Embraer Investors Surprised by CEO Exit Billed as ‘Planned’

  • Commercial aircraft chief Silva to take top job next month
  • Brazilian planemakers’ change in command jolts shares

Embraer SA said Frederico Curado will step down as chief executive officer after nine years at the helm, departing unexpectedly as the Brazilian planemaker faces stepped-up competition in the regional jet market.

The company’s commercial aviation boss, Paulo Cesar de Souza e Silva, will take over executive duties next month from Curado, 54, the company said in a statement Thursday. A full transition will occur by the end of the year. Embraer fell 2.8 percent to 17.93 reais at 1:01 p.m. in Sao Paulo after tumbling as much as 3.7 percent, the biggest intraday drop in a month.

The executive shift catches the Brazilian planemaker at a critical time, as it works to certify the first of its E-Jet E2 family of commercial jets. The upgraded regional aircraft face an array of new competitors from Bombardier Inc.’s C Series to Mitsubishi’s MRJ and China’s Comac C919 amid slumping global air transport sales.

“The market received the succession as a surprise, it should have a short-term negative impact” on the shares, said Rafael Ohmachi, an analyst at brokerage Guide Investimentos in Sao Paulo. “But we see Paulo Cesar as a competent professional” and therefore the stock should eventually recover, he said.

Curado’s exit is part of a “planned transition,” said Saulo Passos, a spokesman for Embraer.

Aircraft Headwinds

The Sao Jose dos Campos, Brazil-based manufacturer is the latest aerospace company to revamp its leadership amid market challenges and heightened pressure from new entrants. The shares declined 39 percent this year through Thursday, compared with an 18 percent gain for the benchmark Ibovespa index.

Spirit AeroSystems Holdings Inc., Boeing Co.’s largest supplier, announced Wednesday that CEO Larry Lawson is retiring at the end of July. New leaders have taken the reins of Boeing, Bombardier, Rolls-Royce Plc and United Technologies Corp. in the last two years.

A strengthening currency in the South American country may cause some “cost headwinds” for Embraer this year, Curado said in April. The real’s 15 percent advance against the dollar is the biggest this year among 16 major currencies tracked by Bloomberg.

Curado Legacy

Silva will the sixth CEO of 46-year-old Embraer. Curado’s predecessor, Mauricio Botelho, led the company for 12 years. Embraer will soon announce a replacement for Silva, the company said.

Curado drove Embraer’s expansion into business jets with the Phenom and Legacy families, and in military transport with the KC-390. He also won sales from Bombardier’s all-new C Series by opting to revamp Embraer’s E-Jet family with similar engine technology to the Canadian jet’s instead of pursuing a costly and time-consuming redesign.

“His leadership is widely respected across the industry by peers, competitors and suppliers,” Ronald Epstein, an aerospace analyst at Bank of America Corp., said in a note to clients.

Momentum Shift

The company saw strong sales gains in the last decade as major U.S. airlines shifted more flying to regional affiliates and then traded out cramped 50-seaters for Embraer’s more spacious jets. But Embraer saw market momentum shift as United Continental Holdings Inc. struck deals with Boeing this year and Delta Air Lines Inc. snubbed the E2 for Bombardier’s C Series planes.

During the first quarter, Embraer didn’t record any jetliner sales, according to data compiled by Bloomberg Intelligence. It broke the drought when Alaska Air Group Inc.’s Horizon Air subsidiary ordered 30 E175 jets in April.

The Brazilian planemaker’s firm-order backlog stood at $21.9 billion at the end of the first quarter, compared with $20.4 billion a year earlier and $22.5 billion in backlog at the end of 2015.

Corruption Probe

Embraer may be hit with “substantial” fines in the U.S. as it moves to resolve a probe involving the Foreign Corrupt Practices Act, the company said earlier this year.

High-ranking executives including Curado knew sales consultant Elio Moti Sonnenfeld was paying bribes tied to the sale of aircraft in the Dominican Republic, the Wall Street Journal reported in March, citing official summaries of Sonnenfeld’s statements.

The company said it was unable to comment because the article was “based on allegations that apparently were leaked from a confidential statement from a defendant in a lawsuit that is under seal in Brazil and not available to the company.” Embraer said it was cooperating with authorities.

Curado’s departure was unrelated to any official probe, said Passos, the company spokesman. “There is no connection between any government investigation and the transition that we are starting,” Passos said.

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