Earnings Call Transcript - EMBJ Q1 2025

Gui Paiva, Head of IR and M&A

Good morning ladies and gentlemen and thanks for standing by. This conference call will be conducted in English, but please let me say a short announcement for Portuguese speakers. My name is Guy Paiva and I'm the Head of Investor Relations at M&A for Embraer. I want to welcome you to our First Quarter Earnings Conference Call of 2025. The numbers in this presentation contain non-GAAP financial information to help investors reconcile EVE's financial information in GAAP standards to Embraer's IFRS. We remind you EVE's results will be discussed at the company's conference call. It is important to mention that our numbers are presented in U.S. dollars as it is our functional currency. This conference call may include statements about future events based on Embraer expectations and financial market trends. Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with the applicable rules, the company assumes no obligation to publicly update any forward-looking statements. For detailed financial information, the company encourages reviewing publications filed by the Brazilian Comissão de Valores Mobiliários or CVM. At this time, all participants are in a listen-only mode. We will give you instructions later on for participation in the two question and answer sessions. As a reminder, this conference is being recorded. Participants on today's conference call are Francisco Gomes Neto, President and CEO of Embraer, Antonio Carlos Garcia, Chief Financial Officer, Luis Harrison, Corporate Communications Director, and myself. This conference call will have three parts. In the first part, top management will present the company's Q1 results. In the second part, we will host a Q&A session only for investors. And last but definitely not least, in the third part, we will host a dedicated Q&A session only for the press. It is my pleasure to now turn the conference call to our President and CEO, Francisco Gomes. Please go ahead, Francisco.

Francisco Gomes Neto, President and CEO

Thank you, Gui. Good morning and good afternoon to all. Welcome to Embraer's first quarter 2025 results conference call. We delivered the highest first quarter revenue of the past 90 years at a significant $1.1 billion. We also registered the highest first quarter adjusted EBITDA margin of the past five years at almost 10%. Embraer ended the period with a $26.4 billion backlog, marginally higher than the previous all-time record printed in the last quarter. Aircraft deliveries were up almost 30% higher year-on-year, evidence of our continuous focus on operational efficiency. Embraer will from now onwards resume payment regular dividends and interest on equity for its shareholders. To conclude this part, we reiterate our 2025 guidance, which implies double-digit growth in our aircraft deliveries and revenue growth. Let's go over the main highlights for the company during the quarter. Executive Aviation delivered a solid performance reflected in sales, deliveries, and backlog. The division also reached the highest first quarter revenue since 2014 in a record backlog of $7.6 billion. In defense and security, Sweden and Slovakia confirmed the selection of the KC-390 Millennium, while Uruguay converted its A29 Super Tucano options into firm orders, and Panama selected the aircraft. The division ended the quarter with a stable $4.2 billion backlog. In Commercial Aviation, the Japanese ANA placed an order for 15 E190-E2 that should be included in the $10 billion division backlog in the second half of the year. The E195-E2 from Helvetic Airways became the largest jet flying into London City Airport ever. Service and support kept its solid growth pace with the start of the next industrialization stage of the Pratt & Whitney engine shop at OGMA in Portugal. The division backlog remained stable at $4.6 billion. Embraer has been working on a production leveling plan since 2023. Our main objective is to create stability and have a more linear production pace throughout the year. The plan will allow us to increase efficiency, productivity, and improve cash flow. This year, we have already seen the first results of the project and from 2026 onwards, we can expect a more stable production over the year. We also continue to work very closely with our suppliers to support our more linear production plan. We can see improvements in several operational KPIs for all our family of products, such as an increase in aircraft production, a reduction of travel work, a reduction in assembling cycle, and an increase in productivity. Here, for instance, we share improvements in the Praetor production line. Let's now touch upon a topic we have all dealt with over the past two months, U.S. tariffs. First of all, it is important to highlight first quarter results were not impacted by them. Second, our initial analysis points towards limited impact, so we remain confident and reiterate our 2025 guidance. Third, Embraer has a substantial amount of U.S. content in its aircraft, which partially mitigates our exposure. And last, and more importantly, we are working on initiatives to minimize the impact of U.S. tariffs on our business, and we are argued for zero tariffs to globalize the aerospace production chain, as has been the case for many decades. I will now move on to operational results by segment over the next few slides. All figures are based on year-on-year comps. In Commercial Aviation, revenues were stable, and we noted a relevant improvement in the adjusted EBIT margin, driven by product and customer mix. In Executive Aviation, revenues expanded 35% because of higher volumes and product mix. The adjusted EBIT margin increased because of operating leverage and cost containment initiatives. In defense and security, top line grew 72% because of stronger KC-390 revenue recognition, customer mix, and product stage. The better adjusted EBIT margin was driven by higher volumes, lower expenses, and negative extraordinary items a year ago. Moving to service and support, revenues increased 16%, mainly because of the OGMA GTF ramp-up. The adjusted EBIT margin decreased because of product mix and the start of the North American Executive MRO ramp-up, partially compensated for positive one-time items. Finally, 2025 will be a decisive year for EVE, as the company should complete the first flight of its full-scale prototype, and should receive its first firm orders, opening a brand new path of long-term growth. I will now hand it over to Antonio to give you further details about the financial results, and then I will be back with closing remarks.

Antonio Carlos Garcia, CFO

Thank you, Francisco. Good morning and good afternoon to everyone. I will present now our first quarter financial results, and all of my comments will be based on year-on-year comps, unless noted. Let's move to Slide 13 and start with deliveries. Embraer delivered 30 aircraft in Commercial and Executive Aviation combined during the quarter which is 20% higher. In Executive Aviation, deliveries were 23 jets, of which 14 were in the light segment and 9 in the mid-size segment. The number of deliveries was 28% higher and, more importantly, 15% of the midpoint of the company's full-year guidance, moderately above 11%, first-quarter average for the past five years. In Commercial Aviation, deliveries were seven aircraft, the same number as last year, and represented 9% of the midpoint of the company's full-year guidance. I should highlight we were unable to deliver two additional aircraft during the quarter because of commercial issues. Slide 14, our backlog reached an all-new all-time high, $26.4 billion, marginally up and sequentially and 25% higher versus a year ago. Talking about each division, the backlog for defense and security soared 73%, while for Executive Aviation increased more than 65%, supported by new KC-390 Millennium and A-29 Super Tucano sales and the Marquis contract with FlexJet, respectively. The backlog for service and support increased almost 50%, while for Commercial Aviation decreased 10%. However, it is important to remember the ANA order has not been yet included in our numbers. Moving on to revenues, our top line reached $1.1 billion in the first quarter. The best first quarter results of the past nine years and 22% higher. Our service and support in Executive Aviation divisions together represented almost 70% of the company's total revenue in the quarter. Moving to Slide 15, we generated $109 million in adjusted EBITDA in the first quarter with a 9.8% margin. Now, adjusted EBITDA for the quarter was at $62 million with a 5.6% margin, a significant increase compared to the previous $7 million and 0.8% margin marks from last year. This is great results, and it was supported by executive aviation higher volumes, which ties back to Francisco's comments about production leveling, product mix, and lower costs and expenses. A quick word on U.S. tariffs and their potential impact. Our initial estimate is that it could negatively impact our EBITDA margin by 90 basis points for 2025. However, the company is taking several steps to mitigate these effects like additional cost reduction measures, and for now, we remain confident we can deliver our guidance for 2025. Now let's move to the next Slide, 16. In the first quarter, we consumed $386 million in adjusted free cash flow because of high working capital needs mainly in inventory in preparation for higher numbers of aircraft deliveries in the next three quarters. Moving to investments, it is important to highlight our capital allocation remains focused on segments with high return such as Executive Aviation and servicing support mainly in the U.S. First quarter, we allocated $38 million for research and development of which $11 million were expense. We invested another $37 million in CapEx and $30 million in the Pool Program to support new contracts, totaling $88 million for the quarter. To finish this slide, let's talk about our adjusted net results. We ended the quarter with a negative $74 million for an adjusted minus 6.7% margin compared to $30 million last year. However, reported net income was positive $73 million for a 6.7% margin positive. If we consider $124 million in deferred taxes because of stronger Brazilian foreign exchange rate and $23 million from EVE results. Slide 17 please. As always, I would like to start this slide by highlighting the top right corner. Embraer was able to reduce both its net and gross debit positions without ease by $508 million to $608 million over the past 12 months. Thus, the company was able to lower its net debt to EBITDA from 1.8 times to 0.5 times during the period. The negative $285 million free cash flow generation for Embraer standalone during the quarter helps to explain the recent increase in financial leverage. As I mentioned in our last call, as part of our Liability Management plan, we are focused on extending the duration and reducing the cost of our debt. In our most recent liability management step, we issued a $650 million 10-year bond at 158 basis points over U.S. Treasury in Q1, and we repurchased $522 million in 2027 bonds fully retired and $150 million in 2028 bonds. With the deal, we extended our debt duration to 6.3 years compared to 3.8 years in Q4 last year. Slide 18 and to conclude my part, let me talk about shareholder remuneration. For the fiscal year 2024, we approved R$51 million in dividends, or R$0.07 Brazilian per share, to be paid on May 23 to EMBR3 holders. ERG holders should receive the money in a few days later, but you can find more information with our U.S. Depository Bank soon. For the fiscal year 2025 and beyond, the company intends to analyze the potential fiscal benefits from these interest and equity declarations. This value will be added with, if required, a top-up dividend to comply with the minimum 25% of net income payments established by the Brazilian corporate law. The company will then pay this money in a single payment after the shareholders' meeting next year. With that, let me stop here and I hand it back to Francisco for his final remarks. Thank you very much.

Francisco Gomes Neto, President and CEO

Thank you, Antonio. The first quarter was marked by significantly stronger results, which provides us with a solid outlook ahead for sustainable growth. In 2025, we started to see the first material results of our production leveling initiatives. We will continue to take steps to make the most of our installed capacity to achieve even higher output, optimizing the use of our assets. And we will keep focused on sales in all business units to guarantee our successful growth trajectory. Let me now take the opportunity to say, thank you very much and welcome to ANA, as it becomes the first E2 operator in Japan. To finish, U.S. tariffs so far should have limited impact on our company. And we join other companies in calling the return of zero-tariff policy for the aviation sector, as has been the case for several decades, reducing complexity and costs for a highly globalized industry. We continue to work hard, always embracing the foundation of our culture, safety first and quality always. Let's now move to the Q&A session of the call.

Operator, Operator

We will now start the Q&A session. The first part of the question and answer session will be exclusively for equity research analysts and investors. The second part of the Q&A will be only for the press. We highlight again this conference call is being conducted in English with translation to Portuguese. Please, let me say a short announcement for Portuguese speakers. If you need assistance, please use the Q&A button on the platform. To give everyone a chance to participate, we request just one question per call. The first question comes from Marcelo Motta with JPMorgan. Please go ahead.

Marcelo Motta, Analyst

Perfect. Hi, everyone. Thanks for taking my question. The first one is on the commercial. If the company can comment about what they mentioned on the release, you know, the potential one-time impact from supplier credit, if they could try to quantify what was the impact, please? Thank you.

Antonio Carlos Garcia, CFO

It was 30 basis points, or 3 percent, which is 3 percentage points of 30 basis points. Sorry about that.

Operator, Operator

Thank you. The next question is from Miles Walton with Wolfe. Please go ahead.

Miles Walton, Analyst

Thanks. Good morning. I was hoping on the tariff front you could give a little bit more color. I think the 90 basis points is probably related to your cost within executives, but maybe Francisco or Antonio, is there any hesitation on U.S. Airlines accepting the 175s in the near term, given the tariff on imports? Are they choosing to maybe wait a little bit longer to see if they're negotiated away? Thanks.

Antonio Carlos Garcia, CFO

Thanks, Myles. Great question. And we still don't know everything. That's why we set our first estimate. I would say we have, as you know, impacting our executive aviation at first place and then also in our service division. And at least we have read the first circuit being taken in Brazil and the U.S. customers spend is beyond the cost for the tariffs. In fact, what we are pursuing is who is responsible for the importation process beyond the cost of tariffs. We do not have, at least today, a setback on commercial, but it's too early to confirm 100%. But I'd say if I would split it at 90 basis points, highly concentrated in executive aviation and service and support. And we, as a company who has a lot of U.S. content in our aircraft, we always deduct the U.S. content in order to, I would say, pay the taxes. That's why we are still confident we could continue to run our business here, even with this bad negative impact. Francisco, you want to complement maybe on this?

Francisco Gomes Neto, President and CEO

No. That's enough.

Antonio Carlos Garcia, CFO

I hope I answered your question, Myles.

Miles Walton, Analyst

That's perfect. Thanks, Antonio.

Operator, Operator

The next question is from Kristine Liwag with Morgan Stanley. Please go ahead.

Kristine Liwag, Analyst

Hey, good morning, everyone, Francisco, Antonio, and Gui. I mean, first of all, congratulations on the record high company backlog, but the market always wants more orders. So with that, I mean, on the KC-390, can you provide an update on where you are with India, Saudi Arabia, and Poland? And also, we've seen bundling as very successful in aerospace. We've seen this with Airbus and their success with selling the A220 with the A320. Can you talk about bundling opportunities for the KC-390 and the E2s?

Francisco Gomes Neto, President and CEO

Hello, Kristine. Thanks for your question. Well, you're bringing a good idea. It might be an opportunity. But anyway, we are working in several campaigns for both, for KC-390 and E2s. The India project is moving. We are talking to the customer. We are getting more questions about the product. And we are working on the next steps. We expect to have some more improvements within the next, you know, one or two years in India. But India is a big program, as you know, from 40 to, opportunity from 40 to 80 aircraft. And we are also working on other campaigns with the KC-390, other customers that we cannot disclose at this point of time. But we expect some results during the year as well. E2, the E2 is not different. We are working in several campaigns. Yes, competition is not easy on both sides, you know, with the KC or the E2s. But we believe we have good chances in many campaigns. So also in commercial aviation, we expect to bring some good news during the year.

Gui Paiva, Head of IR and M&A

Francisco, just to complement for the KC, what you are seeing is a bundle that some, especially the NATO countries, they are using the same contract, you know, which makes the procurement process much faster than before.

Francisco Gomes Neto, President and CEO

Yes, but bundling between KC and E2, we don't have any example yet.

Gui Paiva, Head of IR and M&A

Not yet.

Kristine Liwag, Analyst

So that sounds very optimistic. So we hope to see that kind of bundling soon.

Francisco Gomes Neto, President and CEO

Well, I mean, it's not bundling, but in case of Poland, as you brought Poland as an example, we said, well, if we are working the two fronts, opportunities with E2s in Poland, you know that, and with LOT Polish and KC as well. And if we succeed in both, we can bring a lot of initiatives, a lot of products and services to be done in Poland. This is a kind of not a direct bundling, but an opportunity for the country.

Kristine Liwag, Analyst

Super helpful. I would also like to ask about the current geopolitical environment, particularly with the U.S. tariff discussions indicating a shift toward regional powers. It highlights that the larger aircraft transport industry remains a duopoly dominated by Boeing and Airbus. Given this context, how has the dialogue around larger Embraer aircraft changed in recent months? I know Francisco and Antonio have addressed this over the years, with varying concerns and opportunities arising. How has this conversation progressed now? Historically, Boeing has been at the forefront of trade for the U.S., and the tariff situation underscores the significance of this industry for U.S. exports. For countries lacking a strong aerospace sector, this represents a strategic vulnerability. What insights do you have regarding this opportunity, and what is the latest perspective on this program amid the evolving landscape?

Francisco Gomes Neto, President and CEO

Well, Kristine, this is a good question, though not easy to answer specifically. Customers have indeed asked us about our plans to expand, but we are primarily focused on selling the E2s. We are also investing in new technologies to prepare for future products that could include larger executive jets, commercial jets, or even defense aircraft. We are conducting research on all fronts. While we don't have a specific decision yet, we are investing in advancements such as more autonomous flight technology, new fuselage designs, wings, cockpit enhancements, and so on. This is our current focus, but nothing concrete has been decided in terms of direction.

Kristine Liwag, Analyst

Great, thank you.

Operator, Operator

The next question comes from the telephone number ending 7519. Please go ahead.

Steve Trent, Analyst

Good morning, Steve Trent from Citi, and thanks very much for taking my questions, Francisco, Antonio, Luis, and Gui. I was curious in terms of the supply chain, I believe last time you mentioned, for example, that the fasteners for the aircraft was kind of a bit of a bothersome area. And I'm wondering if that's improved a little bit or if the pressure point maybe has shifted over to another area of the supply? Thank you.

Francisco Gomes Neto, President and CEO

Thank you. Thank you for your question. You know, since two years ago, we have put in place a more structured, a new structure in our supply chain area, you know, to deal with these all supply chain issues. So, in general, we have seen improvements, but the bottlenecks are moving from one product to another. But even then, we are progressing as I mentioned in my opening. We are progressing in bringing the parts we need to level our production, which is our main target at the end of the day. We still have some issues more with fuselage parts that we are still struggling. This year, some types of engines that are still delaying to deliver the parts on time to us. But I think we are working very close to the suppliers. And at this point of time, we don't see big issues to deliver our guidance. That's why we are reaffirming our guidance in terms of deliveries between 77 to 85 commercial jets and 145 to 155 executive jets. So, again, bottlenecks are still there moving from one part to another. But with the structure we have put in place, we have been able to manage these issues and keep our production running as planned.

Steve Trent, Analyst

Okay. Really appreciate it. And I'll stick to your request of just one question. Thank you, gentlemen.

Operator, Operator

The next question comes from Andre Ferreira with Bradesco BBI. Please go ahead.

Andre Ferreira, Analyst

Hi. Good morning. I have a question. But first, I just wanted to clarify the first answer because I think there were some technical issues with the call. Is it 0.3 percentage points in the commercial EBIT margin or the consolidated EBIT margin? But my real question is actually about the past two reversals in the service margins. How much was the impact of this in the service EBIT margin or in the consolidated EBIT margin? Thank you.

Antonio Carlos Garcia, CFO

This is Antonio speaking. The 3% represented supplier credits for the quarter in commercial aviation. On average, we supported around 7% at approximately 15%. We reported slightly lower, about five basis points or 50 basis points below average. However, we believe this is a temporary occurrence that will balance out over the years. It was primarily related to on-time effects with customers, as Francisco mentioned. Overall, we experienced a 5% lower EBIT margin for the quarter, but we are not concerned about the entire year. Just to clarify, there is an impact in consolidation, but we are discussing the last $20 million, which would elevate our margin to nearly 6.5% to 7%. This represents the effect on a consolidated basis.

Andre Ferreira, Analyst

Okay, so, and the commercial is?

Antonio Carlos Garcia, CFO

Commercial is 3% for the quarter.

Andre Ferreira, Analyst

Okay. All right. Thank you.

Operator, Operator

The next question comes from Jordan Leone with Bank of America. Please go ahead. Mr. Leone?

Jordan Leone, Analyst

Hi, sorry, can you hear me now?

Francisco Gomes Neto, President and CEO

Yes, yes, we can.

Jordan Leone, Analyst

Great. Good morning. Thank you for taking the question. Could you guys talk about how you're thinking about the Pratt strike and any impact for how you're managing through that for service?

Gui Paiva, Head of IR and M&A

The strike at Pratt, Wheaton and Francisco, we talked today.

Francisco Gomes Neto, President and CEO

Well, I mean, actually, Jordan, we are still trying to get more information about this. And at this point of time, we don't have enough information to measure potential impact in our business.

Jordan Leone, Analyst

Got it. Okay. Thank you so much.

Francisco Gomes Neto, President and CEO

Thank you, Jordan.

Operator, Operator

Thank you. The next question comes from Lucas Marquiori with BTG Pactual. Please go ahead.

Lucas Marquiori, Analyst

Thanks, guys. Thanks for the call. Good morning. My question is more on coming back to the topic of U.S. tariffs. If you could provide some clarity on some of these initiatives, you guys mentioned you have on mitigating the impacts. I'm assuming there's at least some impacts, right, coming especially from executives, maybe commercial. So what's the work plan around there? I mean, if maybe you are relocating production to some other facilities outside of Brazil or maybe passing through prices, how does your contract work with this changing law environment? I mean, just kind of giving some color on the measures to mitigate tariffs, it would be nice, guys. Thanks.

Antonio Carlos Garcia, CFO

Good morning, Lucas. This is Antonio. Let me share some insights. When we set our guidance for 2025, I recall some of you expressing that it seemed too conservative. At that time, we acknowledged the potential for volatility. Personally, I was more concerned about inflation than tariffs, although tariffs are prominent. We have two paths: either we pause and suffer losses, or we take action. Since the start of the year, we've opted to adopt a cautious approach, choosing not to make hasty investments or increase capacity without clear direction. Overall, we are focusing on cost management and our projections for stability. Additionally, we are assessing how to handle the impact of tariffs. For instance, Brazil faces a 10% tariff, but with certain conditions, this can be reduced to between 5 and 6.5%, depending on the aircraft. This aligns with the figures we previously shared. We are aware of our EBITDA margin for the upcoming three quarters, and this impact may not be immediate. As a Brazilian company, we are accustomed to facing annual crises, and we must devise ways to adapt. However, we cannot predict all effects just yet, making it too early to draw conclusions. If circumstances change in Q2 or Q3, we will revise our expectations. For now, we are confident we can maintain our margin. Francisco, would you like to add anything?

Francisco Gomes Neto, President and CEO

Nothing from my side.

Antonio Carlos Garcia, CFO

I hope that answers your question, Lucas.

Lucas Marquiori, Analyst

It does. Thanks, guys. Have a good day.

Operator, Operator

The next question comes from Daniel Gasparete with Itau BBA. Please go ahead. Mr. Gasparete, you're muted. We cannot hear you.

Daniel Gasparete, Analyst

Sorry, thank you very much. Can you hear me right now?

Operator, Operator

Yes.

Daniel Gasparete, Analyst

So, guys, thank you very much for the opportunity. My first question will be related to the suspension of point deliveries in China. I would like to get your view if there's any kind of opportunity arising for you guys coming from that region? That would be the first question. And the second one would be related to the comment that Antonio did related to the cost reduction initiatives on the executive side. I would just like to explore more about it, if it was already considered in your guidance, and how do you see that playing along during the rest of the year? Thank you very much.

Francisco Gomes Neto, President and CEO

Thank you, Daniel. I will start with China, and Antonio will help with the cost reduction that he mentioned before. Well, things in China, for us, have not changed. Both of our aircraft, E190 and E195, are certified by the Chinese authority. And we have been working with potential customers in China to introduce our new generation of E2 that, in our opinion, do not compete with the Chinese aircraft. We go just in the middle. And recently, we delivered the two aircraft to Hunnu, a Mongolian company, and they will fly to important Chinese cities. They will showcase how they do it first time in China, and they will see how nice, how good, and how efficient our aircraft is. So again, nothing new at this point of time. We continue working in opportunities to introduce our E2 jets in China.

Antonio Carlos Garcia, CFO

So, Gasparete, just to make it clear, the biggest impact on tariffs is related to executive aviation. And we, as a company, we are one company with four divisions. And as one team, when we have an issue, we all reduce costs. It's not only related to executive aviation. We implement additional cost reduction measures in order to try to reduce offset part of this cost increase during by tariffs. That's the, you could take all possible measures. You just see the SG&A cost already, Q1, was much lower than previous year. That's more or less what you are doing in order to absorb and try to find a way to not jeopardize our numbers.

Daniel Gasparete, Analyst

Great. Thank you very much, Francisco, Antonio. Have a nice day.

Operator, Operator

The next question comes from Lucas Laghi with XP Investments. Please go ahead.

Lucas Laghi, Analyst

Good morning, everyone. Good morning, Francisco, Antonio, Gui. I'd like to follow up on potential new order announcements, especially on the KC-390. I mean, we have been seeing several efforts from Embraer to sell the aircraft in the United States, right? I think you're in the third conference in the country to showcase the aircraft. Could you please remind us the strategy that you guys are playing to enter this market? I mean, do you plan to sign new partnerships such as the previous one with L3Harris, for example? Do you plan to build a production facility to produce the KC-390 there? And how do you see like Trump tariffs in this context for your decision rationale to enter this market in a more significant pace going forward? Thank you, guys.

Francisco Gomes Neto, President and CEO

Thank you, Lucas, for your question. Yes, absolutely. Besides India, which I mentioned earlier, we see significant potential for the KC-390 in the U.S. Currently, we have one KC-390 in the U.S. that was recently showcased at an event in Las Vegas. We participated in an important panel at this event, highlighting the KC-390 as a strong alternative for a tanker, as well as a multi-mission aircraft that could transform the productivity of the U.S. Air Force. This week, the aircraft was in Tampa, and this Friday, it will be in Washington for further demonstrations. Additionally, we are collaborating with a consultant in the U.S. to finalize our market entry strategy. To answer your last question, with a significant order, the KC-390 will be assembled in the U.S. The aircraft currently includes 57% U.S. content, and if we secure an order from the U.S. Air Force, these aircraft will definitely be assembled in the U.S. We see a great opportunity for both ourselves and the U.S. Air Force by incorporating the KC-390 into its fleet.

Lucas Laghi, Analyst

Thank you, Francisco, very clear.

Operator, Operator

Thank you. This concludes the question and answer session for equity research analysts and investors. Now, we'll start the Q&A session dedicated to the press. First, we'll answer questions in English, and then we'll answer questions in Portuguese. We'll also answer questions sent via the platform chat.

Cristian Favaro, Analyst

Guys, it's just a follow-up question. Antonio, I think you mentioned that during the first quarter, the company was not capable of delivering two aircraft in the commercial segment due to commercial issues. Can you clarify what happened? Just that one, I'm curious actually. Thank you very much.

Antonio Carlos Garcia, CFO

It's just, Cristian. Well, sometimes you have pending contractual issues. Sometimes you don't have the documentation. Switching to Portuguese now. Sometimes we have the quarter not finished, or we do not have all paperwork in order to deliver the aircraft towards the customer or the lead source. That's why sometimes it takes more than one or two weeks, then we ship the aircraft. It's just a tiny matter for two aircraft. But in regards to output, which is really important for us, we were able to finish those aircraft, but the commercial invoicing and contract to the customer took two weeks more than we were expecting. Just that. Not a big issue, but it's just bureaucracy sometimes. It does not help us.

Operator, Operator

Thank you. All questions have been answered. Thank you.