Embraer S.A.

Frederico Curado - CEO Jose Filippo - CFO Eduardo Couto - Director, IR

Cai Von Rumohr - Cowen & Company Myles Walton - Deutsche Bank Josh Milberg - Morgan Stanley Alexandre Falcao - HSBC Pete Skibitski - Drexel Hamilton Derek Spronck - RBC Capital Markets Stephen Trent - Citi Marco Spinar - Neuberger Berman Bruno Amorim - Santander

Okay, thank you. And good morning, everybody and thanks for joining Embraer's First Quarter 2016 Conference.

As we've been doing in the past, we want to do the presentation and then we'll be ready for the questions. So starting the presentation on page 3, the highlights and starting with situational highlights, with the information that Fitch Ratings started coverage of Embraer with investment grade rating of BBB-.

Also Standard & Poor's reaffirmed our BBB rating - investment grade. Now we have coverage by three rating agencies.

Next page, page 4. Moving to operating highlights and starting with Commercial Aviation.

We had a total delivery of 21 E-Jets in the first quarter which included the first E-175 to KLM of the order of 17 firm. Regarding customer activity, the Austrian Airlines became a new E-Jet operator.

And we announced earlier this month that Horizon Air ordered 30 E-175 which will fly for Alaska Airlines. In relation to these two development programs, two important updates.

The E-190 prototype undertaking ground tests ahead of the first flight in the first half of this year. As you remember, we had the whole rollout in early February.

Also, we started the production of the first prototype of the 195 model. Next page, page 5, now talking about effective Aviation highlights.

The delivery of 23 E-Jets in the first quarter of 2016, including the first delivery of the Legacy 500 in China. An important milestone in Executive Jets business was the delivery of aircraft number 1000 which was a Legacy 500 to Flexjet.

Regarding sales activity, we're selected across as Embraer's sales representatives in Mexico. Next page, page 6, moving to Defense & Security business.

Regarding the KC-390 Program, the second prototype joined the flight test campaign with the first flight yesterday. Also, the first prototype is already performing ramp opening tests in flight.

In relation to the defense companies' activity, first, in the development of the Brazilian satellite, Visiona, signed six contracts for remote sensing services. On Bradar, we signed contract with the Brazilian Navy to develop GAIVOTA-S prototype radar.

And finally in defense, our activity in supporting the upcoming Olympic Games in Brazil, Atech concluded the air traffic control and message systems tests. Next page, now talking about the financial results and I move to page 8.

With the firm backlog numbers, we reached a total of $21.9 billion in the end of March, slightly below the end of last year, but above the first quarter of 2015. Next page, page 9, as far as aircraft deliveries, starting on the left chart, Commercial Aviation delivered 21 E-Jets in the first quarter.

And in the right side, Executive Jets, 23 deliveries in the fourth quarter, broken by 12 light jets and 11 large jets. We're reiterating our outlook for the year of 105 to 110 E-Jets, 40 to 50 Executive large jets and 75 to 85 Executive light jets.

Next page, page 10, net revenues. We had a total of $1.3 billion in the first quarter, equivalent to BRL5 billion.

And also, for the 2016 outlook, we're maintaining our range between $6 billion to $6.4 billion, in terms of net revenues. Next page, page 11, revenues broken by business.

From the top right, in Commercial Aviation, we had a total of $711 million in the first quarter. To the bottom, $189 million in defense and further left in the bottom, $402 million in Executive Jets in the first quarter.

For all of the business, we're maintaining our guidance range for 2016. Next page, page 12, regarding SG&A expenses.

We reported a total of $140 million in the first quarter. In relation to G&A, we had a total of $39 million, below the same period of last year.

And on selling expenses, $101million in the first quarter 2016, above the same period of 2015, reflecting primarily the high number of deliveries. Page 13, next page, new relation to operating income.

We reported a total of $86 million in the first quarter, with 6.5% margin which combined the positive 12.3% in Commercial Aviation and negative 1.5% in Executive Jets and a positive 2.2% in Defense. Regarding to the 2016 outlook, we're confirming our estimate of $480 million to $545 million, with a margin of 8% to 8.5%.

Next page, as far as EBITDA, we reported a total of $168 million in the first quarter with margin of 12.8%. For EBITDA, we're also confirming our estimate for the range of $800 million to $870 million, with a margin of 13.3% to 13.7%.

Moving to next page, regarding net income. We reported a profit of $104 million in the first quarter of 2016, with a 7.9% margin.

As we've been observing in the previous quarters, this result was impacted by the exchange variation in the income tax. In this quarter, we had a positive impact.

Next page, page 16, in relation to investments, we had a total of $52 million in the first quarter, broken by $7 million in research $12 million in development and $33 million CapEx. These figures are net of contribution of suppliers.

And for 2016, we're estimating the total of $650 million for investment. Next page, page 17, regarding free cash flow.

We used $216 million in the first quarter, primarily reflecting the normal increase of working capital in the beginning of the year and the investment in the development of the E2 program. For 2016, we're estimating the use of $100 million or less.

The next page finalizes the presentation before the Q&A section, our capital structure. We reported a net debt of $220 million in the end of March, with $3.4 billion in cash and $3.6 billion in debt.

In relation to our debt profile, we're maintaining a comfortable maturity term of almost six years. With that we conclude the presentation and now we're ready for the Q&A.

Thank you.

So good results. Can you give us some color on what you're seeing in terms of demand in the biz jet market?

I think others have said it was particularly slow in January, February, but has gotten a little bit better since then.

Yes, we see also some softness, no real change from the last quarters. The U.S.

market continues to be nowhere most of the activities, but some softness there. Also there is, as we've said before, some pricing pressure on all OEMs.

But stable is the way I would describe it.

And then the last one. Now that your competitor has won Delta and I guess IAG is talking to them.

What are you seeing as a result of - in ERJ and in your kind of commercial air transport market, both in terms of opportunities and in terms of any changes you might have seen in terms of the pricing there?

Well, I think of course Delta was a very important campaign and in no way I want diminish the importance of that campaign, but it was somewhat atypical, it was not a straight race between 75 new aircraft. So in our case, the offering, as requested by Delta was a combination of new and used aircraft.

We remain very convinced that we have an extremely competitive product family, both in E1 and down the road in the E2. We were very aggressive in the campaign.

I believe, although of course we do not know the details of the competitive bids, the onerous contract provision of $0.5 billion for some contracts, I think really says a lot about where the decision came from. So we remain competitive, but also disciplined as far as the integrity of our product portfolio and our backlog and of course, on our cash position and balance sheet.

So we're not discouraged at all about this result and we remain, as I said, very comfortable with the competitiveness of our company and our products.

I was wondering if you could talk a little bit about the demand picture in the defense environment and in particular as it relates to the KC-390, with the second aircraft in the air. Does that get you closer to a point where international campaigns can kind of come to fruition?

Yes. Well, first, on the development side which is very important to - not to me - sort of deadline of certifying the aircraft by end of next year, so we can start deliveries in 2018.

Everything is going fine. Second prototype has flown.

Hence, not only this, but also some very key flight tests, such as ramp opening in flight and also the parachutes, there is a door and opening the envelope, so far we're doing extremely well. So on the development side, we're extremely happy with where we're.

As far as campaigns, there are preliminary campaigns going on. As we all know, this military campaign, they are typically longer than our commercial.

Having said that dialog is going on with several potential customers and also with Brazil, because there is this outstanding order of 28 aircrafts. I believe, three of them to be delivered in 2018.

Budget constraints, of course, but as you already have seen in our financials, we have been able to keep what we've said we would keep our accounts receivable where they are. Payments are regulated now, we have rescheduled the contract.

So we're optimistic about, not only the fulfillment of the Brazilian contracts, but also international prospects. Probably, I'll say towards the end of the year, early next year, we're going to have probably more momentum as far as those sales campaigns.

And Filippo, can you comment on the margins at Executive? So it's about, I guess, a $15 million year-on-year, $16 million year-on-year negative swing in operating profit on a $250 million higher revenue base.

I know these 650s are a big portion of that, but were there any negative adjustments to use or anything else that's bringing down that overall EBIT margin? And then give us a trajectory to get to the mid to high single digit target for the year.

We're still maintaining that target. What we saw in the first quarter was a negative mix which included Legacy 650 with the impact to that.

Also most of these Legacy 650 were a carryover from last year and we also have add in the selling expenses couple of non-recurring items there, some $10 million of non-recurring there. But also the number of deliveries impacted that number as well.

So, it's a combination of that, but it's important that we're still confident about the capacity to deliver what we indicated for the full year in terms of Executive Jets margin.

I had a couple of questions on Defense. The first was, well, it was good to see your EBIT margins, they're turning positive this quarter and just wanted to know if you had any cost-based revisions in your favor this period and if not, is that's something we're likely to see in the upcoming quarters, assuming that the currency stays where it is?

Yes, we didn't have any impact in terms of contract revision as we had last year. We already said that if we see more stability in terms of the currency, we should have this situation which actually happened.

So there was basically all the activity in the first quarter. We still think that it's possible to keep in that and level and probably like we indicated like close to mid-single-digit margin in this year.

Yes, just to add to what Filippo said, we didn't have any base adjustment as far as effects on defense, so we used around BLR390 for defense in the first quarter. So as the currency gets stronger, if that continues, we may have the opposite effect of what we had last year when we had negative impact as far as cost base revision.

And then, just another question on Defense is if you could touch on the issue of Defense receivables. The currency move cloud the picture a bit, but we saw in the ITR that the amounts with the government, I think were down about 10% sequentially in local currency terms.

So I just wanted to understand what was going on there and what we might expect looking forward?

In dollars not real any sizable change, $350 million just for the defense program within government of $347 million.

It's BRL1.2 billion.

Yes, coming down from BRL1.3 billion, almost BLR1.4 billion. I think it's currency related, right?

Yes, mostly currency related.

Yes, in dollars it's pretty much the same.

Yes, since the second quarter of last year, we've been able to maintain accounts receivable more or less stable, actually slightly down. It came from $370 million second quarter 2015 to $347 million first quarter of 2016.

So down $30 million, just a small amount but--

About 10%.

Any development since the close of the first quarter or anything going on there that might move it better or worse in the next quarters?

Well, no. Last year, as we've said, we did a great effort with our customers, the Brazilian Air Force is the main one, but also the Ministry of Telecommunication on the satellite side and also the SISFRON with the army to really adapt our place, our programs to the budgetary reality that they could afford.

And this has been actually followed quite correctly over the first quarter. Our expectation is that we do not have any interruption of this.

As we all know, we're facing some political turmoils here in Brazil. There is an impeachment process going on right now in the Senate, has already passed the lower house.

So the market in Brazil is reacting very favorably to the potential change. So one way or the other, our expectation is that the commitments which are in place will be respected, at least, of course, if the country gets better, the macro economy gets better, then of course we would be even more certain that the commitment will be fulfilled and the budget will start to be adjusted upwards and the current fiscal loss will be reduced and the ability of the government to fulfill its obligations will be reinforced.

So, as I said, what we see ahead is at least a continuation of the first quarter and therefore the achievement of our goals, of our guidance's.

This is Patelo [ph] for Ron. In the quarter, you signed a long term agreement for your Flight Hour Pool Program with Colorful Guizhou Airlines and additionally you've spent $14 million for your Pool Program spare parts.

Can you talk about your strategy with regards to the aftermarket, how should we think about the size of the parts pool business today and can you quantify the long term earnings potential for this? Thanks.

All three business units are more and more investing in our aftersales infrastructure and support programs. So there's a clear strategic direction, as I said, in all three business units.

And the Commercial, of course, was the pioneer on this. We do not report separately the results.

We embed everything under each unit. I can say qualitatively it's growing.

I'm talking here while Eduardo searches some data, but qualitatively it's a growing interest and focus of our three units. I do not know if we have any specific figures.

It's above 10%, it's around 10% to 15% of revenues.

And that tends of course a more predictable and higher margin.

So my question is regarding Commercial and the margins going forward. Is it fair to say that if we see FX in the same levels that we saw first quarter, we're probably going to see, this is a peak margin for the year?

And second, I'd like you to comment if there is going to be any shift on the leverage going forward on this division? Thank you.

On the second part, shift of what?

Mix, sorry.

Mix, okay. Well, in first quarter the average exchange rate was exactly 3.9 which was a coincidence of course, that is exactly the number we use in our planning.

So that's a good reference to where we can be as far as the margins on Commercial business. Of course as the FX comes down, as the Brazil evaluates there'll be some cost headwinds which we will face, as we have faced over the last several years, just a boost in the competitive cost reduction measures.

So whether or not it is a peak, it's hard to tell, but if you remember a year ago we were all discussing that the mix of 175s would bring the margins down, less 190s, 195s and more 175s and we've said that potentially yes, but we would fight very hard on the cost side, also benefit from the standardizing of the fleet, because many of those contracts are large quantity. So we can really have a more standard product and supply chain management and there we're, delivering more or less the same margins with fundamentally 175s.

So any currency headwinds will be counteracted by additional efforts. We do have budgets in reais and dollar separately, so probably we're going to adjust the budget in reais, to the new reality of the exchange rate, so we do not really just lose this momentum.

About the shift in the mix going forward, this year is fundamentally 175s. We have activity, especially in Asia and Middle East, but more so, some in China as well which are more centered in the 190, 195s.

So we may see a little bit different mix in the future, but fundamentally it will be - the bulk of demand will be 175s for the last two years at least, 2016 and 2017, 175s. We may have some tailwind or some additional 190s, 195s.

And just one quick follow-up. After the Delta campaign, is there any big campaign in the horizon that you guys could share with us?

Thank you.

We don't think there is any short term campaign going on - I mean to be decided in the U.S. right now.

The potential in the U.S. is too large.

Embraer still have 120 options of 175s for the next few years. There are still some 300 to 400 aircraft, 50-seater aircraft which will be replaced in the next several years.

And there is also potential demand for replacing of our early 70 seaters, especially older CRJs which can also bring additional demand. So, I think the U.S.

has been of course the - has seen a great demand for aircraft. I think the campaigns of 2016 - most of the largest ones are done.

Probably we don't know, but probably 2017 we're going to see more activity again. But also, as I said, we see this demand going on in Asia, a little bit in Europe, more on Eastern part mainly and also Africa.

And those are more 190, 195s.

On the cash flow for the first quarter, you've used substantially loss this year than you did in the first quarter of last year and you beat your initial guidance of course for the full year in free cash flow. I'm just curious, do you think there is a nice opportunity to outperform this year your free cash flow guidance, because it's a good start and I think some of the things that allowed you to be - last year like supplier contributions and the customer advances running down the inventory, it seems like opportunities this year as well.

So if you can put some color there?

Actually this is something that we will be very focused on because it's important in terms of cash generation, all the working capital management and being very close to that. I think that we follow pretty much the standards of the first quarter which is increasing in terms of inventory to build the capacity for the deliveries throughout the year naturally.

We had a tailwind of suppliers contribution, like we mentioned that positively affected this quarter that maybe we don't see that in the same level going forward in the following quarters. But basically we're pretty much aligned in what the target that we said, the consumption of about $100 million or less.

I don't think there's much change in terms of - it could be reflected throughout the year. I think it's more like a punctual things in terms of the first quarter that will be adjusted then in the following quarters.

And then just one follow-up. The Horizon order in the last quarter, does that kind of fill out your last available slots in Commercial for 2017 or are there still some of available slots after it?

I think you're about 80% filled even before that order.

Well, that of course will depend on where we set our production levels. If we think about a stable production, a level around 100, probably we're pretty much done.

But the answer to your question is yes, we do have - not available slots. We do have the ability to offer slots in 2017 and of course we're.

Okay, so maybe incremental orders kind of pressure your production rate up a little bit next year?

Well, maybe to maintain where, are around low 100s, 105 or something like that. So we're very comfortable about keeping more or less the same level where we're and we do have the ability.

Of course if we have conformation within the next, let's say, six months or so to raise in the back end of 2017, we'll raise a little bit, if we need. So, the supply chain and our industrial capability is not limiting our ability to sell maybe more aircraft in 2017.

In Defense, you are undertaking many different or newer initiatives from the satellite remote sensing service, where you've indicated you signed a bunch of contracts recently. How material could these new initiatives grow into, if we exclude the KC-390 and which initiative holds the most promise?

Besides let's say the flying object on the space, on the Military or the Defense & Security business, we have those three additional, let's call, core competences around three different companies. One Atech, it's really a software house, that's the company which we believe there is a great potential there for further expansion.

And maybe not only into the defense of security space, but there is competence in software there which we're assessing and trying to see which are the applications we could use, the know-how that there is there. So Atech, that's on the software development side.

And then we have Visiona on the space side. So of course, this company started through one single program, one single project which is the geostationary satellite, a huge one, more like PMO project.

But it's gaining momentum, it's gaining knowledge and know-how. And as you correctly said, we did sign some new contracts.

So, the way we see and want to position Visiona is as the space company of Brazil. So we also see spending opportunities as soon as the economy rebounds.

There is of course the second geostationary satellite foreseen for the next two or three years, but there are also smaller constellation of low orbit satellites and maybe even other services. We're also considering in our discussions with potential partners, so we can boost our ability to acquire technology in space.

So Visiona is the second pillar. And the third, Savis, is the company which is in charge of the SISFRON, is our first very broad, very horizontally integrated defense system.

So including radars, including acquired equipment and the things on the ground and also UAVs etcetera. So it's also a third competence of integrating complex systems, especially for the military and for the defense and security.

And recently, we have actually merged Savis with Bradar. So it's a company that does have a product portfolio.

So as we adjusted our activities to the reality of our main customer, Brazilian Air force and Brazilian Army, we, I think we're well positioned again to, number one, consolidate our portfolio of competence, number two, really try to make more inroads to the export market.

How healthy are the margins are on that business there, outside of the defense aircraft line? Are they generally accretive for your overall business?

It is. We have a very nice growth story for the last several years.

2015 we were hit by the lack of payments from our main customer. So let's say as the world is in conflict, there is of course a growing activity as far as the military procurement around the world.

But it's not only now this acquisition of equipment's, it's a lot about systems, integration, surveillance which are some niches where we have products, we have offerings. So we actually believe this business which again was hit hard last year by the Brazilian government payables and the reduction also in quantities and rhythm, will resume its growth and again, mostly probably for exports from now on.

We also of course have the Super Tucano now being built in the U.S. and that's also a very good platform for export of the aircraft into areas of the world where this counter-insurgency aircraft is required.

And just moving on to the commercial aero, you've been focused on the E-170 with the [indiscernible] changes. The E-190, E-195 sales appear to be a little bit more challenging recently.

If we were to look at the E2, have the market dynamics changed at all when you look at the demand environment for the E2 190, 195 and is Bombardier C-Series is that - I know they don't compete directly, but is it with the Delta order becoming more of a concern for the E2-190, 195?

No, we do not see a change in dynamics in the mid to long term. The E2 we enter into market by 2018, the first model.

In the short term, I think there are couple of important elements in this scenario. One is the very large backlog of both Boeing and Airbus for MAX and Neos.

So there is clearly a huge amount of aircraft already ordered. And also, the reduction in the oil prices has eliminated the urge of many airlines to replace their fleets with more efficient aircraft in the short term.

So this is I think what we've seen when we see across the industry. Boeing, Airbus book-to-bill is less than one and so in the short term, yes.

But that does not quite affect the E2. We're doing well on the E1.

We have sold out in 2016 and it looks very, very good in 2017 and even 2018. So, the fundamentals are there and we're crossing this period relatively unscathed and with a strong backlog.

As far as C Series, the C Series 100 has a direct competition with our 195-E2. I mean again we're very sure about the competitiveness of the 195-E2 given of course, normal competition conditions, both performance wise and competitiveness wise and maintenance cost, acquisition cost, operating cost.

The C Series 300 is more again for Boeing and Airbus, it's a larger aircraft. So it's a more 737, A-320 competition.

So no real change in the dynamics. And again I think the Delta order was an important one, but was a bit atypical.

And I do not know how much of the $0.5 billion impairment is related to that order. But, between that order and Air Canada's order there's a $0.5 billion impairment which I think explains a lot about what happened there.

Just two at least from me. First could I trouble you to repeat what you said earlier about the margins per segment, EBIT margins.

I caught Defense at 2.2%, but could I trouble you for exacting Commercial again?

So Commercial is around 12%, 12.3% to be exact. Executive negative 1.5%.

And Defense and Security, you got it right, 2.2%.

And then in terms of the Executive segment itself, just curious about dynamics for large-cabin versus the small and mid-cabin stuff. Is it fair to bifurcate this market in terms of pricing trends and what you're seeing in demand and competition headwinds from those two sides or is it somewhat more uniform than I think?

Steve, I think the pricing pressure is across the industry, it's across all niches. And when you do that and when we see such - those movements, they tend to blur the lines between segments a little bit.

So a potential buyer of, let's say, larger Falcon or Gulfstream, it's not so uncommon now to see that same interested and evaluate a Legacy 500 which is a different aircraft, smaller, but cheaper and vice versa. So yes, there is pricing pressure around.

What we have done is we would have ramped up our large-cabin. I mean not large, I mean our larger aircraft, the Legacy 450, 500 aircraft more than we did.

So we're really trying to have some pricing discipline here. The 650, as we already discussed, we have some carryover from.

So this quarter we had two elements which impacted the results. We should be certainly around the mid or to mid to high single-digit.

Otherwise this $10 million non-recurring commercial expense, but also purging a little bit of some carryover of 650s from last year which have aggressive pricing. So I think we're in a good balance of volume versus margins going ahead and of course the 300 is the best seller of its segment, both smaller aircraft.

But I think everybody is seeing all segments are seeing this pricing pressure and I think until the market really rebounds - fundamentally we have the U.S. today, although the markets are relatively soft, some are actually - there is very little activity, such as Brazil, for example or even China.

So I don't see a bifurcation. I see an overall trend.

And of course just to add the final comment, the pre-flow market there is a lot of available relatively new aircraft around there, some are clearly for sale and some - even if they are not officially for sale, but they are always there also, keeping some drag in our ability, our industry ability to raise prices. So the pre-flow market also plays an important card in this.

And just one last question and I'll let someone else ask the question. I saw in your release, I was intrigued by the meeting you had with a couple of Middle Eastern ambassadors on defense products which seems logical given the incredible turmoil in that region of the world at the moment.

When you think about longer term chances to replicate SISFRON or something like that, would you say broadly speaking that you are potentially talking to other regions of the world in terms of offering your suite of defense products?

Yes, Steve, this is exactly our willingness, our strategy. As we have built a large, a broader portfolio of products, but also services integration, we're now are able to offer more turnkey solutions than we were in the past and of course as we're able to sell a complete package, including, let's say, aircraft, radars, C4I system software, you name it, integrating third parties, other OEM equipment into it, this tends to be a number one, higher revenue numbers.

But number two, very importantly, higher margin numbers as well. So I think the experience that we have acquired in those industries from, in particular, is your question, will indeed allow us to be able to play into that segment.

And yes, there are other countries that are interested in seeing. We've been able to - of course with the Brazilian Army, at their invitation, so some delegations visiting onsite and seeing what's being done there, it's the best market you can have, seeing an operating system actually working.

Last year, we actually sold our first integrated system. So I'm not only talking about something which is just an idea.

But to your question, we're really focusing and trying to expand that activity and showcasing that to other countries.

I just wanted to ask a little bit on the trade-ins that you've talked about in the fourth quarter call, in the Executive business as a driver for margins in the fourth quarter and to what extent that's going on now and kind of what's the trading strategy was or is and if it's changed at all?

No, this quarter I think was relatively normal as far as trade-in which means no major cost headwinds due to trying to expedite sales of non-Embraer branded aircraft. So it is where it should be, kind of a neutral contribution to the business, facilitating, of course sales.

So we tend also always to favor trading in our own products. Sometimes we do have to take other manufacturer's products.

So, what we saw last year, to your question was I think a little bit a non-recurring event, we should not see another glut of used aircraft or traded in aircraft being sold to really move the inventory as we did last year.

And I guess then just to finish up, it just seems very hard to me the kind of Executive Jets guidance for the year. I mean, I know you're sticking with it, but can you tell us a little bit more about where the improvement really comes in the second half of the year?

I think it's a very fair question and yes, I'll be glad to share with you our visions. We have a concentration of 650s in the first quarter.

As you know, our guidance is from 40 to 50 large cabin aircrafts, large for us is a Legacy 450, 500 and 650. So the vast majority of the remaining deliveries will be 450, then 500s which have a much more pricing power than the 650, relatively speaking at this stage.

And on the [indiscernible] on the light side 75 to 85 aircraft is our guidance. We're actually today with less of a challenge as far as the remaining sales than we were same time of last year.

So, number one, we believe the volumes will be there. We're feeling good about our ability to sell and deliver all those airplanes as per the guidance ranges.

And number two, there will be a pricing, therefore margin - sorry not pricing, a margin increase due to mix going forward. So if we do something around 8% for the next three quarters in that business, we should land more or less where we said, mid to high single digit margins on this.

What we need is something around 8% in average for the next three quarters.

I have two questions. The first one is on the trade-ins.

I'd like to better understand why it is so different for you guys taking an aircraft from a different manufacturer with regards to the impact of the trade-ins on margins. Is it because you are not able to sell the aircraft from different manufacturers at market prices?

And my second question is on the impacts of low oil price on new orders. You said when answering a previous question that maybe low oil prices should imply a lower level of new orders for new aircraft, but I remember in previous quarters you mentioned that not necessarily this environment should imply a relevant impact on the number of new orders for several reasons, the airlines, they have other reasons why they could be interested in renewing their fleet.

So what is your latest view on that and to what extent do you really believe lower oil price should impact or not the flow of new orders? Thank you very much.

So on the trade-ins, the fundamental difference is on our aircraft. I mean we have the ability to bring the aircraft in-house, as we have the flight certificates of the airplane, we can enhance it, we can introduce options, we can play with the aircraft in the offer a total care package, as far as customer support.

So, it's just like more an in-house solution on somebody else's aircraft, it is fundamentally a late brokerage transaction. So as we acquire to resell it and obviously it will depend which price, how much we paid for the aircraft.

So last year we had a little bit of debt, we ended up selling used aircraft at a lower cost than what we actually recognized as a trade-in. So that created that non-recurring effect last year.

But the fundamental difference is actually orders, actual material in our ability to really do some enhancements around the airplane and holding the inventory, sometimes even investing in revisions or seat jacks or whatever has to be done and sometime blended in customer support packages. On the lower oil prices, I don't think - I may have not been clear, I've not changed my mind.

I mean there are airlines which - they have other reasons to obsolescence. We just announced 30 airplanes for Alaska, for Horizon.

Delta just acquired new airplanes as well. So there are procurements which will continue to go on and airplanes will be sold.

What I refer is that there was an extremely concentrated effort in the last four years or so of orders, especially MAX and Neos, but also E2s, for that matter which they happen with the view that oil would stay around $100, $120 a barrel. So there was a kind of golden rush for acquisition of those aircraft.

This urge is clearly down now, because, number one, the backlogs are full and number 2, oil, there no urgency in the short term. Those airlines which will substitute the airplane in the short term, they are doing that for other reasons, such as obsolescence, such as fleet expansion or something like that, but that strong movement is exclusively motivated by oil prices, there is a clear slowdown there.

And longer term, I think oil will go up, to which level nobody knows. And the fundamental, any airplane that burns 15% less fuel than an existing airplane, then those fundamentals remain.

So they will be the reason for fleet renewals down the road, but just not immediately. So anybody willing to buy an E2 or a Neo or a MAX, they probably can - they are either already in the backlog or they can wait some years down the road for that.