Moody's places Embraer's notes under review for upgrade; CFR unchanged at Ba1

New York, February 01, 2019 -- Moody's Investors Service ("Moody's") has placed the Ba1 rating of Embraer S.A's ("Embraer") senior unsecured notes under review for upgrade. Embraer's Ba1 corporate family rating ("CFR") remains unchanged. The review follows the agreement between Embraer and The Boeing Company ("Boeing", A2 stable) to create a joint-venture ("JV") focused on commercial aviation containing Embraer's commercial aviation and services segments. Boeing will control and consolidate the JV with a 80% stake while Embraer will keep the remaining 20% stake after transferring assets and liabilities related to its commercial aviation business to the JV.

Ratings placed under review for upgrade:

Issuer: Embraer S.A.

$500 million global senior notes due 2022: Ba1 -- under review for upgrade

Outlook, changed to rating under review from stable

Issuer: Embraer Netherlands Finance BV

$1,000 million global senior notes due 2025 guaranteed by Embraer S.A.: Ba1 -- under review for upgrade

Outlook, changed to rating under review from stable

Issuer: Embraer Overseas Limited

$500 million ($163 million outstanding) senior notes due 2020 guaranteed by Embraer S.A.: Ba1 -- under review for upgrade

$541 million global senior notes due 2023 guaranteed by Embraer S.A.: Ba1 -- under review for upgrade

Outlook, changed to rating under review from stable

The company's Corporate Family Rating is unchanged:

Issuer: Embraer S.A.

Corporate Family Rating: Ba1, Stable Outlook

RATINGS RATIONALE

The review for upgrade of the senior unsecured notes is a consequence of the agreement between Embraer and Boeing to create JV focused on the commercial aviation segment and the expectation that the senior unsecured notes will be transferred to the JV. Embraer will contribute its assets and liabilities related to the commercial aviation business into the new entity, including the senior unsecured notes issued by Embraer or its subsidiaries and guaranteed by Embraer.

If the transaction is concluded as planned, Boeing will own and consolidate 80% of the JV, which will significantly improve the credit quality of the unsecured notes, even if a formal guarantee is absent. Accordingly, the review may lead to a multi-notch upgrade of the senior unsecured notes.

During the review, Moody's will monitor the next steps until the formal completion of the transaction, including the approvals from Embraer's shareholders and anti-trust authorities. The companies expect that the transaction will be concluded by the end of 2019. Brazil's government recently approved the deal by not exercising the veto rights from its golden share on Embraer.

Embraer's Ba1 CFR remains unchanged. Despite the smaller size and higher product concentration after the sale of its commercial aviation segment, its credit metrics will improve materially. The company's leverage will decrease significantly because most of its outstanding indebtedness is comprised by the senior unsecured notes that will be transferred to the JV. If the deal is closed as expected liquidity will also improve as the company expects to retain around $1.4 billion in cash from the $3.0 billion in net proceeds. Embraer will also receive a put option for its remaining 20% stake in the JV valued at around $1.0 billion or more. The companies have also agreed to the terms of another JV to promote and develop new markets for the multi-mission medium airlift KC-390. Under the terms of this proposed partnership, Embraer will own a 51% stake in the joint venture, with Boeing owning the remaining 49%.

The stable outlook on Embraer's Ba1 CFR takes into consideration the expectation of a decrease in leverage and strong liquidity that will result in negative net debt as well as synergies that will be extracted from the partnerships with Boeing when the transaction is closed.

The rating on Embraer's CFR could be downgraded if after the conclusion of the transaction its liquidity and leverage are worse than previously expected as a consequence of a weaker business model or less conservative financial policies.

An upgrade on Embraer's CFR is unlikely in the medium term. Over a longer term horizon, the rating could be upgraded if the company is able to improve margins in the executive aviation business and the KC-390 JV is successful in leveraging the new aircraft sales. Accordingly, an upgrade would require Embraer to enter into a route of sustained revenue growth and strong operating profit margins while maintaining strong liquidity, low leverage and conservative financial policies.

Embraer is the leading manufacturer of commercial jet up to 150 seats, with a growing defense and security segment, and a line of business jets including new types for the medium-light and medium-sized segments. Founded in 1969 by the Brazilian federal government and privatized in 1994, Embraer is headquartered in Sao Jose dos Campos, Brazil. Embraer generated about $4.8 billion in net revenue for the 12 months ended September 30, 2018.

The Boeing Company is a leading large commercial airplane manufacturer and a prime contractor to the US Department of Defense for aircraft, weapons and related systems. The company operates through three principal business segments: Commercial Airplanes (BCA), Defense, Space & Security (BDS), and Global Services (BGS). Headquartered in Chicago, Illinois, Boeing reported approximately $96 billion of revenue (excluding BCC) for the 12 months ended September 30, 2018.

The principal methodology used in these ratings was Aerospace and Defense Industry published in March 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.