Embraer S.A.

Good morning, ladies and gentlemen, and welcome to the audio conference call that will reveal Embraer's fourth quarter 2020 and fall year 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 star 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 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, uncertainties, and assumptions, including, among other things, general economic, political and business conditions in Brazil and in 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 public life 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 actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO, Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement, and Mr. Eduardo Couto, Director of Investor Relations. I would like now to turn the conference over to Mr. Francisco Gomez Neto. Please go ahead, sir.

Good afternoon to all, and thank you for joining us in our fourth quarter and fiscal year 2020 results presentation. I hope that all of you are well and safe, and I thank you for your interest in our company, and most of all, in the confidence in our future. I will start with a short introduction about last year and afterwards our CFO Antonio will go into more details on the numbers for 2020 and the fourth quarter. I will return at the end of the presentation to speak a bit more about our main initiatives and my vision of the future. Our challenges in 2020 were not just limited to the COVID-19 pandemic crisis. We also had to deal with the termination of the strategic partnership with Boeing in commercial aviation. These and other challenges negatively impacted our revenues and costs throughout 2020, directly affecting the results of the company. That said, we reacted quickly to adapt to the new reality in an integrated and structured way, prioritizing the health and safety of our employees, supporting our society with several initiatives to combat the pandemic, and we also focused on cash preservation. Faced with this new reality, we adjusted our workforce to create a leaner and right-sized organization. We are now more agile to progress with efficient gains, with sales campaigns, and with strategic partnerships. During this process, we also recovered synergies with the reintegration of the commercial aviation business and its related services. Finally, we created a new business plan, known as Embraer Strategic Plan 2125, which will be our guide for the next several years to return to grow in a profitable and sustainable way. resulting in Embraer becoming more profitable than it was in the past. Before I go into more details regarding the 2021-25 initiatives, we will discuss the 2020 results. I will now hand it over to Antonio, and I will return in the end. Thank you.

Thank you, Francisco. 2020 was my first year at Embraer and a very challenging and unprecedented year for the company. But I'm very happy with all achievements that we had, which I will show in more detail in the upcoming slides. The Embraer team is impressive and I'm convinced that Embraer is on the right path. Now moving to the financial highlights on slide five. The COVID pandemic impact was felt much more in commercial aviation. Our consolidated revenues declined around 30% in 2020. And commercial aviation and its related services responded for more than 80% of this decline. During the year, we made a great progress in integrating commercial aviation within Embraer. And all of our business units are now moving forward with a united focus on improving results as we gradually emerge from the pandemic. We have a resilient backlog with strong customer and partners to build on. And we are proud to say that none of our commercial customers canceled any of their orders during 2020. We, in fact, are cautiously optimistic in signing orders in commercial aviation during 2021. The executive aviation and defense businesses showed encouraging performance during the year with a strong profitability improvement as we continue to work on this business to generate consistent margin going forward. The required margins and executive jets proves that we are in the right way. We changed the company mindset. to implement actions to reduce cash outflows, expenses, and optimize investment in SG&A in 2020 without compromising any of our ongoing projects or operating capabilities of the business. Besides that, the right size we announced in the third quarter has been implemented, and we expect a tailwind from that in 2021 results. We continue to work on reducing our working capital needs to unlock cash in our business, particularly with respect to inventories and accounts payables. As we highlighted in the second quarter and again reiterated in the third quarter of last year, we finished 2020 with a very strong cash generation, which was ahead of our expectation of a break-even cash in the second part of the year. we are also able to improve our liquidity during the less less difficult time last year securing more than a billion in finance from different sources such as bns usx private and public banks as well from the debt capital market with long-term bonds finished the year with a very strong liquidity of $2.8 billion in cash. It's important to note that due to the uncertainties related to the pandemic and its impact on our business, we are not announcing financial guidance for 2021 this time. We will continue to evaluate the possibility of releasing 2021 guidance as the year progresses. So moving to the highlights for our commercial aviation business on slide six. Delivers recovered nicely in the fourth quarter with 28 jets delivered in the period and a total of 44 aircraft delivered during 2020. This also included the milestone of the E-jet number 1600 delivered to Helvetica Airways. We also had deliveries to important and long-time customers in 2020, including AirCap, Air France, American Airlines, ASU, United Airlines, and others. We had zero firm order cancellations since the start of the pandemic, a fact that we are very proud of, which illustrates a less speculative nature of our backlog compared to peers. It sparked some new COVID outbreaks in several regions of the world, and at the end of 2020 and early 2021, have delayed some sales campaign. But we are confident that we will announce important new orders in short term and throughout 2021. Our commercial aircraft continue to lead the recovery of domestic flights in several markets around the world. And airlines recognize the economics and the environment value of our best-in-class jets in the sub-150 seats category. We see strong market demand for E-jets around the world. And last year, LeSource placed up to 90 used E-jets in the market, and we added six new E-jet operators during the pandemic. Now shifting to executive aviation highlights on slide seven. Embraer delivered 43 executive jets in the fourth quarter, leading to a total of 86 jets delivered in 2020, with no whitetail carryover into 2021. As far as profitability, 2020 was really a great year for Embraer's executive jets, as we presented strong margins of high single digits and cash generation with a solid backlog and improving sales. In terms of client recognition, the Fino 300 was the best-selling light jet, again in 2020, the ninth consecutive year. And last year, the Fino 300 was not only the best-selling light jet, but also the best-selling twin-engine jet in the entire executive aviation industry. We also reached an important milestone of the first Praetor 600, jet delivered to the fleet launch operator, Flag Jets, in 2020. A very important customer that has chosen Finos and Praetors to expand its business in a multi-year deal that was signed in 2019. I would also like to highlight that the pandemic recovery is on its way in the executive aviation, as business jet operations are already back to over 90% of pre-pandemic levels with a strong momentum in 2021 for Embraer. So, on the slide eight, we go into some highlights for our defense and security business. During the year, we signed a contract with the Brazilian Navy as part of a consortium with Tyson Group to build four ships. with deliveries expected to happen between 2025 and 2028. This underscores our positioning as the true defense house of Brazil. We were also very happy to announce the sales of two C390 Millennium cargo transport and tanker aircraft to Hungary, closing our second export customer of these aircraft after Portugal. We also deliver two C390 aircraft to the Brazilian Air Force in 2020 and 16 A-29 Super Tucano to the clients around the world during the period. We also continue to work in 2020 with Brazilian Air Force to study development of a new light cargo aircraft with short takeoff and landing capabilities. In terms of profitability, defense and security was our most resilient business during the pandemic. As the revenue grew and our operating margin moved from the negative in 2019 to a mean single digit positive in 2020. Slide number nine, with respect to our services and support business highlights. Let me first say that the business was significantly impacted in the early days of the pandemic, as most commercial and business jets worldwide were stopped. But since then, service and support has shown an impressive and consistent improvement during 2020. The business continued to perform despite the impact of the pandemic. completing 11 conversion of a legacy 450s to a new Praetor 500 jet during the year. Also, service and support helped and supported our commercial airline customers to adapt their realities imposed by the pandemic, working to get E-jets modified and certified for our cargo transportation cabins. For the long term, we are proud that our AUGMA MRO business in Portugal was selected to become a new Pratt & Whitney authorized maintenance center for GTF engines in Europe. After some initial investment in the business, we are excited for the growth opportunity for Ogima to potentially triple in size in the next several years. Finally, We are optimistic for the future as we finish 2020 with service and support activities approaching pre-pandemic levels. Now let's go into more details on the quarterly and yearly financial results. On slide 11, we show our year-end backlog, which finished 2020 at $14.4 billion and declined mainly due to the impact of the pandemic on new orders, particularly in commercial aviation. Our total backlog fell around 15% in 2020, which compares favorably with our peers that face larger cancellations. It also highlights our high-quality customer backlog with very little speculative orders. We are also cautiously optimistic regarding a better order environment across all of our business in 2021. On slide 12, we turn to aircraft deliveries, which showed a stronger recovery in the new normal levels in the fourth quarter. We delivered a total of 44 commercial aircrafts in the year, with more than a half coming in the fourth quarter, and delivered a total of 86 executive jets in 2020, of which half came from the fourth quarter. The annual deliveries in commercial aviation were clearly impacted by the pandemic, while executive aviation deliveries was less affected. So moving to net revenue in slide 13. Embraer reported just under $3.8 billion in revenue for 2020, which was a 30% decline compared to 2019. As mentioned previously, declining commercial aviation and its related service were responsible for more than 80% of these reductions. Looking at the geographic split of our 2020 revenues, performance of North American European market has a direct impact on our business, as just over 80% of our 2020 revenues came from this region. Continued improvement on COVID cases, vaccine rollouts, and eventually improvements on passenger traffic give us optimism for the future. In slide 14, Embraer presented a significant cost control during the year of 2020 as part of its cultural transformation, as clearly shown in slide 14. Our total SG&A declined almost 30% in 2020, as compared to 2019. Excluding the bad dev provision of 62 million in 2020. This reduction is impressive and roughly in line with decline in sales for the year. Despite a large portion of the CSG&A expenses being fixed costs in nature. So, regarding adjusted BIT on slide 15. Embraer had a solid fourth quarter with one of the best levels of consolidated margin in recent years at 4.2% positive. This reflects not only the improvement in commercial and executive deliveries in the quarter, but also the improvements in defense and security and service and support stop lines, as well the benefits of cost control and the initial positive impacts of our restriction actions taken in September. Adjusted EBIT in the fourth quarter excludes a total of $27 million of positive net impacts coming from restructuring expenses, impairments, and bad debt provision. For the full year, we finished with adjusted EBIT of a loss of $101 million, representing an adjusted EBIT margin of minus 2.7%. This compares favorably with last year's breakeven level, despite a more than 30% decline in revenues caused largely by the COVID-19 pandemic. We expect higher profitability levels in the future years, as we continue to recover top-line growth and cost reduction initiatives are mostly permanent. For 2020, the adjusted BAT margin by segment was minus 7% at commercial, plus 8% executive, plus 6% defense, and 4% service and support, removing items and one-off impacts. Slide 16 shows our adjusted BTDA, which was positive 146 million in the fourth quarter, and also excluded the special items already mentioned in the previous slide. adjusted a BTDA margin for the fourth quarter was 7.9%. For 2020, despite the significant impacts that the pandemic had in our business, and with revenue dropping 30%, Embraer generated a positive adjusted BTDA of 82 million for the year, with an adjusted BTDA margin of 2.2%, which was very close to 2019 levels, despite a meaningful decline in revenues. On slide 17, we turn to the adjusted net income, which for the fourth quarter was a loss of $30 million and was better than the adjusted net loss of $93 million in the last year for the fourth quarter, despite lower revenue in the period. For the full year, Embraer reported adjusted net loss of $464 million, which was higher than 2019. driven by the lower operating income as well higher financial expenses. We believe that higher profitability in the coming years combined with lower financial expenses as we continue to recover the top line and improve our cash position will be important drivers for earnings rebound in the years ahead. Another lever we pulled during 2020 to reduce cash outflow was reduction of CAPEX and development spending that we show in slide 80. The total investment declined 60% to 203 million. Thought it's very important to note that none of our ongoing projects has been compromised in terms of timing. We are nearing the end of the development cycle for the C390 millennium. The E175E2 development continues to progress as expected and we continue to invest in our executive aviation segment to maintain the competitiveness with state-of-the-art products as we look to the future investments are likely to increase a little bit from 2020 levels but not in a significant way as our product portfolio is new, and any large investment will require strategic partners. We are also highly focused on improving free cash flow generation in the coming years. So, on slide 19, we show the company's free cash flow in 2019 and 20. We finished the year with a free cash flow usage of $990 million. But I'd like to highlight the strong cash generation in the fourth quarter of 725 million, which almost equalized the last year record free cash flow generation. Also, we promised to the market that the second half of the year would be breakeven free cash flow. And we actually beat that by generating almost 160 million of free cash flow in the second half. Cost control, improvements in deliveries, and more efficient use of working capital are all helped in the cash flow increase for the fourth quarter. We continue to work to deliver meaningful free cash flow improvements in 2021 versus 2020, as we gain further traction in our working capital initiatives, as well additional cost efficient in some revenue gains. Finally, on the slide 20, we showed the companies in strong liquidity position. As Embraer finished the year with nearly 2.8 billion in cash. Much improved from the previous quarter and similar to 2019 levels. We were successful in getting additional liquidity during 2020 via different finance sources. We have less than 10% of our debts coming due in the next 12 months and the average maturity of our debts is above 40 years with with that i will now turn the call over to francis for his closing remarks thank you as you could see from antonio's presentation the pandemic has meaningfully impacted the results of our business

But the fourth quarter results are a clear example that we are making significant progress in our financial performance. The numbers reflect not only the actions implemented as a response to the crisis, but also the beginning of the execution of our strategic plan. 2021 will still be a challenging year. as the crisis has not ended yet and the scenario remains uncertain and volatile. But despite all of the uncertainty, we are confident that this will be a year of recovery in our main markets to get back to stronger growth from 2022 onwards. With respect to our 2021-25 plan, I would like to highlight a few points. Our strategy for the next five years has two main objectives. Grow revenues and improve profitability. To do this, we must work as much on the top line to increase revenues as on the bottom line to reduce costs and improve margins. We will achieve these objectives focusing on the following fronts. on revenue growth of our current portfolio of products in all business units, on projects to bring efficient gains, and on initiatives for innovation, diversification, and strategic partnerships. Some of the actions of the business plan are already progressing and have started to show results, such as on the sales front, In commercial aviation, it is market consensus that the sector's recovery will begin first with regional aviation. And the E2 family of jets is the best solution for customers that need to make their fleets more flexible, economical, and efficient. This is in addition to a strong and continuous demand for E1 jets, principally in the U.S. market. We have various sales campaigns ongoing, and the advance in vaccinations in different regions of the world will be a crucial factor in closing these new opportunities. Executive aviation in 2020 had its best performance ever, with strong profitability and cash generation, despite the challenges of the pandemic. and starts 2021 even better, with strong sales. The defense business remains resilient, with good growth prospects and improvement in profitability, as we continue to ramp up the learning curve and maturity of our multi-mission transport aircraft, the C390 Millennium. and expanded the pipeline of sales campaigns for this aircraft and for the Super Tucano as well. Overall, across our businesses, we have one of the newest portfolio of products in their respective industries, with the E-2s, the Finos, the Praedors and the C390. They are state-of-the-art, technologically disruptive and highly capable products that are the result of the last several years of investments that we have made. These products should help us to grow much faster than overall market levels as we emerge from the pandemic. The services and support area is already approaching pre-pandemic levels. and continues a rapid recovery with good financial performance. The 25-year multi-billion dollar contract signed between Ogma and Prat-Whitney for engineering maintenance in Portugal will triple the subsidiary's revenues in the next several years. This translates to revenue and profitability growth for Embraer. On efficiency gains, already in the second half of 2020, we started to see significant improvements in inventory levels, reduction in the production cycles of our aircraft and components, and cost reductions in general. In addition, we continue to focus on maintaining our innovation DNA. We announced the creation of EV, a business dedicated to the development of the advanced air mobility ecosystem, and the EVTOL, an electric vertical take-off and landing aircraft, a segment with strong growth potential in the years to come. And we also remained focused on the discussion of strategic partnerships to open new markets, among others, for our commercial jets, our multi-mission aircraft, the C390, on development of the new turboprop project, and on growth in our service and support business. I know that many of you have invested in and have followed Embraer for a long time and know our company very well. For that reason, I think it's important that you leave this presentation with a clear understanding regarding five key points. First, this is a different company today. We are not the same business that we were years ago. And we are not yet the business that we will become in the next few years. We are in a process of transformation and we are moving fast. Second, we are very confident in our strategy. And this confidence motivates us to accelerate and remain focused on execution with discipline. Third, be certain. that we will direct our team, our assets, and our skill sets to be a larger and more profitable company in the next few years. We can see many opportunities ahead of us, despite the short-term challenges we are facing. Fourth, we have today a very united leadership team. a company focused on the execution of our plan in a high level of alignment, motivation, and energy in the entire organization, which has made a big difference in our process of recovery after the pandemic. And fifth, Embraer is a company that is concerned with the environment, and one of the first in the industry to adopt advanced norms of environmental management and social responsibility in its region, with high governance and ethical standards. We are committed to ESG and will progress even further on this agenda. Finally, our founder, Osiris Silva, the first Brazilian and one of the few non-Americans to be recognized with the Daniel Guggenheim Medal, which is granted as one of the highest awards in aviation, used to say, Embraer always challenged the impossible and is capable of getting where he wants. thanks to the passion and competence to always do the best. We preserve and incentivize this passion and the high competence of our engineering force in other areas. And now, with more focus on results and simplicity of actions, we are sure that we are making a difference to be a bigger and more profitable organization for our shareholders. Thank you very much.

Thank you.

We will now begin the questions and answer session. If you have a question, please press star one. Our first question comes from Myles Walton, UBS.

Hi, good afternoon. Thanks for taking the question. I was hoping that you could perhaps touch on new products. And you mentioned, Francisco and Antonio, about revenue growth and partnerships that would be required for really investing on new products. And I wonder if you could comment around both the turboprop area as well as the e-natal area, how much Embraer is willing to spend to create those markets versus what they need from partners and when those partnerships might materialize.

Thank you, Miles. Francisco speaking. Thanks for your question. Well, let's separate this answering in two parts. First, I mean, we do have a very new and competitive portfolio of products, right? That we have considered in our five-year strategic plan. You know, the E2 family, that were still working in the E-175, E-2, the Finos, the Praetors, in the executive aviation, in the new C-390 Millennium in the defense. For new products like the turboprop, like the Stout, that we are working in different strategic partnerships. For the Stout, For example, we are working, we are close to get a contract from the Brazilian Air Force. And for the turboprop, we are working in this partnership front to find partners to help us to fund and accelerate the the the development of the product and to open new marks for the product as well so this is what we are doing we are we are i would say that we are in an advanced stage in such uh fronts but uh we don't have anything concrete yet to share with you okay very good and one other one if i could the profitability that you think the company can get to in your vision

21 to 25. Should we think about the EBITDA margins of Embry over the past in the mid-teens, you know, 14 to 15, 14, 16 percent? Is that where you're trying to get to, or do you think you can have a pathway to get above those margins? Thanks.

Thanks, Miles. Anthony speaking here. I'm going to tell you around the EBIT margin first. We do believe we are, with everything we have in front of us, being able to reach a higher single duty EBIT margin throughout this five years plan, which leads us automatically for the EBITDA that you just mentioned.

Very good. Thanks, Antonio. You're welcome. Thank you.

Our next question comes from Robert Espingard, Credit Suisse.

Hi, good afternoon. I got a couple of questions, but first just to follow up to what Miles just asked you. On urban mobility, would you seek a strategic partner there, either for the aircraft side or for the air taxi side, or might you access the public markets? And I'm specifically asking about Eve accessing the public markets as a separate company.

Thank you. Thank you, Rob, for the question. As I said in my introduction, in my closing remarks, I'd say we continue to invest in innovation programs and projects. And Eve is one of the most important ones that we are working on at this moment. We see a great potential in that market, no doubt, for the vehicle itself, the eVTOL, but also for the urban air mobility traffic management as well. And we continue, we are working to exploring potential investors and also strategic opportunities. But we don't have also anything concrete to share with you at this point of time. But this is, in terms of innovation, one of our most important initiatives, no doubt.

Okay. And then turning to the competitive environment in the regional jet business, we've had a fairly significant change with Bombardier and Mitsubishi essentially dropping out of the new aircraft production market. So now really in RJs, or at least up to 110 seats, it's only Embraer. To what extent does this change the market dynamics for you, and are you seeing any evidence of traditional Bombardier operators now looking at Embraer E-Jets for growth or replacement aircraft?

Go ahead, Antonio. As Antonio is speaking here, for sure we do. I do believe in what's with the two competitors not putting aircraft to compete with us. Didn't change too much because we were the market leader anyway. We do see a V-shape recovered very strong in U.S. for the original jets, where we are alone with DUN-75E1. I would say didn't change too much because from the 24 aircraft we delivered 2020, two-thirds was already for the regional jets in the U.S., and we just continue to fulfill our customer demands. For the new operators or the other airlines to take decision to right-size their fleets, we do believe it's going to take more time to take a decision and say, okay, now we go to buy 175E2, or even our E2s. We do believe this right size or changing the fleet profile is going to take two or three years, in our opinion.

And if you allow me to compliment, Antonio, the E2 is the most economical aircraft, one single aircraft in the market, and the most efficient one. It offers, I mean, a reduction of about 20% in the cost per seat, comparing to our big narrow bodies, you know, the competition. So we are very well positioned, either with the E1s, as Antonio said, or with the new E2s.

Do you see any chance to get the E2 175 into the U.S. market?

Well...

Go ahead. Rob, we do believe the scope clause is still resisting until 2025, 2026. We are monitoring this, yes. And we are concluding the development certification of the aircraft in 2023. And we do have other guys outside the U.S. for this product or the customers. But until 2025, I will not make any forecast right now that scope clause is not going to play a role in U.S.

Okay. And just a last question, a clarification with regard to the long-term forecast on slide 22. When you say recovery in 2021 and then growth beyond, Is that specific? I mean, do you see 2019 type numbers in 2021, at least in any area, you know, regional jets, biz jets, or cash flows? Or is that really going to come after 21?

Well, we see 2021 still as a challenging year. But I think we did our homework in 2020. We right-sized the organization. We put in place a lot of initiatives to improve our efficiency, to sell more. And we don't see a... A big growth in 2021 in terms of revenues, mainly because of the commercial aviation that are still strongly impacted by the COVID. But our other business units, they are much more resilient, as we said before. The executive aviation had its best year ever in 2020, despite of the COVID. We see a very good year for the executive aviation in 2021. And the same for the defense and services. In the commercial aviation, we expect to see some growth from 2022 onwards. But to be back to pre-COVID levels, we believe that this will be from 2023 and beyond.

And when in there would you expect cash flow break-evens?

Rob, I don't want to give you a guidance, but we are fighting for the best already in 2021, but we are evaluating here before giving a guidance to the market. 2021 will be still a challenging year for us. For sure, free cash flow will be much better than 2020, no question mark, but we are still evaluating to give you guys a better guidance for this year.

Okay, thank you both very much. Very helpful. Thank you.

You are very welcome.

Our next question comes from Mariana Pérez Moura, Bank of America.

Good afternoon, everyone.

Hello.

So my first question is also a follow-up on EVE. Could you please give us some color on the strategy about spinning off if last year, is it because of operations? Is it because of attracting investors? And if you can give any color on if you were to see that company come public, how can that be?

Yeah, hi, Mariana. It's Eduardo here. I'll take that one. As we said, we created EVE at the end of last year. As Francisco mentioned, we believe a lot on the urban air mobility market. It's an exponential growth market. And we are really, I would say, excited about that opportunity. And that was the reason behind the EVE creation itself. We're exploring potential investors and strategic opportunities, but we're not commenting at any specific alternative or any structure at this point. So that's pretty much what we can say.

Okay, thank you. And then the other one is on executives. If I'm not wrong, your margins... these quarters were close to 13%, and it's the first time you have, or you print double digits since 2014. How sustainable is that kind of margins? How should we think about margins going forward?

So I do, we do see the, we are trying to follow a structure in the executive aviation, which is try to Build so many aircraft as we can sell, we can deliver. First one, we finished 2020 without any white things in the inventory. First one. Second one, we are seeing a recovery. Even that last year, we delivered much less than 2019. In a sustainable way, we do see the executive aviation as always in the higher single digit BIT margin for the long run. And for sure, we still have issues to work in our product portfolio in order to improve market share and be more aggressive in some or the other initiatives in regards to products. But we are well placed. We are the market leader and we are proud of, I would say, sustainable, I would say, need to hire single-digit ABAT margin from the long run. And, Mariana, it's important. When you mention about the ABAT margin, it's without services. It's just pure aircraft. If you compare it with the peers, some peers, they show the ABAT margin with services. We are just talking about pure sales and deliveries of aircraft, and that shows that the air is not only commercial aviation. It's also executive aviation, which has a lot of value to deliver.

Perfect. And if I may, last one from me, on leverage, how should we think about the financial structure and trends in the near term?

Yeah, we had a very strong fourth quarter, right, Mariana, in terms of cash generation. We generated north of $700 million in cash. That was very important to deleverage the company. We ended the year with a very strong cash, $2.8 billion in cash. net debt around 1.7. The company is highly focused, as Francisco mentioned many times, and Antonio, to generate cash, to continue to deleverage. Also, you know, any new or heavy investments will need to come with partnerships, also to reduce the investment effort from Embraer, which will also be important to generate cash. So we are confident that we are in the right path, and we expect, you know, free cash flow to improve meaningfully this year already and for the years to follow so that we generate cash and can leverage the company. So we are not comfortable with the leverage we are today. Okay?

Thank you very much. Welcome. Welcome.

Our next question comes from Marcelo Mota, JP Morgan.

Hi, everyone. Good afternoon. Two questions from my side as well. The first is regarding the sales campaign, right? You briefly commented during the presentation that you do expect to have some results in the short term. So just wondering, you know, how much more can you mention about it? And also, if we look at the the backlog of the company. I mean, do you think it could go back to levels pre-COVID? Do you think it's going to be, you know, a more short-term type of backlog as companies are still working on the orders? So how can we think about those two lines? Thank you very much.

Thank you, Marcelo, for your question. But I think I would answer in different ways, I would say. For commercial aviation, Yes, we have, we are working a lot of campaigns. I mean, for you once, especially in the US and for it was in different markets. But you know, the the the rhythm to close those deals really depend on the on the vaccination progress. Many companies, they are expecting a growth in their market airlines, but this COVID impact is still an issue for them. On the other side, I mean, executive aviation, we are doing pretty well. We started very strongly this year with new orders, much better than in the past. And defense, we are very stable. this year as we were last year. So it's a very resilient business that we have. And the service area, this is approaching the pre-COVID levels. So again, I think that for executive, defense, and service, we are doing pretty well in terms of orders. But in the commercial, we really depend on the progress of the vaccination in the different parts of the world.

So in regards to Marcelo and Zantoni speaking here, in regards to our backlog, we take a look backwards and between 10 to 15 billion, 14 billion we have, as I would say, is not a risk for Embraer. We are, I would say, safe for the years beyond. There is cancellation. Having no cancellation is really key for us, means we have our customers supporting us. And the reduction itself is clearly we delivered a lot in 2020, and we were not able to close too many deals. And you know better, COVID-1, wave one, wave two, see what's happening in Brazil here. Especially the airlines, they are reluctant to take fast decision as long there is no visibility. for the impacts of the COVID. But I would say we should be able to be minimally stable this year with the new campaigns that we are discussing right now.

Perfect. Thank you very much. Welcome.

Welcome.

Our next question comes from Noah Poponek, Goldman Sachs. Hello, everyone. Hello, Noah.

Hello, Noah.

How are you seeing commercial production or unit deliveries for 2021 versus 2020?

Hello, Noah. This is Antonio speaking. We see it's slightly better than 2021. Not a big spike, but it's slightly better in regards to units.

Okay. Okay.

I guess I respect that a lot of the companies in the industry aren't providing guidance and we're all still working through a pandemic. So there's just general high levels of uncertainty. But I guess I'm a little surprised you're not providing guidance because you If you're speaking to regional jet deliveries up a little bit, business jet seems even a little firmer than that. You have the Phenom 300 as your highest unit airplane, which is a really well-positioned airplane. And then defense was flat this year and is a little more insulated. And then margins and cash flow are in your control beyond top line. Is there something else besides just the broader umbrella of uncertainty that I'm missing in that that's holding you back from providing an outlook for the year?

No, I would say no, and thank you for the question. It's really a great question. But from the operational side, we are living in crazy times in Brazil. We all know about this. We do not expect an issue in our operations, but you never know what can happen. But this is one point. And the second point, we are just evaluating our free cash flow in a better way in order to be more precise. The issue for us is improving free cash flow, and we are reluctant to give a guidance right now in order to – We don't want to disappoint the market before we have clear idea what's going to happen this year. There are a lot of moving parts, especially the sales campaign, that could change a lot of this number that we are going to provide to you. That's why we prefer to keep our horses here for more one or two quarters. Sorry for saying this, but it's the reality.

No, that's fair and sensible. I just wanted to... Yeah, I just wanted to ask that. Last one, your answer to Miles' question on future margins was a little surprising to me, where he was making the point that the company used to have a mid-teens EBITDA margin, and your answer to him was you were looking at and thinking about high single-digit EBITDA margins in 2025. The company has had DNA That's pretty consistently been kind of 5% of revenue outside of 2020 where the revenues are depressed. So that would mean that you're thinking EBIT margins sub 5%. That's just surprisingly low compared to where you've been historically, what some of your targets have been over time. Yeah, am I missing something there?

No, no, no, just to correct, I was commenting in regards to the ABIT margin, not the BTDA. We do see higher single-digit ABIT margin for this period. And we are there. If you see exactly, we close with 8% and defense with 6%. And now service is going to be much better. I was mentioning in regards to ABIT margin. And for sure, the BTDA margin will be double-digit anyway.

Okay, I'm glad I asked for the clarification that I heard the acronym you were all speaking to incorrectly. Okay, understood. And yeah, thanks for the time. Welcome.

Welcome.

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