Bonds

Credit update: Why Embraer's USD Bonds Are Catching Investors’ Eyes

Embraer’s USD bonds offer a smart play for income with attractive yields, backed by high coupons. The recent upgrade of the issuer’s credit rating from “BBB-” to “BBB” by S&P Rating underscores its strengthening credit profile.

Colin Low
Colin Low01 Oct 2025 1722 Views
Credit update: Why Embraer's USD Bonds Are Catching Investors’ Eyes
Embraer S.A. (“Embraer”) is a Brazil-headquartered global aerospace company with a leading position in the regional jet segment. As the world’s third-largest civil aircraft manufacturer—following Boeing and Airbus—Embraer leads the segment for commercial jets seating up to 150 passengers.

Embraer operates a largely vertically integrated aerospace business, specializing in the design, manufacturing, and servicing of aircraft across commercial, executive (private jets), and defense segments. Correspondingly, the Group reports under five primary operating segments: 1) Commercial Aviation, 2) Executive Aviation, 3) Defense & Security, 4) Services and Support, and 5) Others. With a strong foothold in North America, Europe, and Latin America, the Group thrives in regions with robust regional air travel demand, solidifying its position as a key player in the global aerospace arena.

1. Revenue and margins continue to grow. Executive aviation leads the charge


For the quarter ended June 30, 2025 (“2Q25”), Embraer delivered a solid performance, boasting a 22% year-over-year (“YoY”) surge in Group revenue to USD 1,819M (2Q24: USD 1,494M). This solid top-line growth was complemented by a healthier adjusted EBIT margin of 10.5% (2Q24: 9.3%), well above the long-term average of 5% — reflecting continued operational strength (Chart 1). Embraer’s strong EBIT margin highlights its profitable core operations and strong operational efficiency.

Executive and Commercial aviation remained the company’s core pillars, contributing a combined 60% of the total revenue. Even so, nearly all operating segments delivered top-line growth and margin expansion, highlighting Embraer’s well-diversified and broad-based growth.

  • Executive aviation: Operational performance was particularly strong in the Group’s leading segment, which fuelled growth with an impressive 64% YoY increase in revenue to USD 549M. Adjusted EBIT margin also climbed 3.2 percentage points to 14.5%, surpassing the post-COVID average. This strong showing was driven by a sharp rise in deliveries (38 units in 2Q25 vs. 27 in 2Q24), disciplined pricing, and operating leverage.

  • Commercial aviation: Growth in 2Q25 was slower but steady, with revenue inching up 4% YoY to USD 577M, as aircraft deliveries held flat at 19 units. Adjusted EBIT margin remained unchanged at 4.3%, weighed down by one-off impacts from credit provisions. (Higher aircraft deliveries correlated to higher revenues, as it triggers revenue recognition under accounting standards)

  • Services and Support: The segment continued to demonstrate robust operational performance, with revenue rising 13% YoY to USD 456M, driven primarily by increased MRO (“maintenance, repair, and overhaul”) activity, which typically tracks aircraft delivery volumes. In essence, higher deliveries tend to translate to higher MRO demand. Adjusted EBIT margin edged down by 1.5 percentage points to 15.5%, largely due to a one-off impact (as previously noted), but remained consistent with post-COVID averages.

  • Defence and Security: The segment also delivered solid results, with revenue climbing 18% YoY to USD 221M. Adjusted EBIT margin saw a notable turnaround, improving to 9.2% from -0.5% in 2Q24. The strong performance was primarily fuelled by ramped-up production of the A-29 Super Tucano and KC-390 aircraft during the quarter. (Unlike Commercial and Executive Aviation, revenue in this segment is recognized on a percentage of completion basis, reflecting progress on long-term contracts).

Chart 1: Robust growth in revenue and EBIT margin in recent years  

 

2. Record high backlog reflects strong aircraft demand and robust potential revenue


Strong demand from commercial and executive aircraft continues to propel Embraer’s order backlog to new heights, reaching a record USD 29.7B in 2Q25 — a remarkable 40%  YoY increase. The backlog represents the total value of customer orders Embraer is committed to fulfilling, providing a clear indicator of future revenue potential. The strong backlog recorded in 2Q25 marks the highest backlog level ever for the Group, covering its last twelve months (LTM) revenue by 4.3x, signalling a robust pipeline of future revenue (Chart 2).

Looking ahead, we expect the order backlog to strengthen further, anchored by sustained aircraft demand. At the Group level, the book-to-bill ratio stood at 2.3x in 2Q25 (Chart 3)—staying above 1.0x for eight consecutive quarters—indicating that new orders more than doubled deliveries over the past 12 months. Segment-wise, both commercial and executive aviation also posted strong book-to-bill ratios of 1.8x and 2.4x, respectively. The robust ratio underscores healthy aircraft demand as new orders continue to outpace deliveries. Over the longer term, demand tailwinds are likely to come from 1) rising regional, short-haul flight demand outside the US (notably Europe and Asia) and from 2) mainline and low-cost carriers right-sizing their commercial fleets for greater economic efficiency.

Chart 2: Record quarterly backlog in 2Q25 signals strong future revenue

 

Chart 3: Book-to-Bill ratio surpasses pre-COVID highs and remains above 1.0x, highlighting strong aircraft demand as new orders outpace deliveries

 

3. Profit recovery story will continue


Embraer reported a strong 38% YoY increase in adjusted EBITDA (excluding non-recurring items), reaching USD 246M in 2Q25 (2Q24: USD 190M). The Group also posted a 47% YoY jump in adjusted net income to approximately USD 119M (2Q24: USD 80M). This solid EBITDA recovery momentum has been sustained since mid-2022, fuelled by the robust comeback of global travel post-pandemic.

Looking ahead, revenue growth is expected to pick up as Embraer enters its busier delivery window in the second half of the year, when roughly 60% more aircraft deliveries take place historically (Chart 4). This ramp-up in deliveries should drive stronger revenue recognition and, due to higher operating leverage (particularly in Executive Aviation), result in a larger increase in EBITDA contribution. We think Embraer is firmly on track to hit management’s optimistic full-year revenue target of USD 7.0B to 7.5B, with USD 2.9B already recorded in the first half.

Further improvements in operational efficiency — driven by cost discipline and ongoing production levelling initiatives aimed at shortening production cycle times— are expected to sustain profit momentum beyond 2025. This is further supported by the Group’s strong order backlog (as noted above), which is underpinned by an improving delivery pace and a relatively short production lead time of 4–5 years —significantly shorter than the 10–11 years seen at Airbus and Boeing. A faster delivery cycle and shorter lead time typically translate to quicker and higher revenue recognition, reinforcing the Group’s earnings growth trajectory.

We remain optimistic about Embraer’s tariff situation and do not expect it to have a material impact on profits. While the Group’s aircraft imports into the US are currently subject to a headline 10% tariff, management is actively engaging with US officials to reduce this to zero—similar to the zero tariff deal the UK and European Union has with the US. Moreover, for Embraer’s US-based customers, the effective tariff is often below 10%, as certain models—particularly the E-175—contain a high proportion of US-made components that are exempt from the tariff.

Chart 4: Revenue growth is set to pick up in 2H25, as aircraft deliveries historically increase by around 60% during this period

 

4. Robust operating cash flow and healthy free cash flow generation


Embraer’s improving operating performance has fuelled a sustained rise in operating cash flow—the cash generated from its core business activities—over the past few years. On average, the Group has generated a solid USD 730M annually in operating cash over the last five years. This healthy cash generation has also driven growth in Embraer’s free cash flow (“FCF”), a key metric that measures how the available cash a company has after covering core expenses like capital expenditures.

On a stand-alone basis (to be conservative, we excluded FCF from the subsidiary, Eve), Embraer has consistently delivered positive FCF each year since FY21, averaging a solid USD 457M annually (Chart 5). Positive FCF highlights Embraer’s ability to generate cash, bolstering its cash position and reducing dependence on external financing like debt. It also gives the Group greater flexibility for dividends, and non-operating activities like M&A. Looking ahead, management expects another year of positive FCF in FY25, with guidance set at USD 200M or more on a consolidated basis. 

Embraer reported a free cash outflow of USD 162M in 2Q25. However, we are not concerned, as this largely reflects seasonality factors—higher working capital needs in 1H25 driven by elevated inventory levels ahead of increased deliveries in 2H25 (more cash tied up in inventory). As in previous years, we expect FCF to turn positive in the second half, aligning with management’s full-year positive FCF guidance. Encouragingly, Embraer’s FCF-to-total debt ratio remains near a record high of 31% in 2Q25, highlighting healthy debt coverage with free cash flow.

Chart 5: Consistently strong operating cash flow drives robust free cash flow, averaging USD 457M annually since FY21

 

5. Strong liquidity profile 


Embraer reported a stand-alone cash balance of USD 1,361M in 2Q25 (to be conservative, we excluded cash from subsidiary, Eve), slightly down from USD 1,435M in 1Q25. Additionally, the Group has access to an undrawn USD 1.0B Revolving Credit Facility, maturing in August 2029. Combined, Embraer’s available liquidity stands at nearly USD 2.4B, which is more than sufficient to cover its consolidated gross debt of USD 2,205M (Chart 6).

We expect Embraer’s cash position to improve going forward, largely supported by positive free cash flow. Beyond FY25, we see room for higher FCF as the Group aims to almost double its inventory turnover—from 1.7x to around 3.0x a year (Chart 7). In other words, the Group aims to sell and replace its inventory nearly 3x in a year, which should free up nearly USD 1.0B from inventory over the next three years. This faster inventory cycle will reduce working capital tied up in stock, enhancing FCF and ultimately bolstering the Group’s overall cash position.

Chart 6: Embraer has de-levered significantly in recent years. As of end-June, the Group's total available liquidity comfortably exceeds its gross debt

 

Chart 7: Inventory turnover has significantly improved, but Embraer is targeting a ratio of 3.0x, which is expected to greatly enhance FCF. 


6. Scope for further deleveraging while near-term financing pressure remains light


Embraer (including Eve, whose debt is guaranteed by the Group) reported total gross debt of USD 2,205M in 2Q25. Although gross debt rose slightly quarter-on-quarter, the Group has successfully retired approximately USD 455M of debt over the past 12 months (Chart 6). With an optimistic earnings outlook and robust free cash flow generation, we believe Embraer has ample room to deleverage further.

Meanwhile, near-term debt financing pressure remains manageable as of 2Q25, with only about 6% of its gross debt maturing within the next three years and roughly 65% due by 2030. This maturity profile reflects the Group’s proactive liability management strategy, which saw average loan maturity being extended from 3.8 years in 4Q24 to 6.0 years in 2Q25 —primarily by issuing longer-dated notes to replace shorter-term ones. In late September, Embraer issued a USD 1B 5.400% senior unsecured note due 2038, using the proceeds to launch a tender offer for the remaining 6.950% 2028 notes and part of the 7.000% 2030 notes. A successful tender offer should lower interest costs and cut near-term debt further (potentially below 20% of gross debt by 2030).

Encouragingly, Embraer’s debt metrics have significantly improved over the past 12 months, driven by a strong EBITDA recovery and reduced gross finance expenses. The Group’s total debt-to-LTM EBITDA ratio dropped to 2.2x in 2Q25 (2Q24: 4.2x), while net debt-to-LTM EBITDA fell below 1.0x, reaching 0.6x (2Q24: 1.8x), highlighting Embraer’s strong cash position and sufficient coverage of net debt by EBITDA. 

Interest coverage also strengthened, with EBITDA interest coverage rising to 5.8x (2Q24: 3.6x) and free cash flow interest coverage climbing to 4.0x (2Q24: 1.0x), indicating ample ability to cover gross interest expenses. If the deleveraging trend and EBITDA recovery continue, we anticipate further improvements in debt metrics.

Table 1: Embraer’s debt metrics

Debt Metrics

2Q24

3Q24

4Q24

1Q25

2Q25

Net debt to LTM EBITDA (x)

1.8

1.0

-0.1

0.3

0.6

Total debt to LTM EBITDA (x)

4.2

3.1

2.8

2.2

2.2

Total debt to capitalisation (x)

0.5

0.4

0.4

0.4

0.4

LTM EBITDA to finance expense (x)

3.6

4.6

4.8

5.3

5.8

LTM FCF to finance expense (x)

1.0

2.0

3.7

3.6

4.0

LTM FCF to total debt (%)

6.3%

13.8%

27.1%

31.1%

31.2%

Source: Company reports, iFAST estimates, iFAST compilations.

*Capitalization represents short and long-term loans and financing, plus shareholders’ equity.

** LTM EBITDA refers to EBITDA over the past 12 months.

Embraer upgraded to 'BBB' from 'BBB-' by S&P in late September


Embraer regained its investment-grade (“IG”) issuer rating status in 2024 from all three major rating agencies. Most recently, in late September, S&P ratings upgraded Embraer from “BBB-” to “BBB” with a stable outlook, citing a stronger business position. With continued EBITDA recovery and improving credit metrics, we believe Embraer is well-positioned to maintain its IG status and could potentially earn further upgrades from other major rating agencies.

Recommendations - Attractive yield from a stable issuer

Table 2: Embraer USD senior unsecured notes 

Issuances

Issuer

Ask Price

Yield to Maturity

Years to Maturity

EMBRBZ 6.950% 17Jan2028 Corp (USD)

Embraer Netherlands Finance B.V.

105.8

3.98

2.30

EMBRBZ 7.000% 28Jul2030 Corp (USD)

Embraer Netherlands Finance B.V.

109.8

4.61

4.82

EMBRBZ 5.980% 11Feb2035 Corp (USD)

Embraer Netherlands Finance B.V.

105.8

5.12

9.37

Source: Bondsupermart, Bloomberg L.P., iFAST Compilations.
Data as of 30 Sep 2025.

Chart 8: Embraer’s 2030 and 2035 USD notes are trading relatively more attractive than industry peers with similar tenors

 
In our previous article, we highlighted a preference for EMBRBZ 7.000% 28Jul2030 Corp (USD), and since then, credit spreads have tightened and yield-to-maturity (“YTM”) has moderated, aligning with our earlier view. The ongoing tender offer, with an estimated implied price of around 110, has further supported prices and pushed YTM lower.

Currently, the 2030 notes are trading at a YTM of around 4.5–4.6%, which remains moderately attractive for 4 - 5-year USD investment-grade (“IG”) notes. We think it is still a decent pick for yield-seeking investors eyeing a stable, improving issuer. That said, investors may find it harder to get sizes as the tender offer could retire much of the outstanding $750M debt. 

Investors can consider EMBRBZ 5.980% 11Feb2035 Corp (USD), which can serve as a good option to lock in higher yields. We find the YTM of 5.1% attractive, providing around 100bps of yield pick up above the US treasury bond of similar maturity (gauged by the G-spread). The coupons are decently high which can provide more near-term cash income, amidst a falling yield backdrop.

We believe prices for the 2035 notes will remain supported by strong demand for yield, particularly in the IG space. Meanwhile, Embraer’s improving credit profile may trigger further spread tightening (price gain) towards aerospace peers (Chart 8) or BBB-rated USD industrial corporate bonds, which are generally trading at tighter spreads (lower YTM). For investors who are uncomfortable with holding the 2035 notes to maturity, potential spread compression (price gain) may offer attractive exit opportunities down the road, along with the possibility of a future tender offer if interest rates decline further.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report holds a NIL position in the abovementioned securities.

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