Embraer SA
BOVESPA:EMBR3
Earnings Call Analysis
Q3-2023 Analysis
Embraer SA
The third quarter of 2023 has brought a blend of triumphs and trials for Embraer. The company's firm order backlog has increased to $17.8 billion, a notable $500 million uptick from the previous quarter, backed by the sale of 42 commercial aircraft by September. This rise is supported by a robust sales pipeline and a double-digit surge in revenue across all divisions. Embraer's adjusted EBIT (Earnings Before Interest and Taxes) and free cash flow were comfortably in line with expectations, with the debt maturation extension contributing to a strong cash position. Total liquidity is now at $2.4 billion, allowing for solid coverage of financial obligations up until 2030.
The Commercial Aviation division boasted delivery of 39 aircraft in 2023, a threefold increase from the same period in 2022, with the backlog now totaling $8.6 billion reflecting strong market stability. The E-Jets, especially the E175-E1, have seen significant orders, notably from leading US customers. Executive Aviation is also flourishing, with a 25% revenue increase and a backlog that has grown to $4.3 billion. This reflects a strong book-to-bill ratio of 1.5:1. Defense has had its wings elevated by the selection of the C-390 Millennium, portending potential growth doubling the backlog. Clients are already enjoying Embraer's defense capabilities, with Portuguese and Brazilian air forces actively utilizing the KC-390 aircraft.
With 43 jets delivered in the third quarter, Embraer has seen a 30% increase from the previous year and a 33% rise year-to-date. Revenue has swelled to approximately $1.3 billion for the quarter, translating to a 38% year-over-year increase. Year-to-date figures have eclipsed $3 billion, marking a 29% bump from the previous year. The company has also reaffirmed its guidance for adjusted EBIT and EBITDA margins, buoyed by higher business unit revenues and a stable cost base. The free cash flow forecast for 2023 remains at a confident prediction of $150 million or more.
The company's effective debt management strategies have resulted in a debt (excluding EVE) sum of $1,357 million, which has slightly decreased due to improved cash generation. The leverage ratio has significantly been enhanced from 4.8x to 2.5x compared to the same period in the previous year. These achievements have laid the groundwork for Embraer's quest to regain its investment-grade status.
Despite a successful quarter, Embraer foresees challenges, particularly in fulfilling Q4 deliveries, attributed mainly to ongoing supply chain constraints. However, the company remains steadfast in its guided 20% revenue growth compared to the previous year. Executive sentiments echo optimism for Embraer's strategic trajectory, projecting sustainable and even more robust financial results in the upcoming years as it reaps the benefits of previous strategic initiatives.
While order discussions have taken longer than expected, Embraer remains active in its sales campaigns with an aim to close several deals in Q4, propelling the book-to-bill ratio beyond its current 1:1 standing. Future profitability prospects for the commercial segment predict improvement, with projections of 3-4% EBIT margins going into next year, ultimately targeting a normalized mid-single digit in the long term.
The defense side has seen newfound vigor with the KC-390 aircraft obtaining selections from several countries, including the Netherlands, Austria, and the Czech Republic. With anticipated contract closures by early 2024, the defense backlog could more than double in size. Deliveries for these contracts are anticipated to commence from 2025 onward, setting Embraer on a solid foundation for growth in this sector.
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Good morning, ladies and gentlemen. Welcome to the audio conference call for Embraer's financial results for the third quarter of 2023. Thank you for standing by. The numbers of this presentation contain non-GAAP financial information to facilitate investors to reconcile EVEs financial information in GAAP standard to Embraer's IFRS. We remind that EVEs results will be discussed on EVEs conference. It is important to mention that all numbers are presented in U.S. dollar as it is our functional currency. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions to participate will be given at that time. As a reminder, this conference is being recorded. 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 the other things, general economic, political and business conditions in Brazil and in other markets where the company is present. The words, leaves, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward-looking statements. Embraer undertakes no obligations to update publicly revise any forward-looking statements because of new information, future events and 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 Francisco Gomes Neto, President and CEO; Antonio Carlos Garcia, Chief Financial Officer; and Leonardo Shinohara, Director of Investor Relations. I would like now to turn the conference over to Francisco, who will proceed with the first remarks. Please go ahead
Good morning, and thank you all for joining our third quarter 2023 results conference call today. Firm order backlog ended at $17.8 billion, a US$500 million increase versus the second quarter with 42 commercial aircraft sold by September. This quarter was marked by an excellent sales momentum and double-digit revenue growth in all business units. EBIT and free cash flow are in line with our expectations. We concluded our reliability management process, placing Embraer in an excellent cash position with the extension of our debt maturity with no relevant disimbursement until mid 2027. On the other hand, we are still facing some challenges in our supply chain. And Embraer has been diligently working with its suppliers to mitigate these issues. Our operational and financial guidance for the year remain unchanged. On the next slide, we present the highlights of our business units. Commercial Aviation delivered a total of 39 aircraft during 2023, of which 21 are [indiscernible] 3x more than the same period in 2022. Commercial Aviation backlog rose to $8.6 billion compared to the second quarter 2023 with a book-to-bill of 1:1, highlighting sales stability and deliveries this year. It is also important to mention that there are many ongoing sales campaigns. In the U.S. market, we had several firm orders coming from main customers of E175-E1 jets. This is an important highlight because it shows that the pilot shortage situation is improving in the U.S. Another important deal was with Luxembourg based airline, Luxe. The 152 aircraft will complement Luxe's narrow-bit flight. In Executive Aviation, revenue increased 25% year-over-year, and EBIT margin improved 2.1%. The business unit delivered 28 jets, representing an increase of 5 aircraft compared to Q3 2022. The business continues its outstanding performance with sustainable demand across its entire product portfolio and a strong customer acceptance in both retail and fleet markets. Backlog grew 10% year-over-year, reaching $4.3 billion and a book-to-bill of 1.5:1. In defense, Austria and Czech Republic announced the selection of the C-390 Millenium at the tactical military transport aircraft. Last year, Netherlands had also announced the selection of the C-390, which consolidates the multimission platform as a preferred solution in the 2 countries. These potential contracts representing new phase for defense and a significant growth potential for our backlog. In October, the first Portuguese Air Force KC-390 has entered into service. This is the first KC-390 to enter into service outside Brazil. Also, in October, we celebrated with the Brazilian Air Force, the KC390 milestone of 10,000 flight hours, attesting the aircraft's remarkable performance in its versatility and capacity in different areas of operation. Finally, the year-to-date EBIT margin in defense is 7.2%. In the quarter margin improvement of curate, we took contract adjustments for the KC-390 and the physical progress of the program. We emphasize that these adjustments were punctual. And for the next quarter, we expect business margin to normalize. In service and support, our revenue has increased by 24% year-over-year to $366 million. We recorded a consistent double-digit EBIT margin year-to-date. Another highlight was the backlog increase of $2.8 billion in the quarter, the highest value ever recorded in these business units. Embraer Services and Support has reinforced its role as one of the main drivers of growth for the next years. I will now hand you over to Antonio to give you further details on the financial results, and we will be back with closing remarks.
Thank you, Francisco, and good morning, everyone. Indeed, we have an excellent quarter with financial and operational indicators aligned with our projections for 2023. Moving to Slide 7. We have good news about the deliveries. In the third quarter, Embraer delivered 43 jets, 15 commercial and 28 executive, representing an increase of 30% compared to the same period last year and 33% higher year-to-date. The highlight is commercial aviation represents hobos growth with deliveries rising from 10% to 15%, an increase of 50% on a year-over-year basis. In Executive Aviation, deliveries also increased in the quarter, 19 light and 9 midsized jets, 22% higher than third quarter '22. We have a challenge ahead of us in Q4 delivers. But as we already demonstrated last year, we are prepared for this. As a result, we are confirming the delivery outlook in our commercial and executive business for 2023. Slide 8, the backlog, our order backlog ended the quarter at $17.8 billion, the highest backlog in 1 year. The quality of orders in our backlog is accretive with Embraer's profitability expectations. In Commercial Aviation, total backlog increased from 271 aircraft to 291 aircraft quarter-over-quarter. In Executive Aviation, we see a resilient backlog with annual book-to-bill of 1.5:1, one of the highest in the industry currently. The business continues to experience strong growth with a solid demand for the entire portfolio. Service and support backlog reached its record, reflecting the extension and increase in the pull parts contracts. As a result of our excellent performance, we ended the quarter with approximately $1.3 billion of net revenue, 38% higher year-over-year. Revenue year-to-date exceeded $3 billion, which represents a figure of 29% higher year-over-year. We had an increase in revenue in how of our business units, which shows Embraer potential for a sustainable growth. In Slide 9, the third quarter, we had an excellent performance in terms of adjusted EBIT and EBITDA with $100 million and $149 million, respectively. Adjusted EBIT and EBITDA margins of 7.8% and 11.6%, respectively, also shows a strong growth, mainly due to the higher revenue in all business units and a stable cost base. We are reaffirming our adjusted EBIT and EBITDA margin projections for 2023. In Slide #10, we had the free cash flow generation, excluding EVE of $44 million in the third quarter, significantly higher year-over-year with a stable working capital. These upward trends indicate a substantial positive cash ratio for the next quarter, in line with higher deliveries, so we are very confident that we will reach the free cash flow guidance of $150 million or more. Moving to investments, $45 million were allocated to R&D and EUR 30 million to CapEx, resulting $75 million invested in the third quarter. Capital allocation is focused on the segments with higher returns, with price search expansion of our production capacity in executive aviation and service and support. Some words about EVE, the program has reached the necessary milestones to begin capitalizing its product development costs on IFRS rules. Adjusted net results were $33 million, an increase of 34% compared to third quarter '22. Reported net income was positively impacted by non-cash mark-to-market of [indiscernible] of $24 million on an adjusted net margin of 2.6%, remaining stable compared to the third quarter '22. In Slide #11, in this slide, we are pleased to show the results of our liability management plan. We reduced our debt in $632 million compared to the second quarter '23. We increased the average debt maturity to 4.8 years, leaving Embraer in a comfortable position where liquidity of $2.4 billion with EVE allow us to cover all obligations until 2030. In the quarter, our net debt, excluding EVE is $1,357 million, as shown in the top center of the slide. This is a slightly lower than last quarter due to the better cash generation. Our leverage ratio show in the top right or is 2.5x, a significant improvement compared to 4.8x in the same period of last year. It's important to highlight that the positive results of our business unit allowed us to successfully execute our liability management plan. We are taking all necessary steps to recover the investment-grade status. With that, I conclude my presentation and hand it back to Francis for his final remarks. Thanks for your attention.
Thanks, Antonio. The Q3 results were very satisfactory and met our expectations. Our products are experiencing a very favorable moment in the market with several important campaigns ongoing and aircraft slots on the production lines practically filled until 2025. We know we have a challenge ahead in terms of deliveries. Therefore, we can expect an intense Q4, mainly due to supply chain constraints. In line with our guidance, we expect 20% revenue growth this year compared to last year. We are confident that this is the harvesting time for everything we have done in recent years. And that we are on the right path to a sustainable growth with even more robust financial results in this and future years. Thanks again for your interest and confidence in our company.
We will now start the question-and-answer session. [Operator Instructions]. Our first question comes from Noah Poponak, Goldman Sachs.
Hey, good morning, everyone. Just on demand in commercial, it's been a few quarters now that you've been discussing pretty heavy campaigning activity, but it's also been a few quarters in a row where the actual signed orders have been relatively tepid. Is there something holding those discussions back or making them take longer than expected? Or is it really sort of more normal course of order? And I guess, what do you think can happen before year-end versus maybe what orders look like in 2024?
Thanks for the question. So actually, yes, it's taken a little longer than we expected, but we were working in many sales campaigns. So we expect to close some deals still in Q4 this year and see a book-to-bill above 1:1. So it's one-to-one in the Q3, but we expect to be above 1 to 1 until the end of the year.
Okay. And just as a follow-up, the margin in the segment has been somewhat volatile, I guess, quarter-to-quarter and below where you want it to be longer term. How should we think about how that margin progresses into next year? Does pricing in the backlog improve enough -- quickly enough for that margin to have a decent amount of expansion next year? Or is the margin -- you've talked about that segment getting to longer term, is that further out there next year?
Thanks for the question. in regards to the BAT margin for the segment, we do see this year a lower single dip. And moving to the next year a little bit better, I would say, it's still low single digit, but something like 3% to 4%. What you see in long term, what we are promising to the market with our services a mid-single-digit margin for the long term. That's more or less what we are seeing right now, highly driven by the aggression of fixed costs. And I would say the price point is not moving up as we would expect because we are very active in the 2 campaigns, I'd say, which has much more pressure on the price point. But I'd say, normalized mid-single digit for the long term.
Our next question comes from Cai von Rumohr, TD Cowen.
Thank you very much, and good results. So maybe talk a little bit about the order mix. It looks like you did particularly well on the 175. The margins were pretty good, even though there were fewer 175. I know the mix is favored the 175s is much more profitable. Can you discuss, first, what the outlook is for 175 orders as a percent of the total going forward? What the mix is likely to be next year, 175 versus E2 and how the E2 is doing in terms of profitability.
The participation of E2 is growing as we expected. So we -- for the full year, we expect to be 60-40, 60% E2s and still 40% E1s, which we believe it's a healthy mix for the commercial aviation, considering the margins, as we mentioned before.
Okay. And then you've done well in terms of KC-390 selections. When should we expect the orders? How big would you expect the orders to be? And what should we look for in terms of delivery prognosis going forward?
Well, I mean, we saw the announcement of Netherlands in 2022 for 5 cases and more recently, from Austria and Czech Republic. So as Astra, I mean also now they want to join Netherlands in the same contract. We expect to close those contracts by beginning of 2024. And they are -- they will be very important. It's a very important moment for our defense business. With those contracts, we'll be able to more than double the backlog of defense, which will be very important for the performance of the business unit. And we are still working in other campaigns. We are expecting a decision from South Korea. Now, for [indiscernible] for this year in a bit, we are participating. So -- and many other campaigns as well. So we believe it is a good moment for defense.
When you said you have 5 from the Netherlands, how many would that total be when Austria joins and when Czech joins. Any sense in terms of the size of the South Korean order? And what's the expected build in terms of deliveries?
Well, if you combine Netherlands, Austria, in Czech Republic, we are talking about at least 11 aircraft and 3 from South Korea.
Okay. And how does that delivery build?
Well, the deliveries will start in '24, 30 months from the signing of the contract, more or less. That means 2025 onwards.
Our next question comes from Myles Walton with Wolf Research.
Maybe to just follow up on Cai's last question. Francisco, when you're at a cadence of, I guess, 3 per year, 4 per year on the KC-390, what's the anticipated margin profile of defense?
Well, I mean the difference would be higher single digits, closer to 2 digits with those contracts.
Okay. Good. I was hoping you could maybe dig a little bit deeper on the supply chain into 4Q. Are you seeing the same challenges on the commercial side as you are on the executive side? Or are they different in nature? Are some of them large structures or some of the engines or some of them small piece ports? I'm just trying to understand if you're facing the exact same problem on both sides or if they're pretty unique.
So first of all, I think it's important to mention that we have seen improvements in the supply chain from '22 to '23 in many with many suppliers. But we still have challenges, as you mentioned. So they are -- they're not necessarily the same. When we talk about the engines, yes, we have a challenge in both sides, but all the components are not the same. But, I mean, we believe that even with the challenges, I mean we will be at the lower end of our guidance in terms of deliveries this year, Myers.
Okay. And then one last one. The GTF issue and the accelerated inspection and replacement on their powdered metal. Can you comment as it relates to effects you're seeing on your E2 fleet or you expect on your E2 fleet? And then also with respect to OGMA, what's the kind of revenue opportunity from the OGMA MRO opportunity for the GTF?
Absolutely. Well, first, I mean, there's no inspection planet for GTF this year, 2023. Pratt Whitney announced recently that the E2s will be less impacted because the aircraft arrive later in the market with a more mature configuration of the engines and also the aircraft is lighter than the older models. So this puts the E2 in a -- E2 is -- the are not immune of the issues, but put the E2s in I'd say, in a better situation in terms of performance for our customers. And the product is still working in this inspection and schedule for the E2s related to the powder metal issue. The other question was?
OGMA and your opportunity [indiscernible] revenue
OGMA is moving very fast. I mean in preparation for the SOP of the GTF engines that is planned for April 2024, and that is a very important contract for OGMA that will help OGMA to triple its revenues in the next 2 or 3 years.
Our next question comes from Felipe Net
Congrats on results. I have 2 on my side. The first one, if you're seeing any relief or possible relief in terms of scope clauses in the U.S., as you mentioned, several campaigns going forward? And the second one is, how do you expect to close the free cash flow gap to reach the 2023 guidance that you gave, like I saw that you still have cash burn for 9 months and you maintain your guidance of free cash flow generation of $150 million. So I just wanted to hear your thoughts, how do you expect to get there?
Felipe, thanks for the question. First, related to the scope clause, we don't see any movements to change the -- for the relaxation of the scope clause. But to be honest, we don't see really an impact for Embraer. So I mean our E175-E1 is the workhorse of regional aviation in the U.S. And now, with the improvements, we are seeing in the pilot situation, this will open the door for more sales of the E175s ones in the U.S. In parallel, we are working with the main lines in the U.S. to convince them to introduce the E2s, the E195-E2s to complement the the big narrow barriers in order to offer higher frequency of flights to passengers in order to explore new routes in a very attractive cost benefit with the E195-E2s. So related to the margin. Now I ask Antonio to help here -- cash flow, yes.
Felipe, the cash flow, to be honest, is the -- I would say, where we do see much more potential to be -- to have some upside and downside for sure, if you ask me today we are negative, but assuming that the 40% of the whole business is going to be done in Q4, we are going to deliver more than $2 billion in revenue when get the cash inflow. And some of those parts, you are even not able to pay in advance. That's why we do see a more concentration on cash inflow in Q4 and less cash outflows combined with the reduction of the inventories. That's more or less where we do see the cash flow going. And we also have M&A that we just closed was announced last Friday with also a cash inflow of $45 million, which helps this equation to be, I would say, highly positive for the year.
Thanks very much, guys
Our next question comes from Kristine Liwag, Morgan Stanley.
Good morning, Antonio. Good morning, Francisco for 4Q '23, 4Q is historically seasonally strong for deliveries. So first, how is the supply chain executing for you to feel confident that you could deliver on your expected customer deliveries in 4Q? And also looking at the midpoint of your 2023 EBIT margin guide for the year, 4Q would have to be around 9.6% in EBIT. So based on execution of what you've seen so far in availability of parts, how confident are you at meeting this?
Okay. Kristine, I'll start with the deliveries in Q4. Then Antonio will complement with the EBIT. I mean, we have been working very closely to the -- our suppliers in order to know to to mitigate the issues. We are getting the parts, but we are getting some parts late. So this puts pressure on our production process, not only production process, but the delivery process as well, right? As -- now moving to the right, more to the December, and that's a more difficult month. But we are still confident that we will be at the lower end of our guidance in terms of delivery and even more confident that we'll deliver the financial results in the guidance for the year. So Antonio?
So Kristine, Antonio speaking here. Thanks for the question. In regards to the EBIT side, we do map every single day, but one important point here, we are going to deliver, if you reach the low end of the guidance for the executive aviation. We are going to deliver more than 50 aircraft -- and it's there where we do see the highest EBIT coming together with the service side. And I would say that's more or less what the margin should bring us. We see today the EBIT and EBITDA margin at the mid end of the guidance, to be more precise.
And then also taking a step back, Francisco and Antonio, the stabilization of the business after COVID-19 and after the breakup with Boeing, too, I mean, it's very clear that the company is now in a harvest period. So with the balance sheet in a pretty strong place there's no significant maturities in the next few years, how do we think about capital deployment priorities for 2024 and beyond. So are you thinking of potentially another new airplane launch? Or is this a period where shareholders could get incremental return either through dividends or buybacks? How do you think about those priorities? And maybe this is a more appropriate question for your Investor Day, but I thought I'll just start off with that.
Thanks, Kristine. Good question. So that allows me to bring you even more information about that. Well, we -- after everything we have done in the past years in terms of restructuring the company put in place initiatives to foster sales and also to improve efficiency and foster innovation in the organization. We believe now we are in our harvest season, right? As the market is growing, and then we will enjoy this growth and improve our operational and financial performance. So combined with that, we have a very modern and competitive portfolio of products in all the business units we act on. So the E2 family, the Phenoms, the Praetor, the C-390 so that we are enjoying a very good momentum in terms of sales for all those segments. So what we want to do is in the is to focus, especially in '24 and '25 to focus on improving further our financial performance, we expect to start to pay dividends in 2025 onwards. So -- and then, in parallel, we are investing on developing new technologies to be prepared by 2025 to decide what we're going to do going forward. So -- but remember that we are investing on the EBITDA to develop EBIT, together with EVE, We are also investing, as I said, in new technologies to prepare the studies of future airplanes and also in the Energia family to explore disrupt proportion systems, as know, electric hybrid electric and hydrogen in hybrid. This is more or less our strategy going forward. Again, focus on further improving the financial performance in '24, '25. Continuing, I mean, selling the current portfolio of products and continue investing on new technologies and innovation to prepare new projects in the future.
Great. I'm looking forward to seeing you guys in New York in 2 weeks.
Yes, same from our side. See you there.
Our next question comes from Ron Epstein, Bank of America.
We've covered a lot on the call so far, but maybe if we just kind of go back, I think it was Noah who asked a question about campaigns. If we can dig down a little bit deeper on that. Is there any more color you can give us on that? And how you're thinking campaigns could go through the end of this year, maybe into next year and what that translates into a -- what's like a normalized delivery rate for the E-Jets? When we think about building our models when we go out a couple of years, what should we think that the company can get to on E-Jets from here?
Ron, again, thanks again for your question. In terms of campaigns for commercial aviation, we -- as I said before, we are working in many different campaigns, big names in different regions, in Europe, Asia Pacific. Also, we are starting to offer the E2s in the U.S. as well. I think it's becoming more and more clear that the E-195 E2 is not only a regional jet. As the E-175-E1s, I mean it's a bigger airplane that can help a lot the airlines to operate very profitably in routes with less passengers. As for example, Azul is doing in Brazil, as KLM is doing in Europe and Scoot and SKS, they have the same plans for Asia. So we -- and we believe that more and more of the airlines are understanding this, and we see a lot of good opportunities for the E2s, I mean, going forward in the market. So in terms of deliveries, Ron, we still have a limitation with the engines, but we are confident that we combine E2s and E1s, we will be at at above 8 units in 2024 and reaching 100 units in 2025 and years ahead. So, again, if you go now, above 100 units, 110 units, we'll be basically back to the levels -- pre-pandemic levels, but with a different mix. Now, we have much more E2s that it's more expensive. So in terms of revenues, we will see revenue -- will see a much higher revenue than in the past with the same quantity of delivery of the aircraft. So this is more like the situation as to your question. I mean, we are optimistic with the campaigns we are working on. We are optimistic with the opportunity to introduce the E2s in the U.S. as well. By the way, I mean, very soon we will see the E195-E2s from Porter flying to big cities in the U.S., Los Angeles, San Francisco, New York, Boston, Orlando, Miami, and this will be a great showcase of our aircraft. We believe people would love to fly in a very efficient aircraft without middle seats, and this we're opening opportunities for that aircraft in North America. And finalizing my comments, with improvement in the pilot shortage is also open opportunities for renewing for the company to renew the fleet of the E1s, which has more better margins, it can help us with the performance of our commercial aviation.
And then going forward, are there opportunities to upgrade the E2 platform itself without having to do a new aircraft. I mean, it's a relatively new airplane anyway. Are there ways to upgrade it that you could play with the engine or do other aerodynamic tweaks to the airplane to get more out of the platform?
Well, we're continuing to invest and improve the competitiveness of the E2s. I mean, with improvements in the aircraft, we are also -- we are converting the E-190-E1s on into freighters. So the first one has already the door install it, and it looks very nice. So we believe it's a good opportunity for us to introduce this cargo to help the commercial aviation as well. So again, these are the things we are doing. And we believe that going above 8 units next year in about 100 units from 2025 onwards, this will help a lot to improve the financial performance of commercial aviation as well. And the service will come, we'll grow because of that as well, right, more aircraft, more service as well.
Our next question comes from Marcelo Motta, JP Morgan.
Is a question regarding next year, the supply chain remained challenging, but you mentioned that you can increase the level of deliveries on the commercial. So just wondering what will you see in terms of the executives, the defense? I mean do you think it could be growing again double-digit rate on top line? What will be the outlook for the different lines of business of the company?
Marcelo, thank you. I mean, yes, I mean next year, we will still be challenged in the supply chain and the specific parts. But, again, improving from 2023 situation. So we are growing. I mean, we are planning to grow double digits in all business units we have. So we are growing this year, 23 compared to '22. We are growing more than 20%. And we expect to keep the same path, I mean, going to 2024 and also keeping important growth in the years ahead. So -- and again, we are working very closely with our supply -- our supply chain with our suppliers and to make sure that we will have the parts we need for -- to support this growth. Also, what we want to do in 2024 is to improve the distribution of the production deliveries throughout the year. We have initiative we call production leveling that we want to avoid this concentration of production in the second half of the year and see a better distribution throughout the year. It's still a challenging in the Q1 next year, but we are working very hard since now in order to improve our production deliveries in 2024.
Our next question comes from Andres [Indiscernible], Bradesco BBI.
I have 2 questions. The first, I was wondering if you could give us an update on how the partnership with L3 Harris for the gel tanker is developing? And the second question, you mentioned in a previous question about the countries that are selecting this C-390. But if you could comment a bit on the potential talks with the Indian government, a few months back, if you could give us a more -- a bit more detail on that. Thank you.
Thank you, Andres. Well, I mean, partnership with L3 Harris is moving. We see the C-390 a great solution for the U.S. Air Force. And the first opportunity we found was the tanker, we call agile tanker. And this is what this partnership with L3 Harris is for, right, to work with the U.S. Air Force to offer the C-390 as an agile tanker. But we want also to offer the unit for the missions, right? I mean, so we are reinforcing our team in the U.S. as well. We recently announced a new Vice President of Sales for the U.S. to support L3 and support the potential future sales of C-390 that country that is the biggest defense market in the world. So the C-390, again, other countries, I mean, we are very happy with the announcement of Netherlands 2022. And now more recently, Austria and Czech Republic. I mean, that makes the C-390 preferred solution for this multimission platform for the [indiscernible] countries. So we expect to close those contracts during the first half of 2024. In India, we are working in India now to select a partner that will be our partner to localize the production and the assembling of the C-390 to be compliant with the specification of this India Air Force. They want to buy between 4 to 8 multi-mission aircraft. And we do believe that C-390 is the best solution for them. We want to be prepared to compete. And for that, we need to select a partner. This is where we are in terms of India, specifically for the C-390.
Our next question comes from Noah Poponak, Goldman Sachs.
The GTF services business that you're going to layer in, remind me how large that gets on an annual run rate basis once it's at its run rate level? And then also, what does the margin look like on that work
I would say when the priorities mature, we are foreseeing a revenue size of $0.5 billion for the -- our company in Portugal. It was the right question to your -- to answer you, we do see in terms of size, something like $0.5 billion, not next year. Next year, it will be around $50, something like that, but the longer run, $500 million.
Total company.
When will that first start to hit your financials late next year?
We started to already the repairs in April next year.
Yes. We have a ramp-up curve, but we will see some growth in Atmos revenue already in 2024, as Antonio said. But in 2025, we believe our [indiscernible] closer to $500 million in terms of revenue and growing in the years ahead as well. And that's a bit positive collateral effect for the GTF issues.
Okay. And how does the margin on that revenue compare to the existing services segment margin?
That's higher single digit, Noah.
High single digits?
Yes. The same we have with other OEMs like [indiscernible], for example.
Okay. And Antonio, I think last quarter, you had guided to the Defense segment having $600 million of revenue this year. Is that large of a fourth quarter, still the plan?
That's more or less what we are expecting for sure. We need one campaign to be able to fulfill, I would say, maybe we are going to lose $100 million? Maybe, but it does not jeopardize our EBIT margin, but we are just hanging on sales campaign that we hope to be close to end of this year because we do have scenario crafts and inventory, especially for the super tokens. That's more or less what I'm referring to.
Okay. And then I guess, does the defense segment now just have -- is it likely to have a pretty significant ramp up through the year in each year going forward? Or should I be thinking about the back half of this year being kind of the run rate moving forward? Or -- and then I guess, you have -- maybe have some airplanes slipping into next year. I guess, how do you think next year compares to this year in defense revenue?
Next year, around $750 million, then moving onwards to $1 billion on the longer range. With all of these new ones for sure, Noah, we do have a -- I would say, a potential backlog of more than $2 billion with this contract that has been already announced. We needed to conclude them in order to put in the backlog, then we could have much more visibility in regards to the split between '24, '25 and '26. But I would say in the longer run, we do see defense around $1 billion revenue and higher single-digit EBIT margin
Okay. All right. Thanks a lot. Appreciate it.
Thank you. We have a new question comes from Cai Wong Rumohr, TD, Cowen. Please proceed.
This will be quick. So this is the first quarter in the last couple. I haven't heard any talk about selling E2s to China. How do things look there?
Okay. Thanks for the question. By the way, our team and commercial team is in China now. We will have tomorrow a special event to talk about regional aviation in China to explore the connectivity and so on. So this is another movement of Embraer in China to show how effective could be the introduction of E2s for the regional aviation, complementing the local aircraft. We are still working with local airlines for the introduction of E2s and also for potential partnerships. So this is what I can tell you at this point of time.
Thank you.
Thanks, Cai.
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.