Embraer Jumps on Republic Deal Valued at Up to $4 Billion
Embraer SA (EMBR3), the world’s fourth- largest planemaker, surged the most in two years after signing a contract to sell regional jets worth about two-thirds of its annual revenue last year.
The shares jumped 8.9 percent to 15.93 reais at the close of trading in Sao Paulo, the most since January 2011 and the highest closing level in eight months. Earlier, shares climbed as much as 12 percent.
The manufacturer led gains on the Bovespa stock index after announcing an order from Republic Airways Holdings Inc. (RJET) for 47 of its E-175 jets, with an option for an additional 47. The first delivery is scheduled for mid-year and the contract may total $4 billion should the option for more planes be exercised.
“The re-fleeting of the airlines in the United States -- that is our major source of demand,” Chief Executive Officer Frederico Curado said in an interview in Davos, Switzerland. U.S. airlines will need 300 to 400 regional jets in the next two years, and Embraer seeks to supply half of them, he said.
“We are going to sell more new aircraft than we deliver this year,” Curado said. “We are going to increase our backlog.”
The deal is “monumental” for Embraer, Sandro Fernandes, a trader at brokerage Corval, said by phone from Belo Horizonte, Brazil. “A good portion of this year’s revenue and dividends is already guaranteed.”
Embraer’s sales grew 26 percent in 2012 to 12.5 billion reais ($6.1 billion), according to the average estimate of 13 analysts surveyed by Bloomberg. Revenue will climb to 12.7 billion reais this year, according to analysts’ estimates.
The stock is “still cheap with momentum and upside to our figures,” Renato Mimica, a Banco BTG Pactual SA analyst, wrote in a note to clients.“We are still strong buyers,” Mimica wrote.
Republic, an Indianapolis-based provider of commuter flights for larger carriers, placed its order as it disclosed a new contract to operate bigger regional jets for AMR Corp. (AAMRQ)’s American Airlines.
Under the 12-year accord, Republic will operate 76-seat jets for Fort Worth, Texas-based American, which reached a new contract with pilots last month allowing regional partners to use larger planes. Republic will phase in 53 Embraer SA E-175 jets at a rate of two to three planes a month beginning mid-year and ending in the first quarter of 2015, the airlines said.
Regional jets with 70 or more seats have been a focus for U.S. airlines as models with 50 or fewer seats fall from favor because of rising fuel costs. Delta Air Lines Inc. (DAL) agreed to buy Bombardier Inc. (BBD/B) 76-seat planes last month, and CEO Richard Anderson said this week he expects to cut Delta’s 50-seat fleet to as few as 100 within two years from about 300 as of December.
Embraer has risen 34 percent in the past 12 months while the Bovespa fell 2.1 percent. Today’s trading volume was almost five times the average over the past three months.