Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's Second Quarter 2016 Results. [Operator Instructions] As a reminder, this conference is being recorded and webcasted at ri.embraer.com.br. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred. Embraer has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things, general economic, political and business conditions in Brazil and in other markets where the company is present. The words believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statements because of new information, future events or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call may not occur. The company's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference call are Mr. Paulo Cesar de Souza e Silva, President and CEO; Mr. Jose Filippo, Chief Financial Officer and IRO; Mr. Eduardo Couto, Director of Investor Relations. I would like now like to hand the conference over to Mr. Jose Filippo. Please go ahead, sir.

Okay, thank you. And good morning, everybody and thanks for joining our conference of the second quarter financial results. I'm going to go as usual to the presentation, then I will pass to Paulo Silva for his remarks and after that we will be ready for the questions. So starting the presentation in Page 3, with corporate highlights, early this month we participated in the 2016 Farnborough Airshow where we had a chance to review our E190-E2 and the KC-390 in the international market. Together with that, we were able to have the first time display of the Legacy 500 Super Tucano and Defense Systems in the same Airshow. In terms of commercial activity, we were able to announce the commitment for 25 E-Jets current generation and the E-2 version. Next page, Page 4 regarding highlights for commercial aviation. We delivered 26 E-Jets in the second quarter 2016. Regarding new operators, TAP from Portugal became a new E-Jets operator. As far as order of activity we had several recent announcements. Japan Airlines order for an additional E-190, Nordic Aviation Capital order for 4 E190, Kalstar Aviation from Indonesia order for up to 10 E190-E2 and Arkia from Israel, letter of intent for up to 10 E195-E2. In relation to the E2 development of the program, we had the second prototype joined the flight test campaign and now we have over 50 hours of flight tasks. In next page, Page 5, moving into the Executive Jets highlights. We had a delivery of 26 jets in the second quarter broken by 23 light jets and 3 large jets, which included the delivery of the first Phenom 100 to Etihad Flight College. In terms of commercial activity we announced that across from Mexico, had an order for 23 jets being 8 Legacy500, 8…

Thanks, Filippo. So, good morning. So thank you for joining in this call. So this is my first call as the CEO of Embraer and for me it’s an honor to take the leadership of this company. And I am very glad to assume this leadership in a moment that the company has a huge legacy coming from Frederico Curado the former CEO who took over in 2007 and started to make important investments in new products setting the tone for the future. So for those that who attended the Farnborough this year so you could see the materialization of what I’m saying. So for the first time Embraer brought all the three business units with updated products. So we have there the KC-390, the 190 E2 and Legacy 500. So all brands new, aircraft brings new programs representing total investment of about $5.5 billion in the last years. So we believe that – I believe that we are in a good position and excellent position to move forward and to maintain our position in the market. When we look at the performance of these especially the KC-390 and the E2, I will start by the KC-390 only around 100 hours after the flight test like campaign I started. So these aircraft flew to Farnborough and have showed up very high level of maturity in this flight. After Farnborough the KC-390 went to visit few countries and it was also a spectacular right performance. So the same for the E2 so 50 hours after the first flight we brought the E2 to Farnborough and also with the excellent flights showing that both aircraft has a very level of maturity. So we are set to go to the market and be successful with these new programs. So the Legacy 500 also…

[Operator Instructions] Your first question comes from the line of Myles Walton. Your line is open. Please ask your question.

Thanks, good morning. I was wondering if you could talk a bit about the cash flow guidance so $50 million of that looks like lower profitability, but the other $250 million of the negative revision to free cash flow, is that all inventory and similarly Filippo, what should we think about planning wise for '17 in terms of reversing that inventory?

Yes, Myles good morning. Actually it’s exactly what you mentioned. The use of the consumption of cash this year is pretty much related to the inventory. Production is already set in terms of supply chain for this year. We try to make some possible adjustments, but we expect to end up with some higher level of inventories, which will be the higher, the most impact in the consumption this year and of course we expect to in this strategy to really discipline in terms the way we approach this market in terms of sales. We expect to maybe what's possible next year without assuring the price and that definitely we can have an adjustment in terms of production for next year that we are using the inventory that we end up this year potentially that will be reverting part of that next year if possible. That’s how we assess this.

But how much of a delivery cut next year, that's a pretty big implied delivery cut next year that would take place on business jets, if that's the case. So, I guess as a placeholder you're looking for business jets to be down 10% next year or more?

I think it’s too early to say the projection for next year is going to be done sometime soon in the future. However, I think that we’ve been working with the reduction. This reduction probably we plan to have pretty flat for next year that was not a continuous reduction, that’s not what we’re working on.

Okay. And then can you comment Paulo, maybe on the Legacy 450, I don't think it's been delivered here in the first half. When does that start to pick back up in terms of deliveries and what's the obstacle?

So we will start delivering the second half now. So it’s all good. So we’re in good shape to start the delivery of 450. So we're very bullish as you know in the 450, 500. So that’s a great products and I am sure that -- so the market will recognize the 450 as much as being recognized the 500 as being the two best light aircraft in the category.

Okay. And last one, could you give the -- Eduardo, could you give that segment's margins or margin by segment for EBIT basis?

Yes, Myles I can give you. For the second quarter Commercial was 10.7%, Defense 2.4% and Executive minus 8.5%.

Okay. Thank you.

Thank you. Your next question comes from the line of Cai Von Rumohr. Your line is open. Please ask your question.

Yes. Thank you very much. Could you maybe give us a little bit of by model? We're hearing from one of your competitors that you're bringing the price of the 500 down to compete with the latitude and that the 450 is really not selling well. Thanks.

So Cai I believe that the pressures on the business jet unit are huge. As I mentioned so we’re seeing a soft market and our competitors have adopted a strategy that is to discount the price of their product. So we're following this, of course that we have to be responsible and also give our answer to the market. However we hope that going forward now with more discipline in our side and not booking at market share only and also adjusting our cost, our internal cost especially in the unit. So we believe that we’ll be able to get back to the margins that we need to make this business sustainable.

Just a quick follow-up, if you're going to carry some inventory over to next year, I assume it's business jets. What is the impact going to be of presumably having to discount to move some of that inventory and the adverse over head of kind of cutting production rate down even more? And what can you do to kind of offset that to sustain the profitability or at least to minimize the profit downsize in biz jets. Thanks so much.

So the carry over on the inventory on business jet units is already reflected in the guidance that we gave on cash flow on free cash flow this year coming from 100 to 400 negative. So it’s already there and next year we will adjust into production of the biz jet unit for the new level that we are going to let's say forecast for next year, but there will be a carry for next year.

Thank you very much.

Thank you. Your next question comes from the line of Alexandre Falcao. Your line is open. Please ask your question. Alexandre Falcao your line is now open to ask your question. Please go ahead.

I'm sorry thank you. So, my question is really in defense, we are expecting because of the FX a bigger reversion on the sense. I just want to know, as you guys could walk us through what happened there and is this part of the reversion of all provisions -- or that we should not expect any bigger improvements in the margin that front? Thank you.

Okay, Alexandre. I don’t think there is going to be a major impact in defense. There is of course as we already indicated last year, the exchange rate impact that contract of defense but as we have less to go in terms of the contract this effect tends to be lower. However, of course we're seeing that those negative impacts that we had last year they are no longer happening and this is important to confirm that this impact is there. So we saw a positive, I think the defense tends to be in a way that we already indicated to you recently in the mid single-digits, something that we could work of this year. So I don’t think there is going to be necessarily major impacts there but it’s going to be something positive of course but not in a big impact because of the stage of the development of the contracts that are affected by the exchange rates.

Okay. Perfect. Just want one more follow-up question on, commercial, just wanted to know where you are in terms of the gap between the E1 and E2, where do you see after this new orders, what do you see in terms of gap specifically for 2018 where we are right now and how much more you to need to show comfortable for the transition. Thank you.

Well so we are in this regard we think we’re doing very well. So we have 2017 in very good shape and 2018, so step by step. So we are closing this gap. So we still have I would say about 35% maybe for 2018, but we're very much comfortable that we will also fulfill '18. So we still have like two years until that and given the level of activity that we're seeing in the commercial side, so we have the comfort that is going to be okay. So beyond that it’s too early to say but these orders that we have recently announced of course it calls also for deliveries in 2018.

Okay. Perfect and just a follow up on that point, in terms of modeling, how much of the options, you guys usually model that are converted specifically for the E1.

Well this is a tough question because of course the market is very dynamic so it depends on the movements of the markets but historically a ballpark number of a rate conversion is about 60%, this is more or less the number. So it’s not an exact number but as I said ballpark number.

Perfect. Thank you.

Thank you. Your next question comes from the line of Derek Spronck. Your line is open. Please ask your question.

Okay, thank you, good morning. As you round out the development of the two, it would seem like a natural progression for you to develop a Larger Cabin Business Aircraft. Is that still under consideration given the current environment in Business Aircraft and if not what are other areas or products that you find potentially interesting as future development program?

So Derek a good question. So we don’t know yet whether or not we will be looking to a new business jet. I think we have to look at what we have done in the last years and monetize these investments before we can move forward and go into investment, heavy investment. So as I said at the beginning, so I think we have excellent products now in the three business units and we have to make sure that we can consolidate these investments before we can plan for new investments in the future. Of course there would be new products in the future but at this moment now I think our focus must be in consolidating these investments.

Okay. And would you have a couple opportunities in the perhaps in maybe smaller programs or small investments that you're looking at?

No big investments in this sense now. Of course everything place in right, I would say a product, but no big investments. So our focus also on distance is to grow more international, trying to diversify more the business in terms of geography and as mentioned before the KC-390 the recent aircraft and I am sure that we will go more and more international in the distance as well.

Okay, great. And then just quickly on the commercial side, can you comment on the pricing order environment and commercial and any update on potential scope class changes in the U.S. to a 100 seats. And then finally are you seeing any competition from the MRJ or the Super Jet picking up?

MRJ, Superjet not really especially MRJ, right. So I think they are still late program. Superjet a little bit in Russia and in the countries surrounded Russia. Of course we have in Mexico but other than that, so we're not seeing too much Superjet in the market. And as scope in the West, I think this is -- this will not happen any time soon. I think there is still a long way to go into this scope clause may change from 76 to 100 seats. Of course if this change we will be very well positioned. It seems that we have the most efficient aircraft right in the segment. We continue to sell very well the 76 seat in the West and we continue to follow the opportunities in that market for the 100 seat plus in the major airlines. So there might be opportunities there that we have to be very close to it and that may happen maybe next year.

Okay. And are you seeing any signs of a little bit more rational pricing from your major competitor in the regional jet space?

Well I think this is well known, right. So what our competitor strategy is right now in the market. So we are following this very closely. And we are -- I think we have already being very vocal regarding this point. So we want to make sure that our competitor will not use government money from the tax payers in order to provide aircraft at the low cost right in the market. So I think this is very important to make this point. And every time that this -- we believe that this will happening, we’ll be vocal about that.

By the tax prayer, I appreciate that. Okay. Thanks guys. I appreciate that.

Thank you. And your next question comes from the line of Pete Skibitski. Your line is open. Please ask your question.

Yes, good morning guys. And Paulo congratulations. Paulo can you talk about the commercial or environment [former] was really quiet and I apologize if this was asked, I got a call late, but how is the campaign environment in the second half of the year in deal, I seen some measure of some potential large ones in India and do you thinking to a one-time as book to bill in commercial orders this year.

Yes. I have to be very careful of what I say here, because I don’t know if our competitors are on the line right. So it’s -- so I have to be careful, but anyway, so I think in February we have announced important orders so not very large number. However, important orders in the sense of new airlines like to join the E2 program. E1, E2 program, the jets program and also repeating orders and going forward in the second half, so we are involved in many campaigns again so not individual large orders, but diversified airlines and the diversified regions of the world and this is very important to us. So we are not seeing any big, big, very big campaign out, but many light campaigns which brings important diversification to us.

Got it, great, great. And then just one follow-up, on the $200 million contingency, again, I might have missed this, but can you give us a sense of the timing on the cash impact of that? Is the cash payment going to be a similar order of magnitude, or is it likely to be less and is that going to be kind of a 2017 event, can you give us any more color on that?

Not yet. So this is a provision that we made now. We are still negotiating with a DOJ and as you see, and this is what we can inform now.

Okay, okay, understood. Thanks guys.

Thank you. And your next question comes from the line of Victor Mizusaki. Your line is open, please ask your question.

All right. Thank you. I have two questions. The first one, I've taken a look on your guidance for business jet sales and cash flow generation for this year. If we assume that the production rate is unchanged, can you add basically 10 new business jets to your inventory with an average price of $30 million? Is this number correct? And the second question, can you give us an update on the negotiation with Republic Airways?

Yes. I think that Victor in terms of calculation you made for the inventories of the business jet I think the number of aircraft is reasonable, even if the price seems to be little bit higher than there what we should expect. So maybe it’s above there but with a lower amount. So regarding Republic, so I think to give an update, I believe Republic Chapter 11 is moving well, right in the sense of Republic being able to have a agreement with the major airlines and major suppliers. So Republic already reached an agreement with Delta United and now we're negotiating the final stages as far as understanding with America Airlines. Regarding Embraer, so we are in deep dialog now for the 24 aircraft that we have to deliver next year. We are postponing nine aircraft from this year to next year as I already announced. And therefore, so next year we will have a more delivery. So we basically will deliver next year approximately 20 aircraft in 2018. So it’s not yet 100% finalized, but this is the ballpark number so in this regard it’s going well. So we are in the final stage of negotiations with Republic.

Okay. But there are these nine aircraft that should be delivered this year. Is this number incorporated in your guidance, or this is something that maybe can change in the future?

No. The guidance is kept the same. So we are not changing at all the guidance. So we will meet our guidance in the commercial days.

Victor, its Eduardo here. Just to be clear as we ship some slots, we continue to see 105 to 110 deliveries this year even if we don’t deliver planes to Republic this year. So that’s the point.

Okay. Thank you.

Thank you. Your next question comes from the line of Josh Milberg. Your line is open, please ask your question.

Good morning everyone. Thanks for the call. You commented on the margin performance by division in the second quarter. I was just hoping you could give us a rough idea of what margin expectations are for the individual divisions, or what's embedded into your full year guidance in that respect, and maybe also what you see as the biggest risk to that guidance now?

I think that we do revision on the guidance was basically driven by the executive jets. I think we are comfortable about the other business, the way we started and the initial guidance that was provided. So as we said, commercial like low double digit. The defense in mid-single like I already mentioned, executive is what we already reviewed, so it’s going to be again probably a little bit less than originally. It will be like targeting the mid-single digit, but probably lower than that -- towards that.

Okay and what FX assumption are you working with now?

We work with the current situation which is still R$3.3 per dollar.

Okay, that's very helpful. And then just moving a little bit away from the result, I was just hoping you could revisit the whole issue of any discussions by the Brazilian government on either removing or mending some of the tax breaks you get either thinking about maybe the payroll, tax benefits in the late.

Of course there has been a lot of discussions on the tax, the Peso situation and the Brazilian Government is always lot of talk about tax then it is given or some type of thing. I don’t think that we have any specific benefit to that. I think they have been something that covers investments in technology for the whole industry, which tends to be kept. We don’t think there is a big risk of that to be changed. So basically the adjustments that we already saw are the ones that we expect. We don’t see major changes going forward for those -- for that situation.

Okay. Thank you very much.

Thank you. We have no further questions. This concludes today’s question-and-answer session. That does conclude Embraer's audio conference for today. Thank you very much for your participation and have a good day.