On March 25, 2025, the Brazilian aerospace manufacturer Embraer found itself in the midst of market fluctuations as its stock price took a hit following speculation about import tariffs proposed by former President Donald Trump. The company experienced a decline of over 10% since hitting a record high of $56.40 just a week prior, with a sharp drop of nearly 5% in the shares noticed the previous day. As the potential for tariff increases loomed, many investors began to question the impact on one of Brazil's largest aviation companies.
BTG Pactual, a leading financial services firm in Brazil, weighed in on these growing concerns. In a recent analysis, the bank confidently asserted that the net effect of increased tariffs on Embraer would be limited. BTG analysts noted that the executive aviation segment, which constituted about 28% of Embraer's revenue in 2024, was the area most likely to bear the brunt of any tariff changes.
According to BTG’s assessment, despite the potential repercussions, Embraer’s executive aviation segment boasted a backlog of orders surpassing three years, allowing the company to weather the storm of an impending economic recession in the United States. The major threat appeared to emanate from competitors such as Bombardier from Canada and Dassault from France, who might face greater exposure to tariff hikes impacting the executive aviation market.
With a focus on executive aviation, BTG highlighted that approximately 12% of the backlog was attributed to the Praetor model. The bank maintained its buy recommendation for Embraer with a target price set at $65, representing a 23.5% premium compared to the last closing price of $52.74.
The analysis from BTG revealed that most of the aircraft components Embraer uses do not come from U.S. operations; materials such as aluminum are typically sourced from Europe or locally. Additionally, some engines, which account for about 15% of the total cost of an aircraft, are imported from facilities in Canada, a region targeted by Trump’s recent tariff strategies.
For both the commercial and executive segments, Embraer is heavily involved in the American market. Notably, the company has solid relationships with major U.S. airlines like American Airlines, Delta, and United Airlines, who utilize the E-Jet family (E170, E175, E190, E195) mainly through their regional subsidiaries. In executive aviation, the United States stands as Embraer’s biggest market for its private jets, garnering strong demand for models such as the Phenom and Praetor, tailored for corporate fleets, individual owners, and air taxi services.
Considering the ongoing discussions about tariffs, the question arose: Would Embraer solidify its standing, despite the increased import fees? According to BTG, any tariffs imposed on the final price of aircraft would typically be passed on to customers, as stipulated in contracts. However, tariffs affecting the cost structure would necessitate case-by-case negotiations, complicating the scenario. BTG maintained that while the tariffs pose certain risks, other manufacturers, like Bombardier and Dassault, might experience more significant impacts.
The report concludes by emphasizing that amidst tariff discussions, Embraer possesses an advantage. The E1 model has no direct competitors within the U.S., and the E2 model’s exposure is minimal due to the “scope clause” that restricts operations based on weight. In terms of executive aviation, the Phenom faces competition primarily from Textron, while the Praetor competes against Bombardier, Dassault, and Gulfstream. Given Trump's recent focus on tariffs against Canada, it is believed that Bombardier might suffer comparably to Embraer.
In summary, while the implications of potential tariffs loom overhead, BTG’s recommendation showcases confidence in Embraer’s resilience in the face of uncertainty. With the backing of a strong order backlog and strategic positioning in the market, the company appears poised to navigate the challenges that tariffs may introduce.
