||||||||||||
Other payables |
21 | — | ||||||||||||||||||
Lease liability |
20 | — | — | |||||||||||||||||
Derivative financial instruments |
8 | — | — | |||||||||||||||||
Other liabilities |
— | — | ||||||||||||||||||
12.31.2021 |
||||||||||||||||||||
Note |
Amortized cost |
Fair value through other comprehensive income |
Fair value through profit or loss |
Total |
||||||||||||||||
Assets |
||||||||||||||||||||
Cash and cash equivalents |
5 | — | ||||||||||||||||||
Financial investments |
6 | |||||||||||||||||||
Guarantee deposits |
— | — | ||||||||||||||||||
Trade accounts receivable, net |
7 | — | — | |||||||||||||||||
Customer and commercial financing |
9 | — | — | |||||||||||||||||
Derivative financial instruments |
8 | — | — | |||||||||||||||||
Other assets |
— | — | ||||||||||||||||||
Liabilities |
||||||||||||||||||||
Loans and financing |
20 | — | — | |||||||||||||||||
Trade accounts payable |
18 | — | — | |||||||||||||||||
Trade accounts payable supplier finance |
19 | — | — | |||||||||||||||||
Other payables |
21 | — | ||||||||||||||||||
Lease liability |
20 | — | — | |||||||||||||||||
Derivative financial instruments |
8 | — | — | |||||||||||||||||
Other liabilities |
— | — | ||||||||||||||||||
• | Level 1 - |
• | Level 2 non-exchange traded derivatives such as swaps or over-the-counter |
• | Level 3 |
12.31.2022 |
||||||||||||||||||||||||||||
Note | Level 1 |
Level 2 |
Level 3 |
Total fair value |
Amortized cost of the other financial instruments |
Carrying amount |
||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
Cash and cash equivalents |
5 | — | — | — | ||||||||||||||||||||||||
Financial investments |
6 | |||||||||||||||||||||||||||
Trade accounts receivable, net |
7 | — | — | — | ||||||||||||||||||||||||
Customer and commercial financing |
9 | — | — | — | ||||||||||||||||||||||||
Derivative financial instruments |
8 | — | — | |||||||||||||||||||||||||
Other a ssets |
— | — | — | |||||||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||||||
Loans and financing |
20 | — | ||||||||||||||||||||||||||
Trade accounts payable |
18 | — | — | — | ||||||||||||||||||||||||
Trade accounts payable s upplier finance |
19 | — | — | — | ||||||||||||||||||||||||
Other payables |
21 | — | ||||||||||||||||||||||||||
Lease liability |
20 | — | — | — | ||||||||||||||||||||||||
Derivative financial instruments |
8 | — | — | |||||||||||||||||||||||||
Other liabilities |
— | — | — | |||||||||||||||||||||||||
12.31.2021 |
||||||||||||||||||||||||
Note |
Level 2 |
Level 3 |
Total fair value |
Amortized cost of the other financial instruments |
Carrying amount |
|||||||||||||||||||
Assets |
||||||||||||||||||||||||
Cash and cash equivalents |
5 |
— |
||||||||||||||||||||||
Financial investments |
6 |
|||||||||||||||||||||||
Guarantee deposits |
— |
— |
— |
|||||||||||||||||||||
Trade accounts receivable, net |
7 |
— |
— |
— |
||||||||||||||||||||
Customer and commercial financing |
9 |
— |
— |
— |
||||||||||||||||||||
Derivative financial instruments |
8 |
— |
— |
|||||||||||||||||||||
Other assets |
— |
— |
— |
|||||||||||||||||||||
Liabilities |
||||||||||||||||||||||||
Loans and financing |
20 |
— |
— |
— |
||||||||||||||||||||
Trade accounts payable |
18 |
— |
— |
— |
||||||||||||||||||||
Trade accounts payable supplier finance |
19 |
— |
— |
— |
||||||||||||||||||||
Other payables |
21 |
— |
||||||||||||||||||||||
Lease liability |
20 |
— |
— |
— |
||||||||||||||||||||
Derivative financial instruments |
8 |
— |
— |
|||||||||||||||||||||
Other liabilities |
— |
— |
— |
|||||||||||||||||||||
1. | Cash flow growth rate in perpetuity; |
2. | Discount rate (WACC). |
Fair value of financial instruments using significant unobservable inputs (level 3) |
||||||||
Assets |
Liabilities |
|||||||
At 12.31.2020 |
||||||||
Reversal |
— |
( |
) | |||||
Transfer |
— | ( |
) | |||||
Changes in fair value |
( |
) | ||||||
Exchange variation |
( |
) | ||||||
At 12.31.2021 |
||||||||
Changes in fair value |
||||||||
Exchange variation |
||||||||
At 12.31.2022 |
||||||||
• |
Cash and cash equivalents and financial investments |
• |
Trade accounts receivable, and contract assets with customers |
Cash Flow |
Less than one year |
One to three years |
Three to five years |
More than five years |
||||||||||||||||
At December 31, 2022 |
||||||||||||||||||||
Loans and financing |
||||||||||||||||||||
Trade accounts payable |
— | — | — | |||||||||||||||||
Trade accounts payable - supplier finance |
— | — | — | |||||||||||||||||
Lease liability |
||||||||||||||||||||
Other liabilities |
||||||||||||||||||||
Other payables |
||||||||||||||||||||
Derivative financial instruments |
— | — | ||||||||||||||||||
Total |
||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||
Loans and financing |
||||||||||||||||||||
Trade accounts payable |
— | — | — | |||||||||||||||||
Trade accounts payable supplier finance |
— | — | — | |||||||||||||||||
Lease liability |
||||||||||||||||||||
Other liabilities |
||||||||||||||||||||
Other payables |
||||||||||||||||||||
Derivative financial instruments |
— | — | ||||||||||||||||||
Total |
||||||||||||||||||||
• |
Cash, cash equivalents and financial investments – the Company’s policy for managing the risk of fluctuations in interest rates on financial investments is to maintain a system to measure market risk, which consists of an aggregate analysis of variety of risk factors that might affect the return of those investments. |
• |
Loans and financing – the Company monitor financial markets with the purpose of evaluating hedge structures (derivative transactions) in compliance with the financial and risk management policy to protect its exposure risks of volatility in foreign currency and interest rates. |
Without derivative effect |
Fixed Rate |
Floating Rate |
Total |
|||||||||||||||||||||
Amount |
% |
Amount |
% |
Amount |
% |
|||||||||||||||||||
Cash, cash equivalents and financial investments |
% | % | % | |||||||||||||||||||||
Loans and financing |
% | % | % | |||||||||||||||||||||
With derivative effect |
Fixed Rate |
Floating Rate |
Total |
|||||||||||||||||||||
Amount |
% |
Amount |
% |
Amount |
% |
|||||||||||||||||||
Cash, cash equivalents and financial investments |
% | % | % | |||||||||||||||||||||
Loans and financing |
% | % | % |
Without derivative effect |
With derivative effect |
|||||||||||||||
Amount |
% |
Amount |
% |
|||||||||||||
Cash equivalents and financial investments |
% | % | ||||||||||||||
CDI |
% | % | ||||||||||||||
Loans and financing |
% | % | ||||||||||||||
Libor |
% | % | ||||||||||||||
CDI |
% | % | ||||||||||||||
SIFMA |
% | % | ||||||||||||||
EURIBOR |
% | % | ||||||||||||||
SOFR |
% | % |
12.31.2022 |
12.31.2021 |
|||||||
Loans and financing |
||||||||
Brazilian reais |
||||||||
U.S. dollars |
||||||||
Euro |
||||||||
Trade accounts payable |
||||||||
Brazilian reais |
||||||||
U.S. dollars |
||||||||
Euro |
||||||||
Other currencies |
||||||||
Trade accounts payable - Supplier finance |
||||||||
Brazilian reais |
||||||||
U.S. dollars |
||||||||
Total (1) | ||||||||
Cash and cash equivalents and financial investments |
||||||||
Brazilian reais |
||||||||
U.S. dollars |
||||||||
Euro |
||||||||
Other currencies |
||||||||
Trade accounts receivable: |
||||||||
Brazilian reais |
||||||||
U.S. dollars |
||||||||
Euro |
||||||||
Other currencies |
||||||||
Total (2) |
||||||||
Net exposure (1 - 2): |
||||||||
Brazilian reais |
( |
) | ( |
) | ||||
U.S. dollars |
||||||||
Euro |
( |
) | ( |
) | ||||
Other currencies |
( |
) | ( |
) |
Additional variations in book balances (*) |
||||||||||||||||||||||||||
Risk factor |
Amounts exposed at 12.31.2022 |
-50% |
-25% |
Probable scenario |
+25% |
+50% |
||||||||||||||||||||
Cash equivalents and financial investments |
CDI | ( |
) | ( |
) | |||||||||||||||||||||
Loans and financing |
CDI | ( |
) | ( |
) | ( |
) | |||||||||||||||||||
Net impact |
CDI | ( |
) |
( |
) |
|||||||||||||||||||||
Loans and financing |
LIBOR | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||
Net impact |
LIBOR | ( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||
Loans and financing |
SOFR | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||
Net impact |
SOFR | ( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||||
Rates considered |
CDI | % | % | % | % | % | % | |||||||||||||||||||
Rates considered |
LIBOR 6M | % | % | % | % | % | % | |||||||||||||||||||
Rates considered |
TJLP | % | % | % | % | % | % | |||||||||||||||||||
Rates considered |
IPCA | % | % | % | % | % | % | |||||||||||||||||||
Rates considered |
SOFR | % | % | % | % | % | % | |||||||||||||||||||
(*) The positive and negative variations of |
Additional variations in book balances (*) |
||||||||||||||||||||||||||||
Risk factor |
Amounts exposed at 12.31.2022 |
-50% |
-25% |
Probable scenario |
+25% |
+50% |
||||||||||||||||||||||
Assets |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||
Cash, cash equivalents and financial investments |
R$ | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
Other assets |
R$ | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
Liabilities |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Loans and financing |
R$ | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
Other liabilities |
R$ | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
Net impact |
( |
) |
( |
) | ||||||||||||||||||||||||
Exchange rate considered |
(*) | The positive and negative variations of |
Additional variations in book balances (*) |
||||||||||||||||||||||||||
Risk factor |
Amounts exposed at 12.31.2022 |
-50% |
-25% |
Probable scenario |
+25% |
+50% |
||||||||||||||||||||
Derivative designated as hedge accounting |
||||||||||||||||||||||||||
Interest swap - fair value hedge |
CDI | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||
Hedge destinated as cash flow hedge |
US$/R$ | ( |
) | ( |
) | ( |
) | |||||||||||||||||||
Other derivatives |
||||||||||||||||||||||||||
Interest swap |
LIBOR | ( |
) | |||||||||||||||||||||||
Foreign exchange option |
EUR/US$ | ( |
) | ( |
) | ( |
) | |||||||||||||||||||
Equity SWAP |
Embraer share prices | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||
EVE warrants |
EVE share prices | ( |
) | ( |
) | ( |
) | |||||||||||||||||||
Total |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Rate considered |
LIBOR | % | % | % | % | % | % | |||||||||||||||||||
Rate considered |
CDI | % | % | % | % | % | % | |||||||||||||||||||
Rate considered |
US$/R$ | |||||||||||||||||||||||||
Rate considered |
EUR/US$ |
(*) | The positive and negative variations of |
• |
Republic Shares |
Result |
||||||||||||
December 31, 2022 |
Increase |
Probable Scenario |
Decrease |
|||||||||
Growth rate ( |
||||||||||||
Discount rate ( |
• |
Tempest Put options |
Result |
||||||||||||
December 31, 2022 |
Increase |
Probable Scenario |
Decrease |
|||||||||
Growth rate ( |
||||||||||||
Discount rate ( |
26 |
Shareholders’ equity |
USD |
Quantity |
Share value in unit (USD) |
||||||||||
At December 31, 2020 |
||||||||||||
Repurchase of shares in the period |
||||||||||||
At December 31, 2021 |
||||||||||||
At December 31, 2022 |
||||||||||||
• | Cumulative translation adjustment: foreign exchange gains/losses resulting from translation of the foreign subsidiaries’ financial statements measured in other functional currencies to the Company’s functional currency (dollar); and |
• | Other comprehensive income: unrealized actuarial gains (losses) resulting from the healthcare plans sponsored by the Company, changes in fair value of financial instruments measured at FVOCI and changes in the fair value of the cash flows hedges structures (Note 8). |
26.8 |
Result in transactions with non-controlling interest |
27 |
Share-based compensation |
• | restricted virtual shares: (i) |
• | virtual performance shares: |
• |
restricted virtual shares: |
• | v irtual performance shares: |
Amount of virtual stock |
Grant value (i) |
Amount of virtual stock (ii) |
Fair value of shares (R$) (iii) |
Fair value of shares (US$) (iii) |
||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
At December 31, 2022 |
||||||||||||||||||||
Amount of virtual stock |
Grant value (i) |
Amount of virtual stock (ii) |
Fair value of shares (R$) (iii) |
Fair value of shares (US$) (iii) |
||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
Grants on |
||||||||||||||||||||
At December 31, 2021 |
||||||||||||||||||||
(i) | Refers to the estimated fair value of total virtual shares to be granted in each grant date. |
(ii) | Outstanding virtual shares until December 31, 2022 and December 31, 2021 considering the plan’s vesting period and less the virtual shares already paid to the beneficiaries. |
(iii) | Fair value of virtual shares as of December 31, 2022 and December 31, 2021 considering the plan’s vesting period and fair value of Embraer’s shares in the market on each date based on the plan’s requirements. |
28 |
Earnings per share |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Losses attributable to owners of Embraer |
( |
) | ( |
) | ( |
) | ||||||
( |
) |
( |
) |
( |
) | |||||||
Weighted average number of shares (in thousands) |
||||||||||||
Basic and diluted loss per share - U.S. dollars |
( |
) | ( |
) | ( |
) |
29 |
Revenue from contracts with customers |
• | Revenue by category on December 31, 2022: |
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total |
|||||||||||||||||||
Aircraft |
||||||||||||||||||||||||
Long-term contracts – aircraft |
||||||||||||||||||||||||
Others |
||||||||||||||||||||||||
Service |
||||||||||||||||||||||||
Spare Parts |
||||||||||||||||||||||||
Total |
||||||||||||||||||||||||
North America |
Latin America |
Asia Pacific |
Brazil |
Europe |
Others |
Total |
||||||||||||||||||||||
Aircraft |
||||||||||||||||||||||||||||
Long-term contracts – aircraft |
||||||||||||||||||||||||||||
Others |
||||||||||||||||||||||||||||
Service |
||||||||||||||||||||||||||||
Spare Parts |
||||||||||||||||||||||||||||
Total |
||||||||||||||||||||||||||||
• | Revenue by category on December 31, 2021: |
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total |
|||||||||||||||||||
Aircraft |
||||||||||||||||||||||||
Long-term contracts – aircraft |
||||||||||||||||||||||||
Others |
||||||||||||||||||||||||
Service |
||||||||||||||||||||||||
Spare Parts |
||||||||||||||||||||||||
Total |
||||||||||||||||||||||||
North America |
Latin America |
Asia Pacific |
Brazil |
Europe |
Others |
Total |
||||||||||||||||||||||
Aircraft |
||||||||||||||||||||||||||||
Long-term contracts – aircraft |
||||||||||||||||||||||||||||
Others |
||||||||||||||||||||||||||||
Service |
||||||||||||||||||||||||||||
Spare Parts |
||||||||||||||||||||||||||||
Total |
||||||||||||||||||||||||||||
• | Revenue by category on December 31, 2020: |
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total |
|||||||||||||||||||
Aircraft |
||||||||||||||||||||||||
Long-term contracts – aircraft |
||||||||||||||||||||||||
Others |
||||||||||||||||||||||||
Service |
||||||||||||||||||||||||
Spare Parts |
||||||||||||||||||||||||
Total |
||||||||||||||||||||||||
North America |
Latin America |
Asia Pacific |
Brazil |
Europe |
Others |
Total |
||||||||||||||||||||||
Aircraft |
||||||||||||||||||||||||||||
Long-term contracts - aircraft |
||||||||||||||||||||||||||||
Others |
||||||||||||||||||||||||||||
Service |
||||||||||||||||||||||||||||
Spare Parts |
||||||||||||||||||||||||||||
Total |
||||||||||||||||||||||||||||
12.31.2022 |
12.31.2021 |
|||||||
Contract assets |
||||||||
Current portion |
||||||||
Non-current portion |
— |
12.31.2022 |
12.31.2021 |
|||||||
Advances from customers - Aircraft and Defense long-term contracts |
||||||||
Deferred revenue - Parts and services |
||||||||
Contract liabilities |
||||||||
Current portion |
||||||||
Non-current portion |
30 |
Revenue (expenses) by nature |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
As presented in the statements of income: |
||||||||||||
Revenue |
||||||||||||
Cost of sales and services |
( |
) | ( |
) | ( |
) | ||||||
Administrative |
( |
) | ( |
) | ( |
) | ||||||
Selling |
( |
) | ( |
) | ( |
) | ||||||
Expected credit (losses) reversals over financial assets and contract assets |
( |
) | ( |
) | ||||||||
Research |
( |
) | ( |
) | ( |
) | ||||||
Other operating expense, net |
( |
) | ( |
) | ( |
) | ||||||
Equity in associates |
||||||||||||
Operating profit before financial income |
( |
) |
( |
) | ||||||||
Revenue (expenses) by nature: |
||||||||||||
Revenue from sales of goods |
||||||||||||
Revenue from sales of services |
||||||||||||
Sales deductions and tax on revenue (i) |
( |
) | ( |
) | ( |
) | ||||||
General manufacturing costs (ii) |
( |
) | ( |
) | ( |
) | ||||||
Depreciation |
( |
) | ( |
) | ( |
) | ||||||
Amortization |
( |
) | ( |
) | ( |
) | ||||||
Personnel expenses |
( |
) | ( |
) | ( |
) | ||||||
Selling expenses |
( |
) | ( |
) | ( |
) | ||||||
Equity in associates |
||||||||||||
Research |
( |
) | ( |
) | ( |
) | ||||||
Expected credit (losses) reversals over financial assets and contract assets |
( |
) | ( |
) | ||||||||
Services provided |
( |
) | ( |
) | ( |
) | ||||||
Other operating expenses, net (Note 31) |
( |
) | ( |
) | ( |
) | ||||||
Miscellaneous (iii) |
( |
) | ( |
) | ( |
) | ||||||
Operating profit before financial income |
( |
) |
( |
) | ||||||||
(i) |
Refers to sales taxes and other deductions. |
(ii) |
Refers to costs of materials, direct labor and general manufacturing expenses. |
(iii) | Refers mainly to expenses with insurance, taxes and fees. |
31 |
Other operating expense, net |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Warrants -EVEX (i) |
( |
) | ||||||||||
Listing expenses - EVEX (ii) |
( |
) | ||||||||||
Corporate projects (iii) |
( |
) | ( |
) | ( |
) | ||||||
Restructuring expenses (iv) |
( |
) | ( |
) | ( |
) | ||||||
Taxes on other sales |
( |
) | ( |
) | ( |
) | ||||||
Transaction costs - EVEX (v) |
( |
) | ||||||||||
Expenses system project |
( |
) | ( |
) | ( |
) | ||||||
Residual value of fixed assets disposed |
( |
) | ( |
) | ||||||||
Aircraft maintenance and flights costs - fleet |
( |
) | ( |
) | ( |
) | ||||||
Flight safety standards |
( |
) | ( |
) | ( |
) | ||||||
Product modification |
( |
) | ( |
) | ( |
) | ||||||
Training and development |
( |
) | ( |
) | ( |
) | ||||||
Depreciation and amortization - Commercial Aviation |
( |
) | ||||||||||
Costs with personnel |
( |
) | ||||||||||
Carve-Out Expenses |
( |
) | ||||||||||
Additional losses with financial guarantees exercised |
( |
) | ||||||||||
Contractual fines |
( |
) | ( |
) | ||||||||
Reversal of tax provisions |
||||||||||||
Recovery of expenses |
||||||||||||
Contractual fines revenue |
||||||||||||
Disposal of production units in Évora |
||||||||||||
Other sales |
||||||||||||
Impairment of assets |
||||||||||||
Royalties |
||||||||||||
Reversal (Provision) for contingencies |
( |
) | ( |
) | ||||||||
Fair value changes - Republic Airways shares |
( |
) | ||||||||||
Others |
( |
) | ( |
) | ( |
) | ||||||
( |
) |
( |
) |
( |
) | |||||||
(i) | Initial recognition of the warrants covered by the BCA, which became exercisable on May 9, 2022. |
(ii) | Listing Expenses – EVEX are non-cash expenses, based on the difference between the value of Zanite’s identifiable net assets against the fair value of financial instruments issued by EVEX Note 12.3.2. |
(iii) | Corporate project expenses mainly relate to disbursements with demands approved by Management associated with efficiency and restructuring of processes, IT, cyber security, and legal demands. |
(iv) | Restructuring expenses include expenses incurred by the Company as part of the corporate restructuring project started in 2021 and ended in 2022 with the reintegration of Commercial Aviation, including expenses related to excess manufacturing capacity, mainly wages, during the collective vacation period that occurred in January 2022 to complete the reintegration process. |
(v) | Transaction costs – EVEX are the direct expenses attributable to the Business Combination such as law firms, auditors, banks, and other services associated with carrying out the transaction. As per Note 12.3.2, all transaction costs considered non-incremental were recognized in Other operating expenses. |
32 |
Financial expenses, net |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Financial income: |
||||||||||||
Warrants |
||||||||||||
Interest on cash and cash equivalents and financial investments |
||||||||||||
Interest on receivables |
||||||||||||
Residual value guarantee |
||||||||||||
Taxes over financial revenue |
( |
) | ( |
) | ( |
) | ||||||
Phantom shares (LTI) |
||||||||||||
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Others |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
Total financial income |
||||||||||||
|
|
|
|
|
|
|||||||
Financial expenses: |
||||||||||||
Interest on loans and financing |
( |
) | ( |
) | ( |
) | ||||||
IOF - (tax on financial transactions) |
( |
) | ( |
) | ( |
) | ||||||
Interest on taxes, social charges and contributions |
( |
) | ( |
) | ( |
) | ||||||
Financial restructuring costs |
( |
) | ( |
) | ||||||||
Phantom shares (LTI) |
( |
) | ||||||||||
Derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
( |
) |
Others |
( |
) | ( |
) | ( |
) | ||||||
|
|
|
|
|
|
|||||||
Total financial expenses |
( |
) |
( |
) |
( |
) | ||||||
|
|
|
|
|
|
|||||||
Financial expenses, net |
( |
) |
( |
) |
( |
) | ||||||
|
|
|
|
|
|
33 |
Foreign exchange gain (loss), net |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Monetary and foreign exchange variations |
||||||||||||
Assets: |
||||||||||||
Tax credits |
( |
) | ( |
) | ||||||||
Trade accounts receivable and contract assets |
( |
) | ( |
) | ||||||||
Cash and cash equivalents and financial investments |
( |
) | ||||||||||
Others |
( |
) | ( |
) | ||||||||
|
|
|
|
|
|
|||||||
( |
) |
( |
) | |||||||||
|
|
|
|
|
|
|||||||
Liabilities: |
||||||||||||
Loans and financing |
||||||||||||
Advances from customers |
( |
) | ( |
) | ||||||||
Provisions |
( |
) | ||||||||||
Taxes and charges payable |
( |
) | ||||||||||
Other payables |
( |
) | ( |
) | ||||||||
Suppliers |
( |
) | ( |
) | ||||||||
Provisions for contingencies |
( |
) | ||||||||||
Others |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
( |
) |
|||||||||||
|
|
|
|
|
|
|||||||
Net monetary and foreign exchange variations |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
Derivative financial instruments |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
Foreign exchange gain (loss), net |
( |
) | ||||||||||
|
|
|
|
|
|
34 |
Responsibilities and commitments |
35 |
Supplemental cash flow information |
12.31.2022 |
12.31.2021 |
12.31.2020 |
||||||||||
Non-cash financing and investing transactions |
||||||||||||
Acquisition of inventories through assumption of financing |
— | |||||||||||
Write off on Property, plant and equipment by transfer to pool parts inventory |
( |
) | ( |
) | ( |
) | ||||||
Property, plant and equipment, transfer for providing for the sale of inventory |
— | ( |
) | |||||||||
Non-controlling purchase options |
— |
36 |
Segment information |
• |
ERJ 145 family, comprising the ERJ 135, ERJ 140 and ERJ 145 jets, certified to operate with 37, 44 and 50 seats, respectively. |
• |
EMBRAER 170/190 family, comprising the EMBRAER 170, a 70-seat jet, EMBRAER 175, a 76-seat jet, EMBRAER 190, a 100-seat jet and the EMBRAER 195, a 108-seat jet. The EMBRAER 170 model has been operating commercially since 2004, the EMBRAER 175 and EMBRAER 190 models started commercial operations in 2006, and the EMBRAER 195 model in 2007. |
• |
E-Jets E2, the second generation of the E-Jets family of commercial aircraft, consists of three new aircraft – E175-E2 with capacity of up to 88 seats, E190-E2 with up to 106 seats and E195-E2, with up to 146 seats in a typical single-class configuration. The E190-E2 started commercial operations in the first half of 2018. First production E195-E2 was delivered in September 2019 and the E175-E2 will entry into service between 2027 and 2028. |
• | C-390 Millennium/ KC-390 Millennium - joint project between the Brazilian Air Force and Embraer to develop and produce a tactical military transport aircraft, including aerial refueling capability. The CGU represents a significant advance in terms of technology and innovation for the airspace Industry. The aircraft is designed to establish new standards in its category, delivering lower operating costs than its competitors, and the flexibility to accomplish a variety of missions: troop and cargo transport, aerial resupply, aerial refueling, search & rescue, aerial firefighting, among other missions. |
• | A-29 Super Tucano - military turboprop that combines advanced operational capacities with low acquisition and operating costs. The A-29 Super Tucano is a true multi-mission aircraft – its main mission segments are: (1) aerial support to land operations, (2) reconnaissance, and (3) tactical training. The A-29 Super Tucano possesses the operational capabilities to accomplish border surveillance, close air support and counter insurgence missions (COIN). |
• | Software and Systems Development - combining the expertise of Atech Negócios em Tecnologia S.A. with Embraer capabilities in system development and integration, we provide specialized engineering services for the development, installation, revitalization and maintenance of critical control, defense and monitoring systems. As part of the solution packages, Embraer Defense & Security also provides the equipment and tools for total integration with our services. |
• | Border Surveillance and protection of Strategic Structures - based on our expertise in systems integration, Embraer develops, designs, certifies, produces, integrates and implements systems and services in the field of border surveillance and control, as well as protection of critical infra-structures. |
• | Radars - having a proven track record in developing and producing radars for Defense and Remote Sensing applications, Embraer Defense & Security offers multiple solutions in the Radars & Land Systems field: anti-aircraft artillery, land surveillance, civil and military air traffic control, communications intelligence systems, synthetic aperture radar for cartography and precision-monitoring services, etc. |
• | Cybersecurity - through Tempest, Embraer Defense & Security provides cybersecurity solutions in the civil, government and defense markets. Cybersecurity solutions include specialized diagnostic services, cybersecurity systems architecture and implementation, as well as software and technical products for control and protection of cyber environments. |
• | Satellites and Space Services - Visiona Tecnologia Espacial is a joint venture of Embraer and Telebrás. After the successful program to provide and integrate the Brazilian Geostationary Defense and Communications Satellite system (SGDC), the company is currently developing the Nano Satellite VCUB. This new program will validate the software developed by Visiona for the satellites of the Brazilian Space Program, and perform observation missions of the earth, as well as collect data. Visiona also provides remote sensing services through satellite images or airborne radars. |
• | Aircraft Modernization - the Company is also prepared to offer aircraft modernization services. Four active contracts represent successful programs in this area, all of them at the final delivery stage. The first one, known as F-5BR, is focused on the structural and electronic upgrade of the Brazilian Air Force’s F-5 fighter jet. The second program, A-1M, concerns upgrading the AMX, an advanced jet that is part of the assets of the Brazilian Air Force. The scope of third program, contracted by the Brazilian Navy, comprises the revitalization of the A-4 Skyhawk aircraft (denominated AF-1 by the customer), as well as the incorporation of new technologies to the platform. On the fourth program, which also supports the Brazilian Air Force, the Company was contracted to modernize the airborne sensors on the EMB-145 AEW&C aircraft. |
• | ISR family (Intelligence, Surveillance and Reconnaissance) - originally developed to support the SIVAM program, and based on the ERJ-145 platform, some customized versions have been ordered by the governments of Greece, Mexico and India. A new solution is currently being marketed, which uses the Praetor 600 platform to deliver the AEW&C (Airborne Early Warning and Control) capability. |
• | Transportation of Authorities and Special Missions - derived from Commercial Aviation and Executive Aviation aircraft platforms, these are aircraft used to transport government and/ or armed forces authorities, or to carry out special missions. |
• | Phenom family - executive jets in the Entry Jet and Light Jet categories, respectively. The first deliveries of the Phenom 100 were made in 2008, and deliveries of the Phenom 300 started in 2009. |
• | Praetor 500 and Praetor 600 - most disruptive executive jets in the Midsize and Super Midsize categories, introduced in Q4 2018 with deliveries starting in 2nd half 2019. |
• | Capture customer needs and develop integrated support and services solutions: To develop integrated and competitive support solutions, technical services, materials, or MRO activities that meet the needs and expectations of Embraer customers. |
• | Sell and administrate support and services solution: To sell integrated and competitive technical support, service solutions, materials, or MRO activities, and administer support and service contracts. |
• | Deliver Material Solutions: To provide parts to customers, by direct sale or availability through special programs, manage component repair, provide inventory management services and advice on inventory formation. |
• | Deliver Technical Solutions: To provide technical, operational and maintenance support to customers fleets with services such as providing training for pilots and commissioners, aircraft modification and enhancement projects, review of technical, operational and maintenance publications, and sustaining digital solutions. |
• | Deliver MRO Solutions: To provide maintenance services for aircraft, engines and landing gear (scheduled and unscheduled), aircraft modernization and component repair . |
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total reportable Segments |
Unallocated |
Total |
|||||||||||||||||||||||||
Revenue |
— | |||||||||||||||||||||||||||||||
Cost of sales and services |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | |||||||||||||||||
Gross profit |
— |
|||||||||||||||||||||||||||||||
Operating income (expense) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Operating profit before financial income (expense) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||||||
Financial income (expense), net |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Foreign exchange loss, net |
||||||||||||||||||||||||||||||||
Loss before taxes on income |
( |
) | ||||||||||||||||||||||||||||||
Income tax expense |
||||||||||||||||||||||||||||||||
Loss for the period |
( |
) | ||||||||||||||||||||||||||||||
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total |
|||||||||||||||||||
North America |
||||||||||||||||||||||||
Europe |
— | |||||||||||||||||||||||
Asia Pacific |
— | |||||||||||||||||||||||
Latin America, except Brazil |
— | |||||||||||||||||||||||
Brazil |
||||||||||||||||||||||||
Others |
— | |||||||||||||||||||||||
Total |
||||||||||||||||||||||||
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total reportable Segments |
Unallocated |
Total |
|||||||||||||||||||||||||
Property, plant and equipment |
— | |||||||||||||||||||||||||||||||
Intangible assets |
||||||||||||||||||||||||||||||||
Total |
||||||||||||||||||||||||||||||||
North America |
Europe |
Asia Pacific |
Brazil |
Total |
||||||||||||||||
Property, plant and equipment |
||||||||||||||||||||
Intangible assets |
— | |||||||||||||||||||
Total |
||||||||||||||||||||
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total reportable Segments |
Unallocated |
Total |
|||||||||||||||||||||||||
Revenue |
— | |||||||||||||||||||||||||||||||
Cost of sales and services |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | |||||||||||||||||
Gross profit |
( |
) |
— |
|||||||||||||||||||||||||||||
Operating income (expense) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Operating profit before financial income (expense) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||
Financial income (expense), net |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Foreign exchange gain (loss), net |
||||||||||||||||||||||||||||||||
Loss before taxes on income |
||||||||||||||||||||||||||||||||
Income tax benefit (expense) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Loss for the period |
( |
) | ||||||||||||||||||||||||||||||
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total |
|||||||||||||||||||
North America |
||||||||||||||||||||||||
Europe |
— | |||||||||||||||||||||||
Asia Pacific |
— | |||||||||||||||||||||||
Latin America, except Brazil |
— | |||||||||||||||||||||||
Brazil |
||||||||||||||||||||||||
Others |
— | — | ||||||||||||||||||||||
Total |
||||||||||||||||||||||||
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total reportable Segments |
Unallocated |
Total |
|||||||||||||||||||||||||
Property, plant and equipment |
— | |||||||||||||||||||||||||||||||
Intangible assets |
— | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total |
||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
Europe |
Asia Pacific |
Brazil |
Total |
||||||||||||||||
Property, plant and equipment |
||||||||||||||||||||
Intangible assets |
— | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total reportable Segments |
Unallocated |
Total |
|||||||||||||||||||||||||
Revenue |
— | |||||||||||||||||||||||||||||||
Cost of sales and services |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | ( |
) | |||||||||||||||||
Gross profit |
( |
) |
— |
|||||||||||||||||||||||||||||
Operating income (expense) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Operating profit before financial income (expense) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||||||
Financial income (expense), net |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Foreign exchange gain (loss), net |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Profit before taxes on income |
( |
) | ||||||||||||||||||||||||||||||
Income tax expense |
( |
) | ( |
) | ||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||
Loss for the period |
( |
) | ||||||||||||||||||||||||||||||
|
|
Commercial Aviation |
Defense & Security |
Executive Aviation |
Services & Support |
Other Segments |
Total |
|||||||||||||||||||
North America |
||||||||||||||||||||||||
Europe |
— | |||||||||||||||||||||||
Asia Pacific |
— | |||||||||||||||||||||||
Latin America, except Brazil |
— | |||||||||||||||||||||||
Brazil |
||||||||||||||||||||||||
Others |
— | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
37 |
Subsequent events |