November 12, 2019 / 10:33 AM / a month ago

Embraer lowers dividend guidance, burns cash, as Boeing deal hits snags

SAO PAULO (Reuters) - Brazilian planemaker Embraer (EMBR3.SA) signalled it may issue a smaller dividend to shareholders as it burns through cash before finalising a $4.2 billion (£3.3 billion) commercial passenger jet deal with Boeing (BA.N), which faces regulatory hurdles.

The logo of Brazilian aviation company Embraer is seen during the Latin American Business Aviation Conference & Exhibition fair (LABACE) at Congonhas Airport in Sao Paulo, Brazil August 14, 2018. REUTERS/Paulo Whitaker

Embraer now expects the dividend to range between $1.3 billion-$1.6 billion, compared with previous guidance of $1.6-billion-$1.7 billion, the company said in a securities filing.

During an earnings call with analysts, executives said the dividend guidance was lowered due to additional cash needs in 2019, partly due to cost base revisions to a new military plane. The company now expects to have negative cash flow of between $100 million and $300 million in 2019.

Embraer has been trying to finalise the sale of 80% of its commercial jets division, its most profitable, to Boeing, as the U.S. planemaker prepares to compete directly with Airbus in the market for planes with fewer than 150 seats.

But the deal has hit regulatory obstacles. The company said European regulators recently delayed a decision on the proposed deal until both companies provide additional documentation, which Embraer said was trying to do as soon as possible.

Embraer expects costs from the transaction to total about $100 million for the year.

Also on Tuesday, Embraer reported a third-quarter loss of $77.2 million, affected by costs related to the transaction with Boeing, which is not expected to close earlier than March 2020.

The companies originally expected the deal to close by this year, but the proposal has faced significant antitrust scrutiny in Europe.

Embraer said deal costs came in at $34.8 million for the quarter.

Embraer also announced a firm order with KLM Cityhopper for 21 E195-E2 jets, although those planes had already been accounted for in the company’s backlog.

Reporting by Marcelo Rochabrun; editing by Bernadette Baum

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