Embraer S.A.

Good morning, ladies and gentlemen, and welcome to the audio conference call that will reveal Embraer's third quarter 2020 results. Thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions to participate will be given at the time. If you should require assistance during the call, please press the start key followed by zero. As a reminder, this conference is being recorded and webcasted 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 this forward-looking statement 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, uncertainties, and assumptions, including, among other things, general economic, political, and business conditions in Brazil and in other markets where the companies 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, publicize, 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. Francisco Gomez Netto, President and CEO, Mr. Antonio Carlos Garcia, Chief Financial Officer in Procurement, and Mr. Eduardo Couto, Director of Investor Relations. I would like now to turn the conference over to Mr. Francisco Gomez Netto. Please go ahead, sir.

Good morning, everyone. Thank you very much for participating in this conference call. I am Francisco Gomez Neto, President and CEO of Embraer. Before giving the floor to Antonio Garcia, our CFO, I would like to make some initial comments. With the recent growth in the number of COVID-19 cases in different parts of the world, notably in Europe and in the United States, we remain focused on the health and safety of our people, assessing the situation on a daily basis at each of our units around the globe. Regarding finance, our focus in the short term remains on preserving cash through the execution of a series of measures implemented over the past few months, which I have already discussed with you during our past earning calls. In parallel, we are preparing the ground for a much better financial performance in 2021 and grow in the following years. Today, I'd like to take a few minutes to focus on some of our priorities, namely a lean organization and recapture synergies and business plan update. Next slide, please. Regarding our lean organization and recapture synergies pillars, we have made every effort to maintain the know-how and competitive advantage brought by our remarkable people. But in view of the new market reality, it has become essential to review our workforce. And in the last quarter, we made a significant adjustment to our structure. We analyzed the structures and teams of each area within the company with the goals of creating a leaner and more agile organization and eliminating the duplications generated by the commercial aviation carve-out. We have already recovered synergies with the reintegration of commercial aviation and the associated services and supports. And at the same time, we have retained all the skills necessary to return to grow in the coming years. A simpler and leaner organization has been prepared for properly implementing our 21-25 strategic plan, a theme that I will address on the next slide. While we are dedicated to managing the impacts generated by the crisis in the short term over the past few months, we have also focused on updating our business and growth plan. We believe that the period between now and 2025 can be divided into three phases. This year is dedicated to crisis response. Starting next year, we expect that the market will start to recover with variations depending on the specific business areas and markets. And From 2022 onwards, our projects will mature and allow us to grow profitably. Regarding the Embraer 2125 strategic plan, we have reviewed the details over the past few months. In response to the new market scenario, including the impacts generated by the pandemic, the end of the agreement with Boeing, and the reintegration of commercial aviation. This was a collaborative effort involving dozens of company leaders. We focused on the plan's effectiveness, and we know it is realistic. The goals are challenging but doable, and we will execute with focus, governance, and discipline. The plan has two main objectives, to increase revenue and to improve profitability. To achieve these two objectives, we defined three lines of action. Number one, initiatives aimed at efficiency gains. Number two, actions to increase the sales of our current product portfolio. And number three, a combination of business diversification projects, innovation, and strategic partnerships. In total, the plan comprises 18 projects. that will bring more agility and intelligence to the processes and reinforce alignment across the company. Just to give you a little more visibility, the first front, which is related to efficient gains, entails the creation of a web-based purchasing organization reporting to the CFO and focusing in a very structured way on intelligent cost reduction. At the same time, we are incorporating more intelligence into the processes, including the material planning and logistics area, focusing on increasing inventory return to reduce substantially working capital. In operations, the project aims to reduce aircraft production cycles, which will allow us to have more competitive products and reduce working capital as well. Regarding the second front dedicated to the growth of portfolio sales, we will intensify the sales efforts of our products. We benefit from new and competitive products in every segment in which we operate. Additionally, we will focus on adapting and converting aircraft for specific segments, such as converting e-jets to carry cargo in the passenger cabin, or the recently launched Pheno 300 meds, which was designed for medical evacuation. Finally, on the diversification innovation and partnerships front, we are going to expand our operations. This year, we have already announced investments in cybersecurity with the acquisition of Tempest, the Fragate project with the Brazilian Navy, and more recently, the creation of EV, a company dedicated to the development of the urban air mobility ecosystem, and EVTOL, electric vertical landing and takeoff aircraft. With this front, we are also developing project to expand our service offerings for aircraft from other manufacturers. And we are discussing potential strategic partnerships aimed at opening new markets and developing new products such as the TurboProf. It's important to note that, in addition to managing where we structure the product, the PEN focused on the process of execution and on the constant monitoring of the evolution of all initiatives. We are aware of the challenges we have ahead, especially in commercial aviation in 2021. But we are very confident in the future of Embraer. We know what must be done. We know how the plan should be carried out. And we have an immensely competent and aligned team that will develop the necessary initiatives to make the company grow profitably in the coming years. With that, I have concluded my comments, and I would like to give the floor to our CFO, Antonio Garcia. Over to you, Antonio. Thank you all.

Thank you, Francisco. Good morning, everyone. It's really a great pleasure to talk to all of you. Now moving to the commercial aviation highlights on slide seven. During the third quarter, we delivered seven E-Jets, representing a sequential improvement compared to the first and second quarters that we will accelerate even more in the fourth quarter. Among our third quarter deliveries, we had five 175s for United Airlines, highlighting our continuous leadership in the U.S. regional jet market. As another example of our continued improvement, we have already delivered more planes in October than in the entirely third quarter of 2020. As far as new operators, Alliance Airlines from Australia received 14 pre-owned E190s and Bamboo Airways from Vietnam started operation with two E195s. We are still not in the point where we can give guidance on expected deliveries or financial performance due to the COVID-19 uncertainties. But we would like to point out that we remain cautiously optimistic for the future, as we have seen a gradual rebound in domestic flight activities in several markets around the world, including the United States. Looking at commercial aviation in 2021, the uncertainties around the COVID pandemic are still our biggest concern for next year. The fleet of 175 in operations continues to improve with 93% in service as of end of September, outpacing our competitors in the market. I'm also proud to say that we had zero cancellation of commercial jet orders since beginning of the COVID pandemic. In executive jets, on the slide eight, we had a strong delivery pickup during the third quarter with 21 deliveries. This brought a total executive jet delivery so far in 2020 to 43 aircrafts. We expect the fourth quarter to remain strong for Embraer, and deliveries should continue to increase compared to the previous quarter. As a result of higher deliveries, improved mix, and measures taken to be more cost-efficient, the executive debt segment posted positive operating margins in the third quarter and year-to-date, marking the continuous turnaround of our profitability on this segment despite the COVID-19 pandemic. Also, as mentioned in the last call, we launched the Spinum 300 Med during the third quarter, which is a unique mid-box solution that's also available for retrofit on existing Finul 300s. In terms of new technology, Embraer continues to disrupt the medium segment respirators, HIPAA filters, now being standard wide levatory electrical doors and synthetic vision systems were both certified during the quarter. Finally, we would like to highlight the continued recovery during the third quarter. in particular with respect to the fractional and charter operation, with smaller and medium jets. Among fractional, small jets activity was down only 13%. Year over year, compared to the medium jets, down to 18%, and larger jets, 33%. Among charters, small jet activity was almost flat versus last year, while the medium and large jet class were down 5% to 70% respectively. As you can see, the markets where Libra is positioned with the Finans and Pretos are recovering faster. Moving to slide 9, we showed the highlights for defense and security. Regarding the C-390 Billionaire Program, there are currently six C390 in various stages of production for future deliveries to Brazil and Portugal. And we expect to deliver one more aircraft to the Marine Air Force this year. The program also received the 2020 Grand Laureate Award for Defense from the Aviation Week, which selects the best aircraft programs across commercial executive defense around the world. Another highlight during the quarter was the Super Tucano, as Embraer was able to deliver 10 plants to international customers. With the reopening of global borders, we were able to deliver Super Tucanos to Nigeria, Chile, and the Philippines. Finally, the first Gripen E arrived in Brazil to start its flight test campaign. which is a major milestone in the Brazilian jet fighter program with Saab. Embraer will also play a leading role in the execution of the program in Brazil, and will be responsible for the systems development, integration, flight testing, and delivery of the aircraft to the Brazilian Air Force. Now turning to service support on slide 10. We are proud to say that Embraer once again was ranked first in ProPILOT's Corporate Aircraft Product Support Survey 2020, underlining our commitment to customers to provide the best after-sales support possible. Our service and support team also completed the seventh conversion of Legacy 450 to Operator 500 since the service became available early this year. We were also able to get a certification of the first E-Jet modified for cargo transportation in cabins, offering our customer a solution to better utilize their fleets in the environment of lower passenger traffic caused by the COVID-19 pandemic. Further in service, we are pleased to see that the KC390 millennium has been showing excellent reliability in the military missions in Brazil and abroad. Moving on to our financial results on slide 12. Our backlog finished third quarter at $15.1 billion, representing several years of revenue for Embraer. It's It is important to highlight again that despite some deferrals, we didn't have any cancellation in commercial aviation. And we expect some new sales to potentially lead for backlog expansion in the upcoming quarters, depending on the impacts of a second COVID wave in certain regions. On slide 13, we show revenues and deliveries. We can clearly see an improvement in the third quarter relative to what we had in the first half of the year and the impacts of COVID on the industry start to reduce. With a higher commercial and executive jets delivered in the quarter. As I mentioned earlier, we expect an even better fourth quarter compared to the third quarter. We also had a strong revenue improvement in defense and security. following the reopening of international borders to allow for the delivery of supertucanos. Our service and support business, despite a year-over-year decline due to the COVID-19, has also increased double-digit sequentially from the second quarter with a potential to improve activities across the commercial, executive, and defense markets. Next, on slide 14, Embraer highlights its continued cost control in selling and administrative expenses. The reduction of SG&A reflects our ongoing efficiency and infrastructure actions, as already mentioned earlier in this presentation, combining, of course, lower marketing expenses coming from the COVID-19 restriction. It is important to mention that said expenses includes higher bad debt provisions compared to last year, mostly related to our services and support receivables. Excluding the bad debt provision, SG&A expenses on a year-to-date basis in 2020 are 30% lower than the same period of 2019. On slide 15, we show our operating results. Embraer reported adjusted BIT of a loss of $45 million in the third quarter with a margin of minus 6%. The adjusted BIT in the third quarter excluded a positive impact of $7 million for special items, including $54 million in charges related to our restructuring announced in September and $30 million in additional bad debt provisions. offset by 75 million positive in reverse of non-cash impairments charged in executive and commercial aviation. Breaking our third quarter margin by business, executive debt was positive 2%, service and support 4% positive, defense and security breakeven, similar to previous quarter. Commercial aviation was responsible for the negative operating results due to the low deliveries and the COVID impacts. So in slide 16 shows our adjusted EBITDA, which was a loss of $80 million and also excluded the special items already mentioned in the previous slide. Adjusted BIT margin was minus 1%. The combination of better volumes and cost cut initiatives have already started to appear in the third quarter. And we expect this trend to accelerate in the fourth quarter of the year. Moving to next slide 17 with earnings. Embraer adjusted net income and reached a loss of $148 million in the third quarter. Our earnings have been negatively impacted by the lower operating results, as well as higher financial expenses and no cash FX losses, similar to the operating numbers. Net income also reached a bottom in the second quarter and has started to rebound, and we expect better borderline performance in the fourth quarter of this year, driven by higher delivers. Next slide, slide 18. We show Embraer's total investment over the last few quarters. The company has launched several initiatives to cut investment, including CAPEX, as well as research and development. These reflect our actions to preserve cash. It also highlights Embraer's updated portfolio with state-of-the-art products in commercial aviation, executive jets, defense, and security. Embraer has invested a lot in the last five years bringing new programs and products to the market, and now we expect the upcoming years to show lower investments. Total investment during the third quarter reached 45 million and 134 million year-to-date, which is less than half of our investment level of 2019. Moving to slide 19, our free cash flow was a usage of $567 million in the third quarter. This free cash flow usage was negatively impacted by approximately $250 million, including three major items. First, one-off charge of around $70 million related to the restructuring and severance costs package of our headcount reduction in beginning of September. Second, around $100 million in short-term customer finance that will be normalized now in the fourth quarter. And third, another $80 million related to three plans that skipped from the end of the third quarter to the fourth quarter. Excluding that, our cash consumption in the third quarter of this year will be very close to the third quarter of 2019. Giving expectation for higher deliveries in the fourth quarter with a positive impact on our working capital, as well as our cost reduction initiatives, we are confident that our free cash flow will be much better in the fourth quarter of the year, and we should be at least cash break-even in the second half of 2020. Finally, on slide 20, we highlight our strong cash position. Our liquidity increased during the third quarter with a total cash position of $2.2 billion, which is a similar cash level that would have prior to COVID pandemic. I'm also happy to announce that we complete a series of liability management initiatives, new loans with private and public banks, as well new bonds insurance of $750 million, maturing in 2028. and has repurchase of $250 million of outstanding 2022 and 2023 bonds. It's important to highlight that our new 2028 bonds is unsecured and had a market demand above $3 billion, showing the confidence of the investor in long-term of Embraer. With that, I conclude my presentation, and we can open for questions. Thank you very much.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1. Our first question comes from Robert Spinger, RG Suisse.

Hi, good morning. Hi, Rob. Hi. A couple different things. First, what gives you confidence in the outlook at commercial and executive jets for you to reverse these impairments at this time? What improving trends are you seeing, and does that include increased interest in ordering aircraft?

Rob, it's Antonio speaking. Thank you. Good question. The reverse of impairments, assuming that we revise it in a quarterly basis, It was highly driven by the exchange rate. The devaluation of the Brazilian reais, we do have a lot of costs in reais, which means we didn't change volumes. We just changed the exchange rate, improved the margins, which accounts for the impairment reversal. Just this. We didn't change the baseline.

I see. Are you seeing any evidence of something you've talked about in the past and that we saw after 9-11? Are you seeing... actual down gauging at your customers from the commercial narrowbodies to the E-jets? And is this a trend that is gaining some traction?

Well, Francisco speaking. Thanks for the question. We believe the domestic regional marks will rebound first, as it happened in the past, as you mentioned. And the airlines will look for more versatile flexible and more economical fleet. And we do believe that our agents are very well positioned in that direction. So that's why we believe we have a good chance as soon as the market pick up.

Okay. And then my last question is about your inventories, either in commercial, actually in any of the segments, but do you have whitetails in inventory? And if so, can you quantify?

In regards to today's current situation, we have really a few. We are sold out in the small jets in the executive aviation. And the mid-size jets, we still have three or four to be sold this quarter. Again, minimal. And also for the commercial aviation. We have no white tails for this time being. We do have only the carryover inventory that we are doing to the postponement of deliveries to 2021, but it's not a big amount. What you do see in our inventory, we are going to run more or less 40% of our revenue in the first quarter, which means we are going to strongly go down with our inventory in Q4 due to the higher deliveries in Q4. But again, no big white tails in the inventory.

Thank you very much. Just a comment, Antonio, to complement. It's due here. So as you said, we basically have no positions available. That's the reason we are so confident on the fourth quarter and on the recover towards the end.

Okay. Thank you all. Thank you.

Welcome. Welcome. Our next question comes from Miles Waddle. UBS.

Thanks. Good morning. Maybe, Antonio, on the cash performance here in the third quarter, you laid out some of the one-time items, but I think the commentary last quarter was you could have been closer to break-even even for free cash flow here in the third quarter. So I'm just curious, what changed? What is pushed out to the right? And You know, I guess following on Rob's question, why couldn't those continue to push out to the right, realizing you haven't had any cancellations, but it seems like deferrals are more likely than not.

Yeah, we, Miles, thanks for the question. Again, the previous cause we mentioned that we are seeing and we see good chance to become, I would say, free cash flow break even the second semester or second half of the year. And we are still continue to believe As you could see, we have a cash burn in Q3 from $567 billion. And we had a skip of some aircraft delivery to Q4. We have also several payments that were hard to impact in Q3. We will be much less in Q4. And we have a huge amount of deliveries in Q4. We are still confident, and we are seeing progress in the improvement of our free cash flow and Also, cash collection plays a role, and also the other nails that we are taking. I'd say we are still confident that we'll be closer to break even in the second semester. But again, if you ask about my expectation, the third quarter, we could have been better 250 million. But again, having these one-time effects, shifting this effect for Q4.

Just one point, we had some planes that really skipped to the fourth quarter, but as Antonio highlighted in the call, we already delivered more planes in October than the whole third quarter. So I think that shows that we are very confident to revert that now in the fourth quarter. And I would say all the delivers for fourth quarter are confirmed, so we are not seeing risks or delays as we had. We had some planes that moved from Q3 to Q4, but now they are all conformant.

Maybe an additional information, Mario, the Super Tucanos we delivered in September, and we delivered, but we are going to book as a revenue and cash in now in Q4, which also helps in this equation, around 80 million. That is not part of the Q3 results. Again, many issues happen in Q3, but we should see the rebound in Q4.

Okay. And Francisco, maybe I can ask you, as you're repositioning the business and you want to get, obviously, the commercial business in particular to profit or cash break even at worst, what is the size, what's the deliveries or the size of the commercial business that you're sizing the cost structure to and the workforce to?

Good question, Miles. We are We have been discussing this a lot in our plan for the following years. I mean, we still see 2021 as a very challenging year. I mean, we'd say it's not much higher than we see in this year, but we are working in various fronts, you know, to adjust the cost structure of the company to deliver a much better performance in 2021 even with sales not much higher than 2020. And the main reason for that is the commercial aviation. We see that 2021 will be still a challenging year for commercial aviation. We are preparing for that, that scenario, but we see an opportunity to grow, I mean, from 2022 onwards.

Do you think 2021 could be break-even for commercial aviation?

No, commercial aviation will still suffer in 2021, but the other units will have a much better performance next year.

And we are seeing this fiscal year. By the way, we are seeing this year. Because of Miles, we are lucky to have a broader portfolio, and we are seeing a good performance in virtual margins for executives and defense and security services, which is more or less try to compensate the drop in the commercial aviation in regards to margins and results. But you're going to see the same picture in 2021. Thanks again.

Our next question comes from Ron Epstein, Bank of America.

Good morning, everyone. This is Mariana Perez-Moran for Ron today.

Hi. Good morning.

My first question will be, could you please give us some color on the short-term customer finance cash headwind you have this quarter? And not only the color on the quarter, but also why are you confident that this is going to recover going into next quarter?

Yeah, that was really a short-term timing delay. So we don't do customer finance, and we had a very short-term – finance that we're transferring to the final finance agent. And so there is no risk of not reverting that. So we don't do customer finance.

And it's already confirmed.

And it's already confirmed that it's already confirmed for the ECA in Brazil that they take out everything that

Okay, and then in general, because I understand for competitive reasons you cannot give like particular details, but how is cash profitability compared to like pre-pandemic cash profitability upon delivery?

Are you talking about commercial or the whole business?

Commercial particularly.

We are improving, right? We suffer with the lower delivers, especially in the first half. Third quarter already started to show improvement, but the big improvement will come now in the fourth quarter. As we mentioned, October already better than the whole third quarter, and we're going to have much more delivers, and that will drive a big improvement in cash profitability coming from working capital reduction and also the cost adjustments that we did that Francisco Antonio highlighted.

Thank you. And if I may, the last one, you highlighted improvement and business operations. Have you seen some like pick up in demand already?

Well, you mean demand for 2021 or for the following years?

Yeah. How are your sales campaigns coming in? If you have seen any pick up from, for like business, just demand what's booked to be in there.

Okay. Well, I mean, uh, uh, is that deviation is showing up with the reaction. We are, for example, in our phenol family, we are sold out for 2020. We are selling aircrafts for 2021, the phenols. I mean, so it's moving well. The defense and security, we are working in different campaigns as well. And also in the commercial aviation, we are working different campaigns. So hope, you know, this second wave of COVID will not bring a negative impact. On the opposite, if they announce a new vaccine, this will help a lot. I mean, the rebound of the regional and domestic flights that will help us to boost our sales in the commercial aviation as well.

Okay, thank you very much.

You're welcome.

Thank you. Our next question comes from .

Thank you very much. So maybe you could comment on the mix of your BizJets. You've done very well with the 300 and the 100. and basically very, very poorly in terms of deliveries of the Legacies and the Praetors. Why you have that sort of extreme mix, and should we expect a big pickup in those larger planes in the fourth quarter and going into next year?

Kai, thanks for the question. I mean, let's see if I understand your question. But, yeah, the Phenom 300 is our best seller. I mean, the most sold aircraft in its category for the past, I mean, 80 years, I would say. I mean, but we are improving our sales for the Praetors, the 600 and also the 500. And we have specific programs, specific initiatives in our strategic plan 21-25 to improve the competitiveness of the Fin 100 and the Praetor 500. And with those plans, we expect to capture additional market share in the following years for all the family, because we do believe we have a great family with the two phenomes, 100, 300, and the two praetors, the 500 and 600.

Just to add, Francisco, we had only two praetors in the third quarter, right, and 19 phenomes, so we expect a much better performance in terms of the praetors now for the fourth quarter.

Correct. Thank you, Edu. Got it. That was essentially the question. And then going forward, because if we look at this year and last year, basically the third quarter, very weak for, you know, generally weak for the larger biz jets. Do you expect a more level, you know, even spread of the large biz jets? Because, you know, the phenom's clearly doing well, but the large one's, where the product looks attractive doesn't seem to be doing quite as well.

Can you hear us, Kai?

Yes, perfectly. I don't know what that was.

Yeah, there was some background noise.

Sorry. Just allow me to answer. Kai, it's It's a good question for sure. If you see the chart, I showed the midsize jets, they are not doing well compared with the small jets. That's why we are sold out in the Sino 100 and 300. And we still have some open position for the last quarter. But let's say we do have campaigns for all of them. We are going to sell is another question, but let's say, We have talked about five to six aircrafts on the Praetor family. The others, we are sold out. And you saw the deliveries we have here today, 43. And we are seeing for the whole year, mid-80s for the total 2020 in regards to deliveries, which shows that last quarter will be hot anyway for us. But for sure, the mid-sized jets, they are suffering more, and also the large jets, compared with the small jets.

Great. And the last question is your gross margins have come down. What should we think about where your gross margins, what is the incremental gross margin we should think? Obviously, you know, you have different businesses, but overall, if commercial and bizjet get better, what kind of incremental margins should they yield? Thank you. Yes.

This is my point of view, normalized basis, because we do not have the better mix until now for the fiscal year. I do see above 15% in the long run, 15% to 16% for the first year.

And also, Kai, we have a lot of initiatives to help us to reduce the cost of goods sold of the aircraft, as well to reduce the production cycles of the aircrafts. And this will also help us, besides the mix, as Antônio mentioned, will also help us to increase the gross margin of our products.

And one important point, we were impacted by the idleness this year in our gross margin, which the adjustment we are doing in our workforce is not going to happen next year, even in Q4. September was already, if you ask me today, September was already positive NBA games and cash flow, just in the month of September. Because the agonist is being reduced and should come to an end in Q4, which is highly impact on our gross margin this fiscal year.

Very helpful. Thanks so much. You're welcome, Craig.

Our next question comes from Noah Poponek, Goldman Sachs.

Hey, good morning, everyone. Hello, Noah.

Hi, Noah.

In commercial aviation, you've mentioned that you haven't really had many cancellations, but there's clearly been a decent amount of deferral activity with the lower deliveries. Can you speak to, you know, where are your customers deferring to? It sounds like you're saying 2021 deliveries will be, you know, somewhere in the zone of similar to 2020. Are they deferring to 2022 or are they deferring even further? And, you know, are they giving you new plans that you feel are relatively firm or are they just still kind of throwing their hands up in the air and are still very uncertain as to when they're going to walk the airplanes?

No, thanks for the question. The majority of the deferral was from 2022 onwards, especially the local airline in Brazil here, Azul, which is impacting us heavily here. And we do see, as Francisco mentioned, 2021 more or less in the same level of this year and picking up starting 2022 onwards. to, I would say, mid-70s. And again, the highest amount of deferral is starting 2022, 22, and 24. And again, there is no additional postponements or deferrals. We may see maybe that if the environment change, the second wave of COVID is not going to impact, we may see even customers have to anticipate something. But Today is quite stable. Everything we discussed between March and April remains the same. Also, the deliveries of this year, everything we discussed was agreed between March and April. And since then, there is no change. Very stable.

If I may just add, Antonio, it's important to say that the situation is very fluid, right, given everything going on with COVID-19. But at the first moment, maybe some customers, they put a big deferral. But as the situation starts to get better, they start to operate again. We are the whole time talking to the customers and discussing when exactly they are going to take the pen. So as Antonio mentioned, there could be anticipations, right, to the initial deferral that they put. So the situation could really change depending on how COVID goes, especially next year.

But again, just to allow me to complete, we are setting the company for this new normal, I would say, in a lower base in order that we are able to capture more when you get an improvement and a recovering volumes. We are not running the company by hope. It's really fit on the ground and be conservative in the volumes for next year.

Yeah, and Noah, I mean, just also helping my colleagues here, I mean, this year we had to face a combination of two bad things, right? We had the drop in our revenues because of the COVID impact, but combined we cost much higher than normal because of the carve-out of the commercial aviation. But we have done our homework, we have adjusted the workforce, and we have put in place a lot of initiatives to reduce costs to reduce inventories that will help us to deliver a much better financial performance in 2021, even if we say it's not much higher than 2020.

Okay, great. I appreciate all that detail on commercial. Maybe, you know, kind of same question on executive. I mean, obviously, it's fluid. It can change, but for now... Would you speak to where you're planning production levels for total executive units 2021-2022?

For the 2021-2022, we are still evaluating the scenario. We even changed our SNOP process last month, and we do see something around 90 aircrafts. But again, still fluid, but you see more or less a good level of 90 aircrafts.

Okay. And then just last one on defense. You know, the quarterly revenues have been very volatile. I know you had the delivery restrictions, but it seems like it's been volatile even excluding that. You know, when does the defense business, I guess, just get back onto a more smooth trajectory quarter over quarter? And maybe just kind of walk us back through some of the bigger programmatic moving pieces that can drive growth or not in that segment on a multi-year basis?

Well, I mean, go ahead, Antonio, go ahead.

No, for sure, always the defense is hanging also in the budget of each government that's buying aircraft for us. In the COVID, we do have some restrictions. But I would say what we are seeing in defense, we are somewhere stable on the Super Tucano deliveries. and also in the KC390 volumes that we are operating for this year and also for next year. What we are still missing is additional sales for the C390 millennia that we are right now discussing some additional campaigns. But if you ask me what could boost the situation, really additional sales campaign for the C390.

Should we be thinking about defense revenues you know, three to five years out as meaningfully higher or, you know, something relatively similar to the current level?

No, absolutely higher. We have a good perspective in defense for the following years. You know, we are working campaigns for the C-390 Millennium, as Antonio mentioned. We also have business with the Brazilian Navy, Brazilian Army. We have announced an acquisition of a cybersecurity company, Tempest, We see opportunities in that field as well. So we have a good perspective for the defense for the following five years.

Okay. Thanks so much.

You're welcome.

You're welcome.

Our next question comes from Augusto Enziki, HSBC.

Hi, good morning. Just a quick question. In those senior financials that you're your financial expense increased sharply. Is that related to the pay down of some of your debt as well as the issuance of the new debt? And what would be a more normal level if not the one this quarter? Thank you.

Yeah, thanks, Augusto. Yes, you're right. There are some additional costs related to the new debt that we raised in the third quarter. We also had some impacts from basically non-cash effects losses, which is non-cash. And we also had an RVG provision. So that affected our financial expenses. I would say the normal level would be more something around 50 million per quarter. That would be our net financial expenses per quarter. Including the new debt.

Thank you very much. Thank you.

Our next question comes from Paul Anthony, Lumi Sales. Please proceed.

Hi, thanks for taking the call and taking the question. There's a loan maturity in the fourth quarter. I'm curious how you are planning on handling that.

Sorry, what was the question?

The loan maturity in the fourth quarter. I'm just curious, what are the plans to handle that?

Yeah, as I mentioned, basically now we had a very short-term customer finance that was already sold and transferred to the finance agent. So there's no... It's nothing material, okay? It had an impact when you look the picture of the end of the quarter, but it was already sold.

So there's no 600 million maturity in the fourth quarter?

No, no, no, no. We have in the fourth quarter is around 100, 150 million. Thank you.

Thank you. 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.