Embraer (ERJ) reported a sales and profit decline due to production problems with the ramp up of its 190 and 195 aircraft. The issue caused deliveries to fall to 30 aircraft from 41 over the same period last year. Embraer had warned about the problem, cutting its delivery forecast for this year to 135 planes from 145. But it raised its 2007 delivery estimate to at least 160 from 150.
Because of the fact that it appears to be timing-related (and of much lower magnitude than the issues at Airbus (EADS) investors appear inclined to shrug off the problems. Over the long run, we think Embraer is sitting in the sweet spot between the large planes nobody will want to fly on and the smaller turboprop planes nobody wants to fly on.
We think it is only a matter of time before some carrier decides to create an uber-Southwest (LUV) and launch non-stop regional jet service between large markets and middle tier markets that currently require a connection on the hub-and-spoke model airlines. That could really result in a new order boost.Like this article? Why not try out: