Jose Filippo - CFO, IRO Paulo Cesar de Souza e Silva - President and CEO Eduardo Couto - Head of IR

Pete Skibitski - Drexel Hamilton Cai Von Rumohr - Cowen & Company Myles Walton - Deutsche Bank Derek Spronck - RBC Capital Markets Noah Poponak - Goldman Sachs Bruno Amorim - Santander Josh Milberg - Morgan Stanley

Good afternoon, ladies and gentlemen. Welcome to the IO Conference Call, where we’ll review Embraer’s First Quarter 2017 results. Thank you for standing. At this time all participants are in a listen-only mode. Later, we conduct a question-and-answer session and instructions to participate will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded and webcast at ri.embraer.com.br. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred. Embraer has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance. These forward-looking statements are subject to risks and uncertainties and assumptions, including, among other things, general economic, political and business conditions in Brazil and other markets where the Company is present. The words believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statements because of new information, future events or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call might not occur. The Company's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today’s conference call are Mr. Paulo Cesar de Souza e Silva, President and CEO; Mr. Jose Filippo, Chief Financial Officer and IR; and Mr. Eduardo Couto, Director of Investor Relations. I will like now to turn the conference over to Mr. Jose Filippo. Please go ahead sir.

Okay, thank you. Good morning, everybody and welcome to Embraer first quarter 2017 earnings conference. We like to start with the presentation as usual, then I will have Paulo Cesar de in his initial comments and then we’ll be open for Q&A session. So with the presentation, starting on page three, with corporate highlights, with information that last week Standard Poor's published an update now reaffirming the investment grade status. Also in terms of Embraer liquidity situation we issued in January a 10 year bond of $750 million with net debt - our debt average maturity increased to 6.3 years from 5.3. And closing the corporate highlights, the comment of the creation of Embraer business innovation cantered to explore opportunity in the future of our air transportation. As part of that we announced last week with Uber to explore the concept of professional development of small electric vertical take-off and landing vehicles. Next page, page four now starting to highlights of business units, starting with Commercial Aviation, we delivered 18 E-JETS in the first quarter of 2017 and as sales activities, we announce a new order of 4 E175 to American Airlines and as already mentioned the names of the large operators for each E-2 generation which were with a launch operator of E190-E2 and AZUL with a E195-E2. The relation to the E2 development E190-E2 fourth prototype joined the flight test campaign and the milestone of the first flight of the 185-E2 both ahead of schedule. Next page, moving to Executive Jets highlights. We delivered 15 executive jets in the first quarter of 2017, being 11 light for four large aircraft, including on that was the first PHENOM 100 EV with deliveries in engine performance improvement. Also in the deliveries was the - of the quarter was the PHENOM 300, number 400 to a new customer Elite Jets. In terms of sales activities as already mentioned, PHENOM 300 was the bestselling effective jet across all segments in the fourth quarter, a fourth consecutive year of last year. And finalizing the highlight of Executive Jet, in the first quarter we appointed Michael Amalfitano, as the new CEO of Business Unit of Executive Jet. Next page, page six highlights for Defense and Security, starting with the information of a delivery of 2 Super Tucanos to the US Force, to commission. In terms of the KC-390 development, it continues to advance with test of aerial re-fuelling and cargo handling. On service and support contracts, we signed new contracts with Panama Mexico Colombia and India for aircraft maintenance and parts. In relation to our activities, Atech inaugurated the Air Traffic Command and control center in India and Savis and Bradar announced cooperation agreement with Rockwell Collins to evaluate business opportunities. And finalising the highlights for defense and securities, the formation of the launch of the Brazilian Satellite that was postponed to the second quarter and is now scheduled to happen later this week. So we now close the highlights of corporate and business units and moving to financial results. Now starting with page eight, our backlog firm backlog in the end of the quarter that reached $19.2 billion, slightly below the end of last year. Despite the decline, I would like to comment that Executive Jets business units had a book to bill of 1.5 in the first quarter of this year. Next page, page nine, Aircraft Deliveries. Starting with Commercial Aviation on the left side. We delivered 18 aircraft in the first quarter of 2017, slightly below the same period of last year. It is important to say that we are sold out for this year after the recent announcement of the American Airline order. Regarding Effective Jets, we delivered a total of 15 aircraft in the first quarter, broken by 11 light and four large aircraft. Seasonally, the first quarter is the weakest quarter of the year and this year particularly three planes slipped to the initial days of April. For 2017, we are confirming our guidance of deliveries of 97 to 102 aircraft in Commercial Aviation and 105 to 125 in Executive Jets, broken by 70 to 80 light jets and 35 to 45 large jets. Next page, page 10, in relation to net revenues, consolidated revenues reached $1 billion dollars in the first quarter of 2017. The reduction compared to the previous year’s reflection lower than this year. The amount of revenues is broken by $633 million in commercial, representing 62% of the total, $226 million in Executives, representing 22% and $156 million in Defense, representing 15%. The balance of 1% is related to other revenues. In case of Defense, the revenues, I’d like to mention that we were frustrated by the performance of the satellite launch which would have added around $100 million of revenues in that business. For revenues, we are also maintaining our guidance for 2017. Next page, regarding sales and general, administrative expenses, we reported a total of 140 million of sales and general administrative expenses in the first quarter of 2017 compared to $140 million in the previous year. The slightly increase in G&A expenses is related to this 20% stronger real against the dollar when comparing both years. Next page, page 12. As far as EBIT, we reported adjusted EBIT $of 31 million in the first quarter 2017 with 3% margin. This number was adjusted to a $8 million costs related to the final remaining [indiscernible] associated to this little plan. Reported adjusted margin by business units were commercial 13%, executive negative 10% and defense negative 20%. If we had the launch of the satellite and the additional 3 planes that we delivered in early April, the combined EBIT margin would have increased from 3% to 5.5% in the quarter. For EBIT in terms of dollars and margin, we are confirming our outlook for 2017 of $450 million to $550 million, an 8% to 9% margin. Next page, page 13, in relation to EBITDA, we reported a total of a $103 million in the first quarter of 2017, with a 10.1% margin. For EBITDA outlook in 2017, we are confirming the range of $770 million to $890 million, and margins from 13.5% to 14.5%. Next page, net income, we reported adjusted net income of $23 million in the first quarter of 2017 with 2.3% net margin. Adjusted net income excludes income deferred income tax. In page 15, next page, in relation to investments, we had a total investments of up $72 million in the first quarter of 2017, broken by a $8 million in research, %31 million in development and $33 million in CapEx. The total investments in the first quarter was mainly affected by supplier’s contribution of $86 million. For the year 2017, we are estimating the total of $650 million, broken by 15 research, 400 in development and 200 in CapEx. Next page, page 16 as far as free cash flow, we reported a free cash flow consumption of $199 million in the first quarter 2017. Net cash consumption of $48 million in operation activities is mostly related to the typical working capital requirements in the beginning of the year. For 2017, we are estimating the cash consumption of $150 million of there. Next page, page 17 before moving to Q&A session and Paulo Cesar de comments. In relation to our cash and debt position, we closed the first quarter of 2017 with a total debt of $4.3 million loss and this amount is included in the recent 10 year bond issued of $750 million, which improved the debt profile to 6.3 years of average maturity. In terms of our cash position, we had the total amount of $3.5 million, which returns to a net debt of $806 million as of March 31st. With that, we finalized the presentation and I’d like to turn to Paulo for his initial comments before we turn to the Q&A session. Thank you.

Thank you, Filippo and good morning to all. So thanks for joining us this morning. A few comments I'd like to make. So you have seen so the results on the first quarter was a little bit disappointed. However, we are not at all worried about that. So we believe that it was - we came a little bit weaker than expected. But we are very confident to keep our guidance for 2018 and we already have seen certain believers of aircraft or events that happen just as we crossed it from the first quarter to the second quarter. We continue to develop the E-2 on time, so no big issues. Of course, we have a regular, normal great projects to deal with, but not at all any big issue. And our plan is to deliver the first 192 in the first half of 2018. So the campaign, certification campaign is moving very nicely according to the plan. So the same for the KC-390, so both products, so we are very pleased with the development. We continue to focus on cost either by reducing cost or looking ways to gain more efficiency in the company. This is something that I outlined to you when I took over last year and we implemented - we are implementing our $200 million mission. A bigger part of it is already gone which was the dismissal of 1600 people to the PDV and as the budget for 2017 we implemented, so we achieving the target that we - we had finalized last year. And we will not stop here. So we are already looking into new initiatives to continue the ideas right. So we believe - we do believe that still good opportunities to become a more efficient in general. As far as the business units are concerned in markets, we are seeing a great activity in commercial aviation. Our teams are very, very busy globally. So we are quite positive that we can see a demand that will bring those additional opportunities, of course, is not guarantying that we are going to close this deal. However, it’s very good, very positive to see the level of activity that we are engaged nowadays. Of course 2018 is always I mean, whenever we have a transition from one aircraft program to the other, so always it’s not easy, it’s more like challenge because of the ramp up of the new program. So we are working on that and that we may see some lower margins in 2018 or maybe a little bit of less aircraft to be delivered in ‘18. But too early to say what's going to happen. So we still have to wait a little bit more in terms of our projected deliveries. However in terms of margins, I think we're we should expect lower margins in the Commercial Aviation in ‘18 versus 2017, which is being - is still a very good margin. So they're able to use it and we will continue to have this stronger margins in Commercial Aviation. On business jet, Michael came on board, Michael Amalfitano who is the new CEO, he came on onboard on March 1st and he's already implementing certain actions that I'm sure will bring better margins by going forward and also cash for the unit going forward. I do expect that in the second quarter or next in the third quarter we are going to see already the different numbers that will reflect more of this strategy. We are really looking even more with - and our focus to reduce cost on business jet units and our market approach is being to look more at the value that we are offer to our clients then going from market share. And we are already seeing a slightly improve in the margins for business jets. On the new business unit, service and so forth, so we are taking the necessary actions to implement the unit, so we almost finalized the organization of these new business units. And as we move into the second quarter, so we really implemented. So as we have anticipated when we announced the launch of these new deal, so there is a lot of synergies that we can have gains there by having only one unit to look into that. So we're synergist, people's synergist in the warehouses in our inventory. So I'm sure that we will extract a good value from these new business units. So all in all I think we are set for a good year in 2017. So we are on schedule on everything and keeping our guidance. So we're looking forward to have the new call with you guys in July when we'll be on the line with the second quarter result. Thank you.

Thank you. Our first question comes from Myles Walton with Deutsche Bank. You may begin. Myles Walton, your line is open, please check your mute button. Our next question comes from Pete Skibitski with Drexel Hamilton. You may begin.

Good morning, guys. I guess just on the satellite launch, I think you said would happen this week. Should we conclude that and just on your comments so they fully follow that the second quarter will be your highest revenue quarter for the year in defense. Is that a fair assumption?

Pete, good morning. Not necessarily, I don't think we should of course seeing exactly that we are enough to get the best quarter because it depends on some schedule of the new rules and some other things. But yes, it’s confirmed that is scheduled for May 4th. So two days from now so far until we have anything new, that's the schedule and we are confident that this will happen and definitely and we will do that, it’s going to be impacting the second quarter in about $100 million. That's the milestone in the contract refers [ph] and established. But I think we're not - we're not guiding that this would be exactly a reason for second quarter will be the best, I think we should now retain on the $100 million revenues for the satellite launch in the second qua and again its schedule for this week, so far there's nothing that indicates that that's not going to happen.

Okay. Fair enough. I guess, one for you Paulo, your comments on services and support unit, they just seems to be a real parallel with Boeing here in terms of creating a standalone services unit and they have put out a new target sort of a notional revenue target. And so two questions for you on that, I guess number one, would you guys consider putting out a revenue target for that unit to sort of a notional long-term target and number two are you guys considering M&A to build services unit or will it be just all organic type of a focus?

Well, no we are we are not giving any external guidance, right target for that. We have internal right number that is being already disclosed and the head of the unit last week in London they are all confident, mentioned about that. So nowadays we have about 15 of our revenue, about 15% is coming from the services and supports across three deals and we want to bring deals at one quarter of our revenue in the next four years. So this is I will say the first target, internal target. As far as the - however to grow on EVU initially, so we are targeting to look into more scope in terms of work that we can do. We believe that where we can - not only in large, in terms of client base, the services and the support that we provide, but also we can increase the number of products that we put in the aircraft and to do more than what we have been doing. So that is a first initiative, so we can grow no our MROs in Nashville and Ogma and especially in components with there. So we can do much more. And thirdly, if there is an opportunity to an acquisition is one that can enhance the new business units. So we will be looking to that as well.

Okay, very helpful. Thanks, guys.

Thank you. Our next question comes from Cai Von Rumohr with Cowen & Company. You may begin.

Yes. Thank you very much. So maybe give us a little bit more color on commercial demand because you really have not gotten much in the way of orders so far, what geographies, what models and give us some help, you mentioned the potential of lower deliveries next year. What percent of your delivery slots you know, how many delivery slots may be a better way to put it are sold out for next year, and how many would you have to sell to get to about a flat year?

Okay. On Commercial Aviation market, I think the activity we are seeing is really global, including the US, so there's good activity there for the 76 seater, with major airlines and also regional airlines. The 190, 195 were also elsewhere, so there's really very I’ll say good activity that we are engaged, so I cannot comment more than that. But we are pleased with the opportunity that we are seeing. For 2018, we don't know yet. I think it's too early to mention anything here. So we would have to wait a little bit more in order to elaborate on how 2018 could be, right. So however in terms of margins, so we can see that our EBITDA as we have a weaker margin in Commercial because of the transition from E-1 to E-2 and whenever you have a transition like this you have more inefficiencies right in the process to ramp up will be such that at the beginning bringing a lower margin to us. But we are not concerned on that because from 2019 and on we are already anticipating that the margins will improve again. But for a number of deliveries next year, I'd prefer to wait a little more.

Okay. And then maybe if you could give us some color on just jet demand and your production rate given that you’ve entered the year with some whitetails. Have you pulled out production rate back to get rid of the whitetails and at what point might you start to pick production up again? Thank you.

On the business jet market, it’s still weak, under pressure. Last year total delivery was around 650 deliveries, this year it’s going to be about flat. However, I think that we can have a little improved of margins. As we work with the new models and with the services attached to it. So we believe that we can deliver a better value to our clients and be recognized for that in the market. We are doing micro-management in terms of manufacturing in cash in the unit. So we are we are looking to 2017 to really fix ask in demand - the offer and ask in the market. And so we believe that that year 2017 we are going to see better cash generation in the unit.

Thank you very much.

Thank you. Our next question comes from Myles Walton with Deutsche Bank. You may begin.

Thanks. Good morning. Sorry about the technical difficulty. There was a big drop in residual value negative adjustments in the quarter. I'm just curious Paulo can you comment on the backdrop of your jet residual values and 1.5 values and if this lack of negativity in the quarter is any indication of a trend going forward that we maybe have a lower run rate?

Myles, let me answer that. We don't - the decrease I think is natural because of the schedule of the commitment that we have as we get into the moment we will naturally - it reduces. So I don't think this is - this can be a different trend. We see prices okay, not decreasing that much that will be affecting, like potentially impairments. So I don't think that could be something that could be taken as a new behaviour of that impact. So it’s just like a very specific thing that happened in the month or in the quarter and I would say that mostly related to the schedule of the module [ph] of each commitment that we have.

Okay...

And also and we had that quarter here Myles. Actually we have a reduction in provisions for user’s aircraft in the first quarter, as compared to previous provision our numbers were actually better this quarter.

Yes, I know that’s why I was implying it, it was much better. So I'm asking is it indicative of a trend that your provisions is going forward, could it continue to be better than they have been historically?

So again, I don't think that means necessarily a different change in the way you should treat, some of it was specific in the quarter and that could remain the same projections that we use to do.

Okay. And then in terms of cash flow improvement through the course of the year, you know, 1Q was similar to last year's first quarter, probably because of the satellite and also the few deliveries slipping into April and then wider business jets. But should we expect a substantial improvement in second quarter cash flow or do we really have to wait until the very end of the fiscal year?

I think that we should look still look a year as a 12 month basis versus the quarter, we had that that comment about the milestone of the satellite launch. But I don't think that could change the profile throughout the quarters. I think we should remain to expect this out by midyear to have a better color, better look on how this things go, we are close to get about the estimates we made, the negative 150 or better that we should keep that target going forward.

Okay. All right, thanks. Thank you.

Thank you, Myles.

Thank you. Next question comes from Derek Spronck with RBC Capital Markets. You may begin.

Thank you for taking my questions. Just on the KC-390, have you seen any pickup in interest internationally on the product and what is some of the biggest pushback from customers, I mean, it seems to be a technologically very advanced plane, what would you say is the biggest obstacle that you're facing when you're selling this aircraft internationally?

Well, so we are seeing a very good interest on the KC- 390 as we move forward in the campaign in the test campaign. So this is normal for an aircraft to like these, right. So we have to go step by step. We are bringing again because [indiscernible] sold to Europe and so we will do a tour, a demo tour after Farnborough Airshow. So we remain very confident that throughout this year we are going to get our first international order - international outside Latin America. So we continue to be very bullish on this program. We have not seen a push back on the aircraft, so it’s just a question to wait until we move forward step by step into the certification of the program. But we remain very bullish.

Is Boeing providing any sort of benefits with that relationship there yet or do you think that will continue to grow?

No it continues to - we continue of course to work with Boeing, but as I said, to be step by step grow into this of DTC and as we move forwards into the campaign. But the partnership with Boeing will be very helpful. And so it's a combination in light of further and marketing, international market in this case that will bring the success right on this program.

And are you comfortable with the pricing of the product in the marketplace?

Yes we are, definitely.

Great. And one more just it’s not as material, but you announced a partnership with Uber, Elevate. How big of a market do you see that growing into, is that recognition that you know, so ownership of the business jet may be moving more towards a partial or in Uber type of model?

No I wouldn't go that far at this stage. So I think the announcement of the initiatives to put us more into this is - this kind of situation, new business model, new technologies and things like that. So that seems [indiscernible] will be electric vehicle. So it is our interest in developing or understanding much deeper the electric aircraft or hybrid aircraft. So this is a good fit for us at this stage. So how markets - how big is the market, I think the market is very big. But the bigger question is will the stakeholders, the eco system achieves these markets or not. So there is a lot to happen. We need the certification, we need the authorities to approve flying in big cities. We need to find a good solution for the battery and recharge of battery. So we have to solve the logistics right for instance in big cities in order to have these vehicles taking off and landing. So there is a lot to be done in order to achieve what we anticipate in huge market. So when you talk to Uber, so the numbers are really big and the efficiency of the system if implemented will be fluke as I’ve no question about that. If you look at that nowadays Uber is in 75 countries, 450 cities and are 60 million people - 60 million people that monthly require Uber car. So we can imagine the huge demand for this service.

Okay great. Thanks so much.

Sure.

Thank you. Our next question comes from Noah Poponak with Goldman Sachs. You may begin.

Hi. Good morning, everyone.

Morning.

Morning.

Can you tell us with the - with regard to the $2 million cost plan, where were you run rating on that, I guess on a on an annual basis as you entered the quarter versus where you exited the quarter and I guess what's in the full year EBIT guidance from the $200 million?

Okay, Noah. I think that’s - we are - as we planned, most - remember maybe coming little bit back on how we break the $200 million, most of it, about $130 million will be coming from the headcount reduction which was actually achieved by the business plan that Paul mentioned about the 60,000 to you that last, of course is the schedule for that lab to actually in the first quarter we just announced that the remaining group was - that the company is basically because of the function of those employees perform. So we have to wait some of them until we adjust the processes and to do that. So still I think now it’s over the most of these targets there, then the balance will be coming from general expenses related to travel expenses, primarily which is one important item for us and also some consultancies in general expenses. So I would say that we are - we are there. In terms of the target, like I said, we had couple of reduction, it was achieved and everything else was already budget and the leaders having their new targets already considered that. The benefits of that will be still coming throughout the year. We understand that mostly. We are still - will go this year 2017, by the end of the year we will go into that stage in full. This year is still some way to get there, but we already achieved that. You saw that some impacts that the cost control about like exchange rate, that sometimes cam impact for one direction or the other, in this quarter we had the opposite expected way. As you know, real strengthened d against the dollar. But this is a punctual thing that we think that this is not enough to affect the plans. So in summary, in summarizing to the question, we were okay, and most of the $200 million reduction will be seen in 2017 and after that in full implementation that’s basically how we see that.

Okay. So the 450 to 550 EBIT guidance has something close to the $200 million in it?

Correct.

And what does it have in it for FX going against you?

It's difficult because we don't have that striation, we are - we plan to have - the exchange rate to use for the year most what we have in today about 3.2. We already mentioned that before. So it's hard for us to decide, if it's for some reason effects will go against this. But do we have to compensate. That's normally how we do. We had that situation years before, normally when we face a diverse exchange rate in currencies, in real’s we normally we call the leaders and we deal with the targets to compensate that, that’s normally I don't think we should consider that any exchange rate change will be enough to affect our target in terms of the expense reduction.

Okay. But presumably you must be making some assumption for that in your EBIT guidance because if I adjusted your margin for 2016 for all the onetime items, I get back to about 8% and if I were just to assume you are flat on that underlying basis in 2017, if I only added $200 million I’d get to a much, much higher margin level. So there must be some FX or other offset that you assume in the guidance that I am trying to get to?

Yes. I don't want into get more detail here, but you're right if your look at calculation you’re not going to find that. The 200 is the comparison with the target that was established last year for that. But of course, if you take for example the average exchange rate of last year was about 2.5. And if you take the currency exchange rate that we are using which is 3.2, it’s already the advantage that we are considering in the guidance that we have. So this was partially compensated with the reduction. So we're not going to see full the 200 if we do this calculation, there are other impacts that we have. There was also a wage increase like 5% and remember that we have in September, these adjustment in revenue made 5%. So there is a combination of things that we would have to face. But if you focus on the headcount reduction and the expense reduction in others, I think we can get to the blended combination which will return to the guidance that we have. We make extra if we do some time directly I think, but bow its - so many comments to make on that. I don't think we were to explore this now, but assuming several pros and cons on that, but focus on the health of the plan which is like headcount and general expense reduction.

Yes, actually I guess also you achieved some of the plan in 2016, so that impacts the comparison as well. But what - just one more margin question. How should we think about the margin on the satellite project when that lands in the second quarter, how much of that will drop to EBIT line?

Here about like 20%.

Okay. Thank you.

Thank you. [Operator Instructions] Our next question comes from Bruno Amorim with Santander. You may begin.

Yes. Hi, guys. Good morning. So two follow up questions. The first one given that you were surprised negatively with the results as well. Why not revising the guidance, what was their margin of safety in the guidance you gave us in March or is there something coming better than initially expected and therefore offsetting today's weak results. And second question, the gross margin there's equity division was only 8%. So apparently the weak result in the division was not fully explained by low dilution of G&A. Could you please comment on the pricing and competitive environment. Is it getting worse then at the end of last year somehow? Thank you.

I think regarding the guidance for the year, like we said, first quarter is typically a weak quarter. We comment about two specific postponement of events that affected which was the slip of three planes in those equities and also the satellite launch, so - but that could be something that we expect to see in the second quarter. I don't think that would be enough for us to review the year. We're still confident about the guidance that we send out. So I don't think we will be actually changing or having any comment that we should get there. I think this is not something new, we already face that almost every year. Regarding margin, I think that what you saw in terms of activity, that’s course that’s not only necessarily in direct margins, there some - also some cost that in impact the gross margin if you have a number of deliveries and we saw that deliveries were not strong. And that is also something that we can fore see it. We don't see a change in the market that we saw before. It is not improving, neither worsening. I think that we still have a very competitive and very challenging market. We are facing this market with the value proposition on the product of avoiding more aggressive low margin deals. I think we are still going in the direction and we don’t see that was something that changed the way we are expecting. I think we may see definitely an improvement in the minds of executive jets going forward which is the same that we saw previous years, so basically that’s my comments on your question.

Thank you.

Thank you. Our question is a follow up from Cai Von Rumohr with Cowen & Company. You may begin.

Yes. Thank you so much. So KC-39, what you still have to do to certify it and get it really into production and what sort of risk do you see of kind of having to take a reserve as you go through that process?

So we have flown more than 1000 hours with the two aircraft, our certification process are in testing thing. We believe that we are moving nicely right and into this certification. So we are - we are not anticipating this stage in the big hurdle or the big issues. So far so good, I would say. So it’s really going very well. So the first delivery is being forecasted for next year for the Brazilian Air Force, in the next month we are going to do - we’re ruling, investing, we are going to do an operation in the you know in the Ice. So is part of the process of the certification process. So it is like that. So we are gradually in the step by step moving forward nicely in the program.

And roughly when do you expect to certify the aircraft?

So the initial certification towards the end of this year and the full certification either next year.

Got it. And last question you had you know large losses in both business jets and the defense business for the year. What are you now looking for margins approximately for those two sectors?

Yes, Cai, we’re not disclosing guidance specific for business units, but I think we are keeping the same level that we - remember when we announced the guidance for the year, which is about like a mid-single digits for both active and defense, with expectations to be a little bit better than that, but that’s what we would plan.

Thank you very much.

Thank you. Our next question is a follow up from Noah Poponak with Goldman Sachs. You may begin.

Hey. Paula, when you mentioned the potential for a little pressure on the commercial margin in ‘18 versus ‘17, would you then expect that to be true for the total company or can that be made up or more than made up elsewhere?

It's early to say Noah, because we are as you know on the business jet, so this cycle is much shorter than in commercial, right, so we sell a lot to do in year, back in the year for delivering in the same year. So it’s too early to say, so it still depend upon the year end how the business jets markets will develop in the next quarters. On defense, I believe we can have more or less the same margin. So it's really more on the Commercial Aviation that we are anticipating now margins that will be slightly lower than what we have today.

Okay. Thank you.

Sure.

Thank you. Our next question comes from Josh Milberg with Morgan Stanley. You may begin.

Good day everyone and thanks for the question. Just another quick one on your expectations for some pressure on your commercial profitability next year. I think you attributed that to just to the ramp up of the E-2 and I was just wondering if some of that pressure could potentially come from a lower E-1 pricing.

Josh, no, that’s exactly how you perceive that, it's more related to the transition between one model to the other and the capacity to read it in number of deliveries, we don't see - we don't work with different prices as that’s what we are breaking today, basically because of the transition here.

Okay. Great. And then just with your current E-1 backlog, could you just comment on whether you see potential for a meaningful percentage of that backlog converting to E-2?

No, from E-1s to E-2s, no we are not anticipating that, so we believe there is a demand now for E-1, as well for the E-2, so depending on the market, depending on the application of the aircraft. As you know, so we have three models right on the E-2, three models for our models on the E-1, so US is very strong in our case with a different dynamics when compared to other markets. So it’s - I mean, we are not anticipating this.

And do the contracts give that flexibility or is that something that you know in most cases the customer really doesn't even have that option?

Now in general there is no disruption to go from E-1 to E-2. It could be in one or two, in more cases, but it's not of relevant.

Thanks very much.

This concludes today's question-and-answer session. That does conclude Embraer's audio conference for today. Thank you very much for your participation. Have a good day.