Embraer Stock up on Hainan Airlines Deal

Posted 31 August 2006 @ 09:29 am EET     Print     Reprint     E-Mail     Comments

SAO PAULO, Brazil (AP) - Shares of Brazil's Embraer soared Wednesday after the world's fourth-largest aircraft maker said it would sell 100 regional jets to China's Hainan Airlines Co. for $2.7 billion.

Embraer said it will start delivering the 50 E145 and 50 larger E190 jets in 2007, and analysts described the order as a significant entry into the important Asian market for a company whose commercial jet sales have been largely stagnant in recent years.

The company's shares jumped 4 percent after the markets opened. They closed 6 percent higher in Sao Paulo and nearly 7 percent higher in New York.

"This deal substantially raises the company's firm order backlog, which had been stuck at around $10 billion for some time," said Pedro Galdi, aviation analyst at ABN Amro in Sao Paulo.

The purchase from the state-owned HNA Group that owns Hainan raises Embraer's firm orders by about 25 percent to $13.6 billion, analysts estimated. It also means Embraer will deliver more planes than the 150 that had been predicted for 2007 and increase deliveries in 2008.

Embraer jet sales stalled in recent years as its main European and U.S. airline customers faced rising fuel costs, stiff competition and restrictions related to terrorist threats.

But the deal with Hainan "shows that Embraer can sell in Asia," Galdi said. The E145s will be manufactured at a plant in Harbin, China, that opened in 2003. Embraer will make the E190s at its factory in Sao Jose dos Campos, Brazil.

The deal was announced as China's No. 2 leader, Wu Bangguo, visited Brazil on a trip that will also take him to Uruguay and Chile.

China's government in 2002 committed to buy planes from Embraer in return for a promise by Embraer to build a plant in China.

The deal represents "Embraer's long-term strategy to become an important player in the Chinese market," said company Chairman and Chief Executive Mauricio Botelho.

American depository shares of Embraer, or Empresa Brasileira de Aeronautica SA, rose $2.44, or 6.8 percent, to close at $38.59 Wednesday on the New York Stock Exchange. The company's Brazilian shares closed at 20.61 reals on Sao Paulo's Bovespa exchange.