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The shares of the Brazilian jet maker Embraer SA (ERJ - Analyst Report) dropped 4.7% to $33.63 on Oct 15 in the wake of weak third quarter 2013 deliveries. The plane maker has delivered a total of 44 jets in the third quarter of 2013 ending Sep 30, 2013, which fell short of the 51 deliveries made in the last quarter.

However, the quarterly deliveries exceeded the year-ago level of 40. Of the total deliveries this quarter, 19 jets were delivered to the commercial aviation market including 9 of E-190, 9 E-175 and 1 E-170, while the remaining 25 jets were delivered to executive aviation inclusive of 21 Light and 4 Large jets. The company noted that though its backlog includes demand for its defense and security business, it does not report quarterly deliveries of military aircraft.

With rising demand for regional aircraft, Embraer’s firm order backlog totaled $17.8 billion, reflecting an increase of 4.1% from the last reported quarter. This marked a four-year high in the company’s backlog history. In terms of aircraft breakdown, Embraer’s order backlog comprises 140 E-175, 100 E-175-E2, 78 E-190, 25 E-195-E2, 25 E-190-E2, 22 E-195 and 6 E-170 jets.

Importantly, during the third quarter, Embraer’s Commercial Aviation unit entered into an agreement, worth $2.85 billion at list prices, with International Lease Finance Corporation (“ILFC”) to deliver 50 E-Jets. The deal has an option to extend the potential order to up to 100 aircraft. This firm order was initially announced as a Letter of Intent at the Paris Air Show held in Jun 2013.

Again, earlier this month, Embraer announced the sale of three of its E195 jets to two European airlines, Belavia of Belarus and Guernsey-based Aurigny Air Services. In a contract with Minsk-based Belavia, Embraer would supply two 122-seat E195s under a firm purchase agreement worth $80 million.

Embraer also said Aurigny Air Services would take delivery of an E195 next year. Aurigny Air Services mainly flies between London Gatwick airport and Guernsey, a British dependency in the English Channel. Under this firm order, Embraer would receive $40 million at current list prices from the Guernsey-based Aurigny for one E195.

Embraer is the world's third largest commercial aircraft manufacturer following The Boeing Co. (BA - Analyst Report) and Europe's Airbus. We believe these substantial deals, along with a series of contracts and tie-ups with several companies for its jets, will eventually boost the performance of Embraer’s commercial aircraft division. A steady demand for E-Jets demonstrates the confidence of its customers, which will improve forthcoming results.

Although deliveries were higher year over year in the third quarter, it was not up to expectations. A poor mix reflecting more of executive jets and smaller aircraft cut into profit margins. Again, it had earlier projected to deliver 90 to 95 commercial jets, 80 to 90 light executive jets and 25 to 30 large executive jets this year. Hence, Embraer will have to deliver 32 to 37 jets in the fourth quarter to meet its guidance of 90 to 95 commercial jets for the year, which indeed is a steep climb.

The current Zacks Consensus Estimate for the third quarter of 2013 is 56 cents, reflecting a year-over-year increase of 54.2%. Estimates for 2013 and 2014 are $1.81 and $2.72, reflecting annual decline of 6.1% and growth of 49.8%, respectively.

Embraer SA retains a Zacks Rank #5 (Strong Sell). However, there are other stocks in the space that are performing well, with a favorable Zacks Rank. These are Lockheed Martin Corp. (LMT - Analyst Report) and Northrop Grumman Corp. (NOC - Analyst Report), each with a Zacks Ranks #2 (Buy).

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