Embraer's Strategic Resilience: Navigating Tariffs and Seizing Aviation Opportunities

The global aviation sector faces persistent headwinds, including rising U.S. tariffs on imported goods. Yet Embraer (ERJ), the Brazilian aerospace giant, is proving its mettle through a mix of strategic agility, robust order backlogs, and a focus on high-demand segments. Here's why investors should consider a long position in Embraer despite the challenging trade environment.

A Shielded Backlog: Strength in Diversity

Embraer's order backlog, totaling $26.4 billion as of Q1 2025, acts as a financial buffer against near-term volatility. The composition highlights its strategic focus:
- Commercial Aviation: $10.0 billion (E175, E190-E2, E195-E2 jets), bolstered by recent orders like Japan's ANA Holdings' 15-firm E190-E2 deal.
- Executive Jets: $7.6 billion (up 66% YoY), driven by the Phenom 300 (world's top-selling light jet) and Praetor series.
- Defense & Security: $4.2 billion, anchored by the A-29 Super Tucano trainer/light attack aircraft.

This diversification insulates Embraer from overreliance on any single market. While tariffs threaten imports, its U.S. production strategy for the E175—a regional jet compliant with U.S. scope clauses—avoids punitive duties. Unlike Bombardier's discontinued CRJ series, the E175 remains a niche leader, supported by 164 firm orders in backlog.

Tariff-Proofing Through U.S. Partnerships

Embraer's decision to assemble the E175 in the U.S. (in partnership with Spirit AeroSystems) ensures it bypasses tariffs while meeting FAA requirements. This model's resilience contrasts with the paused E175-E2 program, which faces regulatory hurdles. The tradeoff? Focusing on proven demand while refining next-gen tech.

Meanwhile, its E-Jet E2 series (E190-E2, E195-E2) competes effectively in regional routes, even against Airbus's A220. Recent wins, like SAS's 55-unit E195-E2 order, underscore its appeal. The ANA deal further expands its Asian footprint, a region critical for post-pandemic travel recovery.

Capturing Long-Term Growth: Business Jets and Services

Embraer's crown jewel is its Executive Aviation segment, where demand for light and super-midsize jets remains red-hot. The Phenom 300's 17 Q2 deliveries and Praetor series' 17 combined deliveries reflect this. With global business jet orders up 11% in 2025, Embraer's 30% share of the light-jet market positions it to capitalize.

The Services & Support segment ($4.6B backlog) adds stability, as airlines prioritize maintenance and inventory. Deals like Airlink's inventory support pact highlight Embraer's shift toward recurring revenue—a critical hedge against cyclical demand swings.

Risks and the Bull Case

Risks linger:
- Supply Chain Delays: Q1 2025's $10.0B Commercial backlog dip (2% sequentially) signals ongoing hurdles.
- Defense Uncertainty: The KC-390 tanker's slow sales ($4.2B backlog but no 2025 deliveries) could strain margins.

However, Embraer's 2025 delivery surge (61 aircraft in Q2, up 30% YoY) suggests operational improvements. Its stock trades at 6.2x EV/EBITDA, below peers, despite record backlogs.

Investment Thesis: A Long Position Supported by Structural Trends

Embraer's valuation is undemanding, yet its segments align with secular growth:
1. Regional Jets: Airlines globally seek smaller aircraft for cost-efficient regional routes.
2. Luxury Jets: Ultra-high-net-worth demand fuels business aviation's 5% annual growth.
3. Defense Stability: The A-29's success in markets like Indonesia and the U.S. ensures steady military revenue.

Recommendation: Buy ERJ with a 12–18-month horizon. Key catalysts include:
- E175-E2 regulatory clearance (if achieved).
- ANA's E190-E2 deliveries boosting Commercial margins.
- Executive Jet backlog conversion (targeting 145–155 deliveries in 2025).

While risks exist, Embraer's diversified backlog, U.S. production strategy, and undervalued stock make it a compelling play on aviation's post-pandemic rebound—and a survivor in the tariff wars.

Final Note: Investors should monitor ERJ's Q3 2025 deliveries and E175-E2 updates. For now, the structural tailwinds and defensive backlog justify a long stance.