Financial and corporate governance embraer day 2006

EmbraerCapital Reorganization

Capital Reorganization

• Financing the expansion programs through the equity capital markets

• Creation of an acquisition currency for potential expansions

• The increase in liquidity and better market perception of the Company

• The improvement in corporate governance and transparency, in addition to the listing in the “Novo Mercado”,

October, 2006

Ordinary Shares: 738,699,207

Embraer Capital Structure

Sharholders with more than 5% participation

BOZANO GROUP 11.1%

PREVI (PENSION

FUND) 16.4%

SISTEL (PENSION

FUND) 7.4%

BNDESPAR 6.3%

OTHERS NYSE 41.3%

OTHERS BOVESPA

17.8%

CorporateGovernance

• Board of Directors Composition:Eight representatives elected by all Shareholders; Two representatives indicated by the Employees;One governament representative.

• Active Board of Directors & Permanent Fiscal Board acting as an Audit Commitee.

Corporate Governance

Audit Comitee – Conselho Fiscal

• Composed of five members including one financial expert

• Elected in a annual general shareholders’ meeting

• Makes financial reporting recommendations to management and the board

• Responsible for handling whistleblower complains

• Oversees the relationship between managers and external auditors


Corporate Governance ActionsTrading policyDisclosure PolicyRisk managementCode of Ethics & ConductDisclosure Comitee

AccountabilityBrazilian Gaap & US Gaap Simultaneously


Implementation Status SOX # 404

In process

Scope andPlanning

1

CompletedApril 2007

RisksIdentification& Objectives

2

InternalControlsDocum

3

TestingInternalControls

4

Remediations

Report20F31/12/06

AvaliationExternalAuditors

5


Dividends

68

204 187

112

50% 54%63%

42%

2003 2004 2005 9M06

Dividends Pay-Out Ratio

US$ Million R$ Milhões

195

585445

242

62.7%

60.0%

46.6%

33.2%

2003 2004 2005 9M06

Dividends Pay-out Ratio

Off-Balance Sheet Exposure

(53)(54)Provisions & Liabilities Recorded(418)(415)Mutually Exclusive Exposure*

2,1562,177Off Balance Sheet Exposure2,2092,127Estimated proceeds from performance

guarantees and underlying assets

906878RVGs1,7211,768Maximum Financial Guarantees

June 30

2006

2005US$ million

The maximum potential payments represent the “worst-case scenario,” and do not necessarily reflect the expected results by the Company.Estimated proceeds from performance guarantees and underlying assets represent the anticipated values of assets the Company could liquidate or receive from other parties to offset its payments under guarantees.

*The residual value guarantees can only be exercised if the financial guarantees have expired withouthaving been triggered and therefore have not been combined to calculate the maximum exposure

Source: 20 F note 34

Off Balance Sheet Exposure

Trade-in optionsProvide a customer with the right to trade-in existing aircraft upon the purchase of a new aircraft. The trade in price per aircraft is less than the original sales price of the aircraft and less than management’s estimation for the future market value of the relevant aircraft.

6 Commercial jets are subject to trade-in

Of the total 914 firm orders and 133 options signed for the ERJ 145 family since 1996, only 7 were trade-ins of EMB 120s (Brasilia).

Of the total 543 firm orders and 421 options signed for the EMBRAER 170/190 family since 1999, only 6 included trade-in options.

Off Balance Sheet Exposure

Risk Management

ECC LeasingAsset Management is responsible for all administration and technical issues related to Embraer’s portfolio of pre-owned aircraft.

ECC Leasing Company Ltd (ECC Leasing) was incorporated in Dublin (Ireland) on September 19th, 2002.

Main Responsibilities• Manage Embraer’s pre-owned aircraft assets• Vehicle for remarketing pre-owned aircraft resulting from

trade-in/up supporting new aircraft sales• Manage remarketing obligations assumed by Embraer before

lenders or leasing companies• Search for potential airlines on the market to acquire or lease the

aircraft from ECC Leasing’s portfolio• Main focus on activities that involve Embraer products• Manage activities of appraisal, acquisition, maintenance, leasing

and remarketing of pre-owned aircraft

Asset Management Remarketing Activities

5 ex-Rio Sul ERJ 145Leased to Aerolitoral ( Mexico)

2005

7 ex-Rio Sul ERJ 145Sold to FAB ( Brazil )

2005

1 ex-Rio Sul ERJ 145Sold to DPF ( Brazil )

2005

2 ex-Rio Sul ERJ 145In advanced negotiation with potential customer

7 ex-Rio Sul EMB 120Sold to FAB ( Brazil )

2005

1 EMB 120In advanced negotiation with potential customer

2 ex-LOT ERJ 145 Leased to BMI ( England )

2006

2 EMBRAER 170 Pre-SeriesLeased to Paramount ( India )

2005/2006

1 ex-LOT ERJ 145 Leased to Lagunair (Spain )

2006


2 ex-LOT ERJ 145Leased to Satena ( Colombia )

2006

1 EMB 120Sold to CVRD ( Brazil )

2006


1 EMBRAER 170 Pre-SeriesLeased to Satena ( Colombia )

2006

1 EMB 170 Pre serie Leased to Air Caraïbes

(Guadeloupe)2006

2 Legacy Sold to FAB ( Brazil )

2006

ERJ- 145.065ERJ- 145.083ERJ- 145.089ERJ- 145.090ERJ- 145.852ERJ- 145.861

ERJ- 145.495ERJ- 145.528

ERJ- 145.165ERJ- 145. 227EMB- 170.004

EMB 120.044EMB 120.052

EMB 120.041EMB 120.064

EMB 120.166EMB 120.313ERJ 145. 001

ERJ- 145.600ERJ- 145.608

ERJ- 145.016ERJ- 145.021ERJ- 145.002ERJ- 145.003

EMB-170.005EMB-170.002

EMB-170.006

ERJ- 145.155

ERJ- 145.114 ERJ- 145.137

EMB 120.323

EMB 120.356

EMB 120.357

Available mid 2007

EMB 120.359EMB- 170.017

EMB 120.355

ERJ- 145.336ERJ- 145.339

Asset Management Portfolio

In advanced negotiationwith potential customer

In advanced negotiationwith Angolan Government

Parked Aircraft - World

Source: BACK (Operator Category: Scheduled Airline, Non Scheduled, Leasing and Financial Institution)

Seat Segment

0

100

200

300

400

500

600

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

set/0

6

Num

ber o

f Airc

raft

30 - 60 61 - 90 91 - 120

Jet Aircraft (Western Built)(as of Sep 05, 2006)

Seg Manuf.Number

of ParkedAircraft

%% of Fleet

ParkedBoeing 149 53% 12%Douglas 86 30% 28%Fokker 29 10% 11%BAe 19 7% 15%Airbus 0 0% 0%Embraer 0 0% 0%Total 283 100% 15%BAe 52 51% 25%Fokker 45 45% 30%Douglas 2 2% 8%Bombardier 2 2% 1%Embraer 0 0% 0%Total 101 100% 12%Bombardier 82 71% 8%Fairchild 30 26% 32%Embraer 4 3% 0%Total 116 100% 6%

91-1

2061

-90

30-6

0

ERJ 145 LR Year over Year Residual Value Curve

New Aircraft – Uninflated Values 2005 & 2006 Values

0

2

4

6

8

10

12

14

16

18

20

year 1

year 2

year 3

year 4

year 5

year 6

year 7

year 8

year 9

year 10

year 11

year 12

year 13

year 14

year 15

year 16

US$

Mill

ion

2nd half 2005 2nd half 2006

EMBRAER 170 LRYear over Year Residual Value Curve


0

5

10

15

20

25

30

year 1

year 2

year 3

year 4

year 5

year 6

year 7

year 8

year 9

year 10

year 11

year 12

year 13

year 14

year 15

year 16

US$

Mill

ion


EMBRAER 190 ARYear over Year Residual Value Curve


0

5

10

15

20

25

30

35

year 1year 2

year 3year 4

year 5year

6year 7

year 8year

9

year 10

year 11

year 12

year 13

year 14

year 15

year 16

US$

Mill

ion


Sales Finance

Financing Sources (1995~2Q 2006)

BNDES42%

Market58%

$ 20.5

$ 7.7$ 12.8

US$ BI

1995 – 2Q2006

1,148

479669

# Aircraft

Total

BNDESMarket

Note: % Delivered Aircraft

Financing Sources Evolution

40%

84%

55%

27%17%

6%

60%

16%

45%

73%

94%83%

2001 2002 2003 2004 2005 2006 1S

ECA - BNDES Market

Note: % Delivered Aircraft

Financing Source Forecast

* Commercial Aircraft Forecast

Capital MKT5%

Banks & Leasing Co

BNDES20%

Forecasted FY 2006 to FY 2008 financing to commercial aviation:

Diversification of Financing Sources -USA

We obtained positive results in contacting banks and investors, searching new mechanisms and sources for financing our customers. Among them, we shall emphasize:

Alexander Hamilton Debis Air Finance MetLife CapitalAlliance Capital Fifty Third Bank MitsuiAmerican State Bank Finova Nation CityAmeritech Credit Corp. Fleet Bank Phillip MorrisAttransco GATX South TrustBank First Teachers InsuranceBank of America ICX Corp. The Cit GroupBell Atlantic Integra TransamericaBNY Capital Funding Jefferson Pilot Life Travellers InsuranceChrysler Capital Corp. John Hancock Wachovia BankComerica JP Morgan Chase Zions Credit Corp

Diversification of Financing Sources Rest of World

Banco Austria AustriaBarclays United KingdomBCI ItalyBell Atlantic United StatesBNP FranceCALL United KingdomCitibank New York - London - AsiaCoronation IrelandCredit Lyonnais FranceDeustch Bank GermanyDie Nationale Investeringsbank NetherlandsHamburgische Landesbank GermanyHSH Nord Bank AG GermanyIngepar FranceLandesbank Sachsen Girozentrale GermanyLloyds Bank PLC United KingdomNatexis FranceNorddeutsche Landesbank Girozentrale GermanyRoyal Bank Leasing Ltd. United KingdomStandard Chartered United KingdomTransasian Air Australia

Financing Structures (1995~2Q 2006)

Tax Lease46%

Finance Lease

5% Operating Lease5%

Cash1%

Bridge1%

Straight Financing40%

Note: % Delivered AircraftTotal: 1,148 aircraft

EETC and Secured Financing

2.73.7

5.0

8.0

10.4

3.4

1.1 0.9 0.4

0.5

1.1

0.4

0.2

2.1

0.40.2

0.3 1.5$-

$2

$4

$6

$8

$10

$12

$14

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*

US$

Billi

on

Mainline Aircraft Secured Financing RJ Secured Financing

RJ Secured Financing: 100% CAL

Continental EETC (% Total Volume)

Dec 2003 - US$ 414 MM (27%)

Jun 2004 - US$ 174 MM (16%)

Sep 2005 - US$ 311 MM (42%)

Aug 2006 – US$ 54 MM (4%*)

Continental EETC (% Total Volume)

Dec 2003 - US$ 414 MM (27%)

Jun 2004 - US$ 174 MM (16%)

Sep 2005 - US$ 311 MM (42%)

Aug 2006 – US$ 54 MM (4%*)

Source: Citigroup* Forecast

EETC and Secured Financing

Source: Citigroup

Mainline Aircraft Secured Financing87%

RJ Secured Financing13%

% of Total Secured Aircraft Issuance 1997-2006 1st Half

Embraer Participation 33%

Financial Results

Jet Deliveries

59

96

160 161

131

101

148 141

93

1998 1999 2000 2001 2002 2003 2004 2005 9M06

Net Revenue by Segment

9M06 9M05

Defense and Government

6%

Executive Aviation 13%

Customer Services and Others 15%

Commercial Aviation 67% Defense and

Government 12%

Executive Aviation 6%

Commercial Aviation 72%

Customer Services and Others 10%

US$ million

Net Revenues and Gross Margin – US GAAP

2,723

3,8303,441

2,1442,526

2,927

28.4%

39.4% 37.7%

34.1%

30.2%

39.6%

2001 2002 2003 2004 2005 9M06

Net Revenue Gross Margin

R$ million

Net Revenues and Gross Margin – BR GAAP

6.891 7.748 6.571

10.231 9.1336.012

23,7%

35,8%

25,0%33,3%

44,6%41,6%

2001 2002 2003 2004 2005 9M06

Receita Líquida Margem Bruta

US$ Million

Income from Operations- US GAAP

651

470

265

544 505

218

22.3%

18.6%

12.3%13.2%

8.0%

15.8%

2001 2002 2003 2004 2005 9M06

Income from Operations Margin

R$ million

Income from Operations – BR GAAP

1.9282.167

1.2431.714

414787

18,9%16,8%

8,6%6,9%

28,0% 28,0%

2001 2002 2003 2004 2005 9M 06

Luc ro Operac ional Margem Operac ional

Net Income – US GAAP

US$ Million

3 2 8

2 2 3

1 3 6

3 8 04 4 6

2 6 6

9 .8 %

1 1 .6 %1 1 .1 %1 1 .2 %

8 .8 %

6 .3 %

2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 9 M0 6

Net Inc ome Net Marg in

R$ million

Net Income – BR GAAP

1.101 1.179

587

1.281

709 406

16%15%

9%

13%

8%7%

2001 2002 2003 2004 2005 9M06

lucro líquido Margem

BR GAAPDifferences between accounting and fiscal records

US GAAPAll BR GAAP and US GAAP accounting differences are consideredto calculate the deferred income tax

18.0%

25,9%9M06

19,7%20,8%29,8%26,6%30,6%BR GAAP

25.8%

2003

22.7%

2004

8.4%45.6%40.3%US GAAP

200520022001

Effective Tax Rates

Effective Tax Rate

Effective Tax Rate – 9M06US GAAP BR GAAP

US$ THOUSANDS R$ THOUSANDSIncome Before taxes 329,958 565,197

Nominal expense 34% tax rate 112,186 192,167

Permanent additions 5,742 35,675

Permanent exclusions (1,679) (18,369)

Interest on Shareholders Equity (34%) (32,041) (70,304)

Other items (24,753) 7,061

Total expenses 59,455 146,230

Effective tax rate 18.0% 25.9%

Balance Sheet

US$ MillionR$ million

US GAAP BR GAAP

Others Com m ercial Airline Market

Accounts Receivable Breakdown

302 351 346 332 368

488

100 136 140 32

3Q05 4Q05 1Q06 2Q06 3Q06

577823 754 719

1,085233 302

797

70294

3T05 4T05 1T06 2T06 3T06

US$ MillionR$ million

US GAAP BR GAAP

Aircraft Financing Support

488

100 136 14032

278 229174

164

3Q05 4Q05 1Q06 2Q06 3Q06

1,085

233 30229470

651 497 378

357

3T05 4T05 1T06 2T06 3T06

C o stu m e r a n d C o m m e rc ia l F in a n c in g

A c c o u n t s R e c e i v a b le s

C o s t u m e r a n d C o m m e r c i a lF i n a n c i n g

u

US$ Million

Inventories

R$ Million

US GAAP BR GAAP

1,601 1,5111,648 1,639

1,886

3Q05 4Q05 1Q06 2Q06 3Q06

4,0533,967

4,1153,971

4,417

3T05 4T05 1T06 2T06 3T06

US$ Million

Net Cash (Debt) Position

R$ Million

US GAAP BR GAAP

1,102

216

843

1,139657

3T05 4T05 1T06 2T06 3T06

97

360302

527 507

3Q05 4Q05 1Q06 2Q06 3Q06

Total Debt of US$ 1,599.8 Million

• Average cost in R$ = 8.5 % p/a

• Average cost in US$ =7.2 % p/a

Loans

Loans Average Maturity: 1 year and 11 months

Brazilian Currency

25%

Foreign Currency

75%

Short Term 48%Long Term

52%

Loans Maturity

US$ million

76 0

13 1

18 8

2 0 14 4

1,6 0 0

2 76

Total Short-term

2007 2008 2009 2010 2011

Emissão de Bond

Sumário dos termosSumário dos termos

Emissor: Embraer Overseas Limited

Guarantidor: Empresa Brasileira de Aeronáutica S.A.

Principal: US$ 400 milhões

Formato: 144 A/ Reg S com Registration Rights

Ratings: Baa3/BBB- (Moody/S&P)

Vencimento: 24 de Janeiro de 2017

Coupon: 6,375%

Yield: 6,466%

Spread sobre UST: 168 bps

Preço: 99,289%

Joint Bookrunners: J.P. Morgan Securities Inc. e

Citigroup

TombstoneTombstone

20 de outubro de 2006

6,375% Bonds com Vencimento em 2017

US$400.000.000

Investments

R&D – PP&E 9M06

111

6450

59

8470

158173

153 148131

143

114100

2000 2001 2002 2003 2004 2005 9M06

PP&E R&D

Research & Development Forecast

NewPrevious

32

2375912751

2007

4821Defense & Government

173188TOTAL6147Technology Development9087Executive Aviation2254Commercial Aviation

20082007US$ Million

Defense & Government R&D are funded by their contracts and are included as Cost of sales and services

PP&E

NewPrevious

19413

104

77

2007

11777TOTAL29-Customer Services36-Production Ramp Up5277Productivity

20082007US$ Million

Contributions from Risk Sharing Partners

US$ Million

-246

20 17

42

55

108114

Total

2001

2002

2003

2004

2005

2006E

2007E

2008/2010E

Investor RelationsPhone: + 5512 3927- 4404

[email protected]

THANK YOU!

Financial and corporate governance embraer day 2006

Education

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