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Embraer (ERJ) Secures Order for 20 E175 Jets From SkyWest

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Embraer SA (ERJ - Free Report) recently won a firm order from SkyWest Inc. (SKYW - Free Report) , the holding company of SkyWest Airlines and ExpressJet Airlines, for delivering 20 E175 jets.

Order Details

At current list prices, the order is estimated to be valued at $914 million, which will be added to Embraer’s third-quarter 2017 backlog.

The order includes 15 E175 SC (Special Configuration) aircraft in a 70-seat configuration. The E175 SC aircraft has an E175 airframe that can be retrofitted to 76 seats going forward. Additionally, it comprises order for five E175s, in a 76-seat configuration similar to the aircraft that SkyWest had ordered earlier.

The transaction will take the total number of E175 jets booked by SkyWest in 2017 to 45. Notably the airliner had ordered 25 new jets from Embraer in September. The payment for all 45 aircraft will be made using $161 million in cash and the balance in debt. While delivery of the E175s is expected in between September and early 2018, the E175 SCs are expected to be delivered in the next year.

Markedly, SkyWest Airlines will operate the E175s for Alaska Air Group, Inc. (ALK - Free Report) and the E175-SCs for Delta Air Lines, Inc. (DAL - Free Report) .

A Brief Note on E175 Jets

The E175 jets have a 76-seat dual class pattern, including 12 First Class seats, 16 Economy Plus seats and 48 Economy seats.

The E175 jet also features a wingtip for enhanced aerodynamic performance. Moreover, this new fleet of the model is 6.4% more fuel efficient than the first-generation E175s. Over the last few years, Embraer has been able to grab the lion’s share of 80% of orders for airplanes in its class from airline companies in the United States.

Our View

We note that Embraer is the only company that manufactures a family of four airplanes for the 70-to-130 seat segment. While the program was launched in 1999, the first E-Jet entered into revenue service in 2004.

Commercial Aviation revenues represented 61.5% of the company’s total revenue in the second quarter, reflecting substantial improvement from 27% last year. Notably, the company delivered 35 commercial aircraft in the same quarter, up from 26 jets on the year-ago quarter.

Furthermore, the company has a series of healthy contracts and tie-ups with other companies for its jets. As a result, Embraer continued to witness strong demand for its E-jets, thereby booking several orders in the second quarter.

Moreover, armed with 3,500 flights and a fleet of 678 jets, SkyWest offers commercial air service in various cities across the United States, Canada, Mexico and the Caribbean as well. SkyWest Airlines also has partnerships with United Airlines, Delta Air Lines, US Airways, American Airlines and Alaska Airlines. Therefore, such strong tie ups with this airlines will surely benefit Embraer’s profit margin in days ahead.

Price Movement

Shares of Embraer have declined 30.2% in the last year, as against the industry's gain of 49.3%. This underperformance may have been caused by the weakening Brazilian real against the U.S. dollar. Additionally, the softness observed in the company’s Defense and Security business remains a concern.

Zacks Rank

Embraer carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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