Business Context and Reporting Period
Company: Embraer S.A.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Date: November 1, 2021
Subject: Notice of Extraordinary General Shareholders' Meeting (ESM) scheduled for November 30, 2021, to approve a corporate restructuring transaction.
The filing details a proposed partial spin-off of Embraer's wholly-owned subsidiary, Yaborã Indústria Aeronáutica S.A. ("Yaborã"), with the transfer of the spun-off portion back to Embraer S.A. The transaction aims to reintegrate the commercial aviation business directly under Embraer to reduce operating, systemic, administrative, and tax expenses. The transaction is effective as of January 1, 2022.
Key Financial Metrics
Note: This filing is a corporate governance notice and does not contain a full set of consolidated financial statements for Embraer S.A. for the reporting period. The following data pertains specifically to the Yaborã subsidiary as of July 31, 2021, used for the transaction appraisal.
| Financial Item (Yaborã as of July 31, 2021) | Value (BRL) |
|---|---|
| Total Assets | 17,226,481,029.00 |
| Total Liabilities | 16,972,683,950.00 |
| Shareholders' Equity (Spun-off Portion) | 253,797,079.00 |
| Yaborã Capital Stock Reduction | 2,648,928,198.01 |
| Estimated Transaction Costs | 150,000,000.00 |
Historical Context (FY 2020): Yaborã's consolidated revenue was R$ 6.16 billion (31.4% of Embraer's total). Yaborã reported a loss of R$ 1.71 billion, representing 47.6% of Embraer's total consolidated loss for the year.
Material Changes and Transaction Details
- Corporate Structure: Embraer currently owns 100% of Yaborã. The transaction involves a partial spin-off of Yaborã followed by the transfer of the spun-off portion (commercial aviation assets and liabilities) to Embraer.
- Capital Impact: The transaction will not result in an increase or decrease in Embraer's shareholders' equity or capital stock, as Yaborã is a wholly-owned subsidiary. No new shares will be issued.
- Yaborã Capital Reduction: Yaborã's capital stock will be reduced from R$ 4.93 billion to R$ 2.28 billion. This reduction includes R$ 2.40 billion in accrued losses and R$ 254 million corresponding to the spun-off portion.
- Valuation: The appraisal report by PricewaterhouseCoopers (PwC) values the spun-off portion at book value based on Yaborã's balance sheet as of July 31, 2021.
Guidance, Outlook, and Risks
Management Commentary: Management states the transaction is advantageous as it allows the commercial aviation business to be developed directly by Embraer again, resulting in cost reductions. The "One Embraer" project is also being implemented to streamline operations.
Risks and Contingencies:
- Operational Risks: The return process may result in operational, commercial, financial, contractual, and technological difficulties, potentially leading to a failure to achieve expected synergies or unforeseen losses.
- Market Risks: The commercial aviation sector faces continued disruption from the COVID-19 pandemic, with reduced demand and potential delivery rescheduling by customers.
- Competition: Yaborã faces competition from Airbus (A220), COMAC (ARJ21), Sukhoi (SSJ100), and others in the regional jet market.
Investor Verification Checklist
- Shareholder Approval: Verify the outcome of the Extraordinary General Shareholders' Meeting held on November 30, 2021, regarding the approval of the Protocol and Justification.
- Transaction Closing: Confirm the effective date of the transaction (scheduled for January 1, 2022) and the subsequent filing of the amended bylaws for Yaborã.
- Cost Realization: Monitor future financial reports to track the realization of the estimated R$ 150 million transaction costs and the projected reduction in operating and tax expenses.
- Financial Impact: Review subsequent quarterly reports to assess the impact of the restructuring on Embraer's consolidated revenue, margins, and loss reduction, given Yaborã's significant contribution to the 2020 consolidated loss.