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Embraer SA (ERJ - Analyst Report) has recently signed an agreement with the national carrier of Azerbaijan, Azerbaijan Airlines (AZAL), for the delivery of four EMBRAER 190s jets; expected to start in the third quarter of 2013. The total value of the deal is estimated around US$180.8 million, to be included in the fourth quarter 2012 backlog for the company.

Embraer is also engaged in another contract with AZAL, according to which, the latter will purchase two pre-owned EMBRAER 170s from Embraer’s wholly-owned subsidiary, ECC leasing. Among the two newly purchased E170 jets, the first is to be delivered in the second quarter of 2013.

The agreement with AZAL will increase the growth potential of Embraer in Europe, which the company believes is a strong region where it can help the existing airlines to renew their fleet as well as increase the routes.

With AZAL, Embraer has reached a level of 25 E-Jet customers in Europe, including AeroSvit, Air Astana, Air Moldova, Belavia, Bulgaria Air, Dniproavia, Estonian Air, LOT Polish, and Montenegro Airlines.

In a separate release, the company communicated its market outlook for China Regional Aviation Market. The company expects roughly 1,005 new 61 to 120-seat jet to be delivered in China by 2031. These deliveries will include roughly 455 deliveries of 61 to 90-seat jets and 550 of 91 to 120-seat jets. The number is based on the company’s analysis involving how the above mentioned jets replace the existing fleet, lowering risks and devising new routes of travel.

Embraer currently holds 77% of the Chinese Aviation market share, which includes a delivery of 120 commercial jets. The company analysis points out that the market will move with the policies formulated by the central and local government in the region as well as fleet optimization measures taken by the airlines.

We currently maintain a Neutral recommendation on Embraer. The stock also bears a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating. The company’s major competitors Boeing Co. (BA - Analyst Report), Lockheed Martin Corporation (LMT - Analyst Report) and Northrop Grumman Corporation (NOC - Analyst Report) also have a Zacks #3 (Hold) Rank.

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