SAO JOSE DOS CAMPOS, Brazil, July 28, 2011 /PRNewswire/ --

HIGHLIGHTS:

• During the 2nd quarter of 2011 (2Q11) Embraer delivered 25 jets to the commercial aviation market and 23 to the executive aviation market (20 light jets and 3 large jets);
• 2Q11 Revenues reached US$ 1,358.6 million, and Gross margin grew from 20.2% in 2Q10 to 22.4% in 2Q11;
• 2Q11 EBIT (i) and EBITDA margin reached 7.8% and 11.3%, respectively, in line with the Company's guidance, for an accumulated EBIT and EBITDA margin of 8.3% and 12.8%, respectively, for the first half of 2011;
• 2Q11 Net income attributable to Embraer and Earnings per ADS-basic totaled US$ 96.4 million and US$ 0.5328, respectively, compared to US$ 57.4 million and US$ 0.3173 in 2Q10;
• Continuous improvement seen in the commercial aviation market, resulting in year to date sales of 62 new E-Jets and signed agreements for an additional 42 E-Jets, which are expected to be added to the Company's backlog over the course of the following months.

Main financial indicators:

GUIDANCE REVISION

• The Company is revising its 2011 Revenue Guidance from US$ 5.6 billion to US$ 5.8 billion;
• As a consequence, 2011 EBIT and EBIT margin Guidance are also being revised from US$ 420 million and 7.5% to US$ 465 million and 8%, respectively;
• EBITDA and EBITDA margin projections are also being revised to US$ 700 million and 12%, respectively;
• The Company is also revising its Development investment outlook from US$ 210 million to US$ 160 million.

(i)  EBIT is a non-GAAP measure and is equal to the operational profit before financial income (expenses) as presented in Embraer's Income Statement and EBIT margin is equal to EBIT divided by Revenues.

(BM&FBOVESPA: EMBR3, NYSE: ERJ) The Company's operating and financial information is presented, except where otherwise stated, on a consolidated basis in United States dollars (US$) in accordance with IFRS. The financial data presented in this document as of and for the quarters ended June 30, 2010 (2Q10), March 31, 2011 (1Q11) and June 30, 2011 (2Q11), are derived from the unaudited financial statements, except where otherwise stated.

REVENUES AND GROSS MARGIN

Embraer delivered a total of 25 commercial and 23 executive aircraft in 2Q11 (20 light jets and 3 large jets), for an accumulated total of 45 commercial and 31 executive aircraft delivered during the first half of 2011 (1H11) (26 light jets and 5 large jets). As a result, Revenues for 1H11 totaled US$ 2,414.3 million. Considering the above, we believe Embraer is on track to meet its 2011 projected deliveries and Revenue guidance. The mix of revenues and products of the first two quarters of 2011, in addition to the Company's ongoing efforts to improve productivity and efficiency, positively impacted operational results. In this line, Embraer's 1H11 Gross profit margin reached 23.2%.

EBIT

2Q11 EBIT and EBIT margin were US$ 105.6 million and 7.8%, respectively. For 1H11, the accumulated Operating income margin was 8.3%, which is above the Company's revised guidance of 8%. Research expenses totaled US$ 19.1 million for 2Q11, which coupled with the US$ 19.3 million Research expense from 1Q11, total US$ 38.4 million for 1H11, consistent with the Company's outlook of US$ 90 million for the year. 1H11 Selling expenses reached US$ 202.8 million compared to the US$ 177.9 million in the first half of 2010 (1H10). This increase in Selling expenses comes mainly as a result of an increase in marketing and sales activities. Administrative expenses for 2Q11 reached US$ 64.4 million and were higher when compared to the US$ 51 million for 2Q10. It is important to mention that a portion of the operating expenses are Real denominated and the 11% appreciation of the average Real to the US dollar exchange rate from 2Q10 to 2Q11 negatively impacted those expenses. Also worth noting is the Company's ability to increase productivity and efficiency, which have resulted in higher Gross margins, and allowed the Company to partially offset the increased costs coming from the appreciation of the Real and the increase in labor costs.

NET INCOME

Net income attributable to Embraer and Earnings per ADS-basic, for 2Q11, were US$ 96.4 million and US$ 0.5328, respectively. 2Q11 Net margin reached 7.1%, and was significantly higher when compared to the 4.2% achieved in 2Q10. The improvement in Net margin comes mainly from a reduction in the Company's Income tax (expense), which posted an expense of US$ 32.3 million in 2Q11 compared to an expense of US$ 66.5 million in 2Q10. Such difference comes mainly as a result of the effect of the exchange rate, which impacted the Company's taxable income and non-monetary assets, as well as the deductible expenses incurred during the period.

MONETARY BALANCE SHEET ACCOUNTS AND OTHER MEASURES

The Company's Net cash position for the period decreased by US$ 98.6 million, totaling US$ 406.3 million. Such decrease in Net cash comes mainly as a consequence of an increase in the Company's Inventories, Trade accounts receivable and PP&E which were partially offset by an increase in Trade accounts payable. Coupled with these working capital requirements, the Company also used its cash to acquire an interest stake in Orbisat and Atech.

Considering the above, Net cash generated by operating activities reached US$ 78.3 million in 2Q11 and helped offset a portion of the negative Free Cash flow (ii) for the period, which totaled US$ 37.6 million. Year to date, the Company has a negative Free cash flow of US$ 163.3 million, which is expected to be reverted during the course of the second half of the year as Inventories tend to decrease as deliveries are expected to recover, thereby meeting the delivery Guidance.

(ii) Free cash flow is a non-GAAP measure. The Company calculates Free cash flow taking into account mainly investments in PP&E, product development expenditures, which are recorded in Intangible assets, and changes in short-term investments (Financial Assets). It's important to mention that Operating cash flow does not include the cash invested in product development. It includes changes in Financial assets which do not represent changes in the Company's net cash position since additions or reductions in Financial Assets reflects changes in the maturity profile of the Company's short-term investments and, as consequence, does not represent increases or decreases in the Company's Free cash flow. Additionally, Operating cash flow includes changes in court-mandated escrow deposits, which in its essence is not operational cash and shall be disregarded for Free cash flow calculation purposes. Therefore, Embraer's free cash flow is represented by the operating cash flow adjusted by Addition to property, plant and equipment (PP&E), Addition to intangible assets, Other assets and Financial assets.

Additions to PP&E totaled US$ 92.9 million in 2Q11. Total PP&E includes values related to spare parts pool programs, aircraft under lease or available for lease and CAPEX. Of total 2Q11 PP&E, CAPEX amounted to US$ 31.7 million, which coupled with the US$ 38.8 million CAPEX from 1Q11, total US$ 70.5 million for 1H11 in line with the Company's US$ 200 million outlook for the year. The Company also added a total of US$ 97.8 million to Intangible assets through 1H11. As part of this addition to Intangible, the Company invested a total of US$ 82.6 million in product development, mainly for the Legacy 450 & 500 programs (US$ 33.1 million and US$ 49.5 for 1Q11 and 2Q11, respectively). This is consistent with the Company's revised outlook of US$ 160 million for Development investments.

During 2Q11, the Company's total debt increased to US$ 1,719.9 million, compared to US$ 1,513.8 million in 1Q11. Such increase comes as a result of an increase in both Short and Long-term loans which increased by US$ 64.9 million and US$ 141.2 million, respectively. This increase in the Company's total debt comes as a result of the need for additional working capital and cash management to support the Company's ongoing operations. Furthermore, as a consequence of such increase, the Company's total cash position also increased to US$ 107.5 million.

Considering the Company's current debt profile, the average loan maturity decreased to 5 years but is still in line with the Company's business cycle. Furthermore, the cost of Dollar denominated loans remained stable and going from 5.6% to 5.5% p.a. and the cost of Real denominated loans increased from 4.3% to 6% p.a. The Adjusted EBITDA to financial expenses (gross) ratio decreased slightly, going from 7.59 in 1Q11, to 7.14 in 2Q11. As of 2Q11, 32.3% of total debt was denominated in Reais.

Embraer's cash allocation strategy continues to be the most important tool to mitigate exchange rate risks. In other words, by balancing cash allocation in Reais and Dollar denominated assets, the Company attempts to neutralize its balance sheet exchange rate exposures. Of total cash in 2Q11, 51% was denominated in Reais. The Company's financial strategy continues to positively contribute to the results of the financial activities and at the end of 1H11 such contribution totaled US$ 34.5 million.

OPERATIONAL BALANCE SHEET ACCOUNTS

As the Company has been able to take advantage of some opportunities related to additional deliveries in commercial aviation and due to some planned 2Q11 deliveries that were postponed to the second half of 2011 (2H11), the Company expects a higher number of deliveries in the 2H11. In this line, Inventories increased by US$ 136.1 million and totaled US$ 2,696.6 million in 2Q11. Furthermore, Trade accounts receivable also increased to US$ 466.8 million, as a result of the normal cycle of the Company's operating activities. On the other hand, Trade accounts payable grew to US$ 1,036.5 million and helped to partially offset the negative impact of the increase in Inventories and Trade accounts receivable on the Company's working capital requirements. Advances from customers increased slightly and reached US$ 1,107 million.

Intangible increased US$ 102.3 million and reached US$ 832 million at the end of 2Q11. This increase is due to investments made in aircraft program development, mainly the Legacy 450 & 500, which totaled US$ 49.5 million in 2Q11. Furthermore, the acquisition of an interest stake in Orbisat and Atech also contributed to such increase in Intangible. Property, plant and equipment increased by US$ 78.1 million and reached US$ 1,336.1 million in 2Q11, as a result of the investments made in the Company's operations located in Melbourne, Florida and Evora, Portugal, as well as the addition of certain trade-in aircraft supporting new aircraft sales activities and investments in spare parts to support the Company's Pool program activities, which continue to expand as more customers join this program. As a result of the increase in PP&E, 2Q11 depreciation totaled US$ 24.7 million, out of which 45% is CAPEX related, with the remainder being associated with other PP&E items. Customer and commercial financing remained stable and totaled US$ 53.8 million in 2Q11.

SEGMENT RESULTS

2Q11 Revenues mix by segment varied when compared to 1Q11, as a result of a lower participation from the Commercial aviation and Defense and Security segments, which represented 65.3% and 14.8% of Revenues, respectively. This decrease was compensated by the higher participation from the Executive Aviation segment, which reached 18.1%. Others remained stable at 1.8%.

COMMERCIAL AVIATION

During the first half of 2011, the Company delivered 45 commercial jets and sold 62 new E-Jets reaching a total of 1,003 firm orders and 742 deliveries. The air transport industry continued to expand in the second quarter and airlines continue to be very cautious on the capacity management to improve profitability (as per IATA projection nearly US$ 4 billion net profit for 2011). As Paulo Cesar de Souza e Silva, Embraer's President of Commercial Aviation, said:" The 1,000 E-Jets order book milestone represents a remarkable market acceptance of the E-Jets family, which has been helping 60 airlines from 40 countries to improve their operations and financials".

Recent highlights of the 2Q11 related to the Commercial aviation segment include:

• Embraer E-Jets order book reached 1,000 mark in seven year after first delivery;
• In April, CDB Leasing Co. confirmed a second batch of ten EMBRAER 190s to be operated by China Southern.

During the Paris Air Show, in June, Embraer announced two customers' new orders as well as the signature of other important agreements with additional customers:

• Air Lease announced an order for five EMBRAER 175s (already included in the 1Q11 backlog as "undisclosed" customer) and 15 EMBRAER 190s (five orders reconfirmed and five options exercised);
• Air Astana, from Kazakhstan, took two EMBRAER 190s;
• Hebei, from China, pending final government approval, will take 10 EMBRAER 190s;
• Sriwijaya, from Indonesia, signed an agreement for 20 EMBRAER 190s;
• Kenya Airways signed an agreement for ten EMBRAER 190s;
• GECAS also signed an agreement for two EMBRAER 190s.

In summary, through 1H11, Embraer has booked firm orders for 62 E-Jets and signed agreements for an additional 42 E-Jets, which are expected to be added to the Company's backlog over the course of the following months, once contract negotiations are completed.

Executive aviation

In 2Q11 Executive Aviation delivered a total of 20 light jets and 3 large jets.

While the executive jets market is showing early stages of recovery, Embraer was able to announce important sales in recent months. During the Annual European Business Aviation Convention & Exhibition, EBACE 2011, in May, Embraer and Comlux, The Aviation Group announced a contract for the acquisition of three Legacy 650 executive jets and in July, Embraer and Minsheng Financial Leasing Co., Ltd., a subsidiary of China Minsheng Banking Co., Ltd. signed a Memorandum of Understanding (MoU) to purchase up to 20 of Embraer's full line of executive jets. They are expected to be fully converted into firm orders in up to five years and deliveries could commence as early as 2011. With this MoU, Embraer further consolidates its presence in China's business aviation market, following the Company's announcement in April 2011 of a cooperation with AVIC (Aviation Industry Corporation of China) to assemble business jets in China.

In April the Company delivered the 200th Phenom 100 jet to the U.S.-based Swift Aviation Group, Inc., of Phoenix, Arizona, and on June 10, the Embraer Executive Jets facility in Melbourne, Florida received the fuselage and wing parts of the first Phenom 100 to be assembled in the United States, reinforcing the Company's target to deliver the first U.S.-assembled Phenom 100 before the end of 2011. The Company already has 65 employees in Melbourne, and is in the process of hiring more this year, keeping its promise to bring the products closer to the customers. July also saw the fuselage mating of the forward, mid and rear sections of the first Legacy 500.

Continuing its effort to better serve the market, Embraer also announced during the EBACE 2011 Trade Show relevant improvements in both its Customer Support structure and Authorized Sales Representatives networks in Europe, the Middle East and Africa regions. This referred mainly, to the addition of two new regional customer support and services managers in Dubai, United Arab Emirates (UAE) and in London, U.K., several new appointments of authorized service center (ASC) to the customer support network, as well as the nomination of the Barbedos Group Limited as the Company's executive jets authorized sales representative (ASR) for West Africa encompassing Cameroon, Equatorial Guinea, Gabon, Ghana, Nigeria, and Senegal.

DEFENSE AND SECURITY

The Defense and Security market continues to present a favorable scenario for growth, with a series of campaigns underway for various applications including transportation of officials and authorities, training and light attack, intelligence, surveillance and reconnaissance systems, aircraft modernization, military transportation and command and control systems and services.

As for modernization programs, in 2Q11 two more F-5 BR were delivered to the Brazilian Air Force (FAB). These two units complete 42 deliveries of a total of 46 aircraft. The more recent contract signed to modernize 11 additional F-5 fighter jets are expected to have deliveries commencing in 2013.

The test campaigns of the AMX fighters are on-going and the maiden flight of the first modernized prototype is planned for 2012.

The A-4 aircraft modernization program is on-going and the modernization activities of the first two prototypes will begin in 2012.

India's AEW program is also developing as contracted with work being performed on all three aircraft simultaneously on Embraer's assembly line.

Also during 2Q11, one more Super Tucano aircraft was delivered to the Ecuadorian Air Force, completing the delivery of 18 aircraft to this client and bringing total deliveries of this aircraft type to 153.

Embraer's sale of eight Super Tucano aircraft to the Indonesian Air Force is in effect. The Company was declared the winner of a bidding competition held by the Indonesian Ministry of Defense, in November 2010. Since then, several administrative phases have been completed, culminating in the final contract, which includes ground support stations and an integrated logistics package. Deliveries begin in 2012.

The KC-390 development program is also progressing on schedule with the production of the first prototype expected to start in 2013, followed by first flight in 2014. By the end of 2Q11, 60 purchase intentions for this aircraft had been signed. Following the selection of the first suppliers, other companies were also selected to equip the aircraft with their systems: Rockwell Collins will supply the Pro Line FusionTM avionics system; the environmental and cabin pressure control systems will be supplied by Liebherr Aerospace; Esterline Control Systems will supply the autothrottle system and Messier-Bugatti-Dowty was selected to supply the wheels, brakes, landing gear extension and retraction system, and nose wheel steering manifold. More recently, International Aero Engines AG (IAE) was selected to supply the V-2500-E5 engines, Goodrich Corporation was selected to supply the electro-hydrostatic actuators (EHA), electro-backup hydrostatic actuators (EBHA), actuator electronics, and electrical controls for the primary flight control system and BAE Systems was selected to provide hardware, embedded software, system design and integration support of the flight control electronics.

TOTAL BACKLOG

Embraer's firm order backlog was reasonably stable at the end of 2Q11 and totaled US$ 15.8 billion. The following chart presents the Company's backlog evolution through 2Q11.

2011 GUIDANCE REVISION

As previously mentioned, initial signs of a recovery in the Commercial aviation segment have been observed since the middle of 2010 and a recovery is well underway. Certain specific additional market opportunities have presented themselves during the first half of this year, particularly in the Commercial aviation and Defense and Security segments, and Embraer has been able to take advantage of some of these opportunities. Therefore the Company is revising its Revenue guidance to US$ 5.8 million for 2011. As a consequence of the additional revenue and the Company's ability to leverage its operations and continue to improve its productivity, EBIT margin guidance is also being revised from 7.5% to 8%. Hence, the revised EBIT guidance is expected to reach US$ 465 million. Furthermore, the EBITDA margin projection is also being revised from 11% to 12%. Considering the Company's ability to optimize its program Development investments and also anticipate certain risk sharing partner contributions to such investments, the Company is also revising its Development investment outlook from US$ 210 million to US$ 160 million for 2011. It is important to note that such reduction does not affect the development schedule of the respective programs, particularly the Legacy 450 & 500 aircraft.

Investor Relations
Andre Gaia,Caio Pinez, Claudio Massuda, Juliana Villarinho, Luciano Froes and Paulo Ferreira.
Brazil (+55 12) 3927-4404, USA (1 954) 359-3492, investor.relations@embraer.com.br

CONFERENCE CALL INFORMATION

Embraer will host a conference call to present its 2Q11 Results in IFRS on July 29, 2011. The conference call will also be broadcast live over the web at http://ri.embraer.com.br

ABOUT EMBRAER

Embraer (Embraer S.A. - NYSE: ERJ; BM&FBOVESPA: EMBR3) is the world's largest manufacturer of commercial jets up to 120 seats, and one of Brazil's leading exporters. Embraer's headquarters are located in Sao Jose dos Campos, Sao Paulo, and it has offices, industrial operations and customer service facilities in Brazil, China, France, Portugal, Singapore, and the United States. Founded in 1969, the Company designs, develops, manufactures and sells aircraft for the commercial aviation, executive aviation, and defense and security business. The Company also provides after sales support and services to customers worldwide. On June 30, 2011, Embraer had a workforce of 17,194 employees – not counting the employees of its partially owned subsidiaries – and its firm order backlog totaled US$ 15.8 billion.

This document may contain projections, statements and estimates regarding circumstances or events yet to take place. Those projections and estimates are based largely on current expectations, forecasts on future events and financial tendencies that affect Embraer's businesses. Those estimates are subject to risks, uncertainties and suppositions that include, among others: general economic, political and trade conditions in Brazil and in those markets where Embraer does business; expectations on industry trends; the company's investment plans; its capacity to develop and deliver products on the dates previously agreed upon, and existing and future governmental regulations. The words "believe", "may", "is able", "will be able", "intend", "continue", "anticipate", "expect" and other similar terms are supposed to identify potentialities. Embraer does not feel compelled to publish updates nor to revise any estimates due to new information, future events or any other facts. In view of the inherent risks and uncertainties, such estimates, events and circumstances may not take place. The actual results can therefore differ substantially from those previously published as Embraer expectations.

SOURCE EMBRAER S.A.