Eve Holding, Inc. (NYSE:EVEX) Q1 2024 Earnings Call Transcript

Eve Holding, Inc. (NYSE:EVEX) Q1 2024 Earnings Call Transcript May 7, 2024

Eve Holding, Inc. beats earnings expectations. Reported EPS is $-0.09, expectations were $-0.13. Eve Holding, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to the Eve Air Mobility First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lucio Aldworth, Head of Investor Relations. Please go ahead and begin.

Lucio Aldworth: Thank you, operator. Good morning, everyone. This is Lucio Aldworth, the Director of Investor Relations at Eve, and I wanted to welcome everyone to our first quarter earnings – 2024 earnings conference call. Our CEO, Johann Bordais; and CFO, Eduardo Couto, are joining me on the call today. And after their prepared remarks, we will open the call for questions at which point Luiz Valentini, our Chief Technology Officer, will also join us for more technical questions. We prepare the deck with a few slides and additional pictures that show our achievements in the quarter, as well as the assembly of a full-scale prototype and that’s on our website at ir.eveairmobility.com. So please feel free to download it and tag along.

Let me first start the presentation by saying that it includes forward-looking statements or statements about events or circumstances that have not yet occurred. These are largely based on our current expectations and projections about future events and financial trends affecting our business and our future financial performance. These statements are subject to risks, uncertainties and assumptions, including, among other things, general economic, political and business conditions, both in Brazil and in our market. The words believe, may, will, estimates, continues, anticipates, intends, expects, and similar words are intended to identify these forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events, or other factors.

With that, the future events and circumstances discussed in this presentation may not occur and actual results could differ substantially from those anticipated in our forward-looking statements. With that, I will now turn the presentation over to our CEO, Johann.

Johann Bordais: Thanks, Lucio. Good morning everyone, and thank you for joining the call today. We had a successful start of 2024 with several important achievements, the most important one being the quick base advancement in the assembly of our full-scale prototype. We’re right on schedule and expect to conclude it in the second fiscal quarter. As you will see the next few slides, we already installed the pylons and nacelles to house the electric motors and started to install the composite skin of the aircraft. We are also preparing for another round of wind-tunnel test with the rotors on. This will start in a week and will roughly last three weeks. This will be used to validate and further refine our computer models before our ground test campaign starts in the second semester.

In parallel, we continue to down select suppliers and sign binding contracts. These define technical specifications for the component and commercial aspect with volumes and unit prices, and also the aftermarket support conditions. Just last month, we selected KAI, the Korea Aerospace Industries, and before that we had selected Aciturri for the wings and also Crouzet for the pilot control, or the joystick. We now have more than 90% of all suppliers selected and we’re working to define suppliers for the high-voltage system converter, skids, cabin interior, doors, lighting, transparencies, and other adoption like the landing gear, for example. Lastly, we presented Vector, our Urban Air Traffic Management software at the Airspace World in Geneva with full demonstration of its capabilities.

This is a strategically important tool to help scale the urban air mobility safely. I will go to next slide. It shows the stage of the assembly of our prototype. As you can see, it’s already looking like an eVTOL with a typical structures of an aircraft. Now, the wing and the empennage are fully joined to the fuselage, what we internally call the marriage, and they both have their internal harness installed. These are complex electronic and electric cable systems to carry signals to and from the mini sensors in the wings, control surfaces and flight computer. Also, the internal superstructure already has its electronic components and internal cabling as well. One interesting fact is that, as you can see in the Slide 3, we temporarily placed the mini composite parts of the skin of the prototype with update.

This allows our engineers to make any adjustment they want to do to make it perfect the placing of the parts. And once the parts are aligned, we have a perfect fit and then they’re installed permanently. Now moving to the next couple of slides, these have few pictures that it shows in better detail some of the structures of our eVTOLs, such as the starboard side wing and its pylons, and also the nacelle. The pylons are the structure that will support the lifters and are connected to the booms and wings. So in the essence, they will support the weight of the entire aircrafts during the takeoff and landing. This is when the thrust from the lifter will allow to vertical flight as you can imagine the pylons to be robust, lightweight and flexible.

And as mentioned before, we engage KAI to provide the pylons for our commercial aircraft. Each pylon will have an electric motor at the front and one in the rear and these will be housed by the nacelles. Those are the green structures that you can see on those pictures. Now Slide 5. It shows that we’ve already installed the composite skin of the cockpit, which gives the [indiscernible] and how is the funnel shape and how good the eVTOL will look. I’m a big fan. Also looking at the engineers that you can see on both pictures, it helps you to put them into perspective and give you a good sense of the size of the eVTOL. We now still need to install the actuators, the control surfaces of the wing and the empennage and we expect to conclude in the next few weeks.

And once we receive the electric motors in the second semester and successfully perform the necessary ground tests, we plan to start the test flight campaign later this year. Now getting to Slide 6, we can see here the latest addition to our component supplier list, which will start using the first five confirming prototypes. So far in 2024 we announced several suppliers FACC to provide the control surface and empennage, Aciturri for the wings, Crouzet for the pilot control inceptor or the joystick if you will. We also have signed the Thales for sensors and Honeywell for guidance and navigation, and lastly Recaro for the seats. And just recently we added KAI for the pylon to this list. Our suppliers’ team has been quite busy as you can see remembering that we announced the first three suppliers at the Paris Air Show last year and now we have more than 15 suppliers selected.

We have been using the best-of-breed approach to bring suppliers with experience in aviation and certification. Importantly, they will also support us for the certification campaign and throughout the eVTOL lifecycle. Lastly, these contracts have a defined price and quantity scheduled with a scale function with a reduction of the unit price as we reach the higher eVTOL volume of production. Commonly, we call it economy of scale. We still have a few suppliers to select, but these are not the critical ones, right? Like the skids or the landing gear, transparency, cabin interiors and lights and we expect to conclude this selection process very soon. Looking at this list, which will keep increasing, I am very confident of the level of safety for the certification and performance of our eVTOL.

Slide 7 shows Vector, our Urban Air Traffic Management software. On top of the naming of the product, we were part of the integrated demonstration in the NATS BOTG at the Airspace World in Geneva earlier this year. With that being a tier one ANSP, we showcased our work in the Urban Air Traffic Management to a global audience. As a reminder, we successfully conducted a five day exercise in the UK to test Vector with our partner FlexJet and Halo. This was used to validate and refine the software in the real world setting and we tested it under normal conditions and operation, but also under different conditions such as delays, bad weather, in-flight emergency and other potential unplanned operations. Vector will be an agnostic software to support fleet management and control of the airspace that we believe will help to scale the urban air mobility safely and globally.

On Slide 8 it shows the latest addition to our backlog. We signed an LOI, the letter of Intent with AirX for the complete package. AirX is the largest public helicopter air charter service in Japan and we will be collaborating with them to scale up the UAM there. Not only they are willing to purchase 50 of our eVTOL, but they are also subscribing to the services and operating support businesses along with the Vector to manage their fleet. On Slide 9, this brings us to the total backlog to 2,900 aircrafts and these are non-binding letter of Intent for 30 different customers spread over 13 countries and different businesses from the mainline to regional airlines to helicopter operators, ridesharing platform and living companies. We also have LOIs for Vector from 16 different customers and believe this reflects the market leading value proposition that we bring to our customers.

Importantly, the value of our backlog is now estimated at a $14.5 billion which is based on the list price of our eVTOL. We previously used a reference price to estimate the value of our backlog and using a list price is common practice in aviation and takes into account the different internal and external factors to define the standardized price practice in the sector. We will not disclose the aircraft price of each transaction and we will use the list price as a reference for the future transaction values. Beyond that, we are developing a strong network of partners in the areas such as infrastructure and energy to address one of the many challenges ahead of Urban Air Mobility, which is to create a whole new ecosystem besides simply developing an aircraft.

And because aircraft don’t fly without proper maintenance and support, we are highly focused on providing the best-in-class services to eVTOL’s operators. We have also secured contracts with twelve different customers for maintenance, repair and overhaul, what we commonly call MRO. That will bring up to the $935 million in revenue to Eve over the five to ten years period. Importantly, these customers have placed LOIs for roughly 1,000 of our aircraft, which is about 35% of the order book. So we can potentially expand this business within our own customer base, just like we did in the past quarter with new – two new service contracts. Now I’d like to invite the CFO, Edu, to go over the financial and along with the milestone checklist.

Eduardo Couto: Thanks, Johann. Now moving to Slide 10. Eve is a pre-operational company developing its eVTOL and the ecosystem around it. Currently, our financials reflect mostly the cost associated with our program development. With that said, I want to highlight some of our numbers. Eve invested $27 million during the first quarter 2024 in our program as the development activities continue to speed up. The majority was invested in our eVTOL and a smaller portion in service and support solutions and the Urban Air Traffic Management system. We also deployed $6 million in SG&A during the quarter, which has been reasonably stable as we continue to control corporate expenses to focus our resources in the eVTOL development. Higher development expenses were partially offset by interest revenues and a mark to market gain in our warrants, resulting on a net loss of $25 million in the quarter, mostly flat versus the same period last year.

Now moving to cash flow, our operations consumed $36 million in the quarter, up $16 million versus the same period of 2023 due to higher development spending. We ended the first quarter with $223 million in cash, down just 19 from fourth quarter 2023 as we drew another $50 million from our pre-approved credit line with the Brazilian Development Bank. We still have around $60 million available from this line that we expect to access in the upcoming quarters, helping Eve to hold its cash position. Eve remains comfortable with total liquidity of $280 million as of the end of the quarter and we believe it’s enough to sustain our operations well into 2025. Now moving to Slide 11, we remain on track to deliver our milestones for 2024. As Johann pointed out earlier, we are advancing rapidly to conclude the assembly of our first full-scale prototype.

Once we conclude airframe assembly, we start ground tests in the second half of the year. In parallel, Brazil Certification Authority, ANAC, concluded its public hearing process in mid March to define the basis of certification. The agency will now compile all comments and align them with comments made by other certifying agencies and OEMs. We expect the basis of certification to be published in 2024. Lastly, we have started to prepare our first eVTOL manufacturing plant in an existing site of Embraer in Brazil. This is going to require new tooling, equipment and customization of the site, but this facility is already functional, saving us time and financial resources. We are also working to secure the necessary funding for the EBITDA industrialization through a long term financing.

All of our 2024 efforts will consume between $130 million to $170 million throughout this year. With that, we conclude our remarks and I would like to open the call for questions. Operator please proceed.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question today will be from Savi Syth from Raymond James, please go ahead.

Savi Syth: Hey, good morning, everyone. I was curious on the plan to build kind of the next five aircraft following this first one. Are those going to be certification conforming if they’re going to be used for testing, that’s going to count towards certification? And also, just what’s your thoughts around the timing of those? I’m guessing you would want to test the first one and then start working on those, but curious.

Johann Bordais: Hello. Savi it’s Johann speaking. Thank you. Thank you for your question. Yes, indeed, we will have – right now, we’re doing the non-conforming prototype [indiscernible] as we showed the pictures. And then the next step is to start, as of the second semester, the assembly of the conforming prototype. So we’ll be with a full cabin, right. And there’s going to be what the very much close – very much close to what the Eve-100 will be eventually. We’ll produce all those five prototypes next year will be assembled, and it will be part of the certification campaigns, all five of them.

Savi Syth: That’s helpful. And that’s moving really quickly, which is encouraging. I’ll say, if I might ask, on the production of the high volume production facility, I think, before, the thought was maybe modular design with capacity for 250 a year, and it looks like maybe that changed to 120. Just wondering what the process there was and the change of thinking there.

Johann Bordais: Right. No, Savi, it never changed. Actually, those are two modules, but with some modules. So we go 120 first and then 240, then we expect, that’s what we call the first module. And then the 240 can become second module that you add to 240. So that’s where you get the full capacity of our facility in Taubate in Brazil will be 580 – 480, sorry, units a year, a year. Okay, so it never changed. It really – it was always this rate.

Savi Syth: Okay. I must have misunderstood. That’s great. Thank you.

Johann Bordais: Thank you.

Operator: And the next question will be from Sheila Kahyaoglu from Jefferies. Please go ahead.

Sheila Kahyaoglu: Thank you. Good morning, guys. I wanted to ask about just the order book. You increased it by 50 aircraft, but the pipeline amounts to $14.5 billion from $8.6 billion last quarter. And you mentioned that some list price versus reference prices. So maybe if you could talk about the change there, was it an accounting change? Why did you change it? And then it seems to suggest aircraft are going to be for $5 million less price versus $3 million previously. maybe I’m miscalculating something, but if you could tell us the right way to think about it.

Johann Bordais: Thanks, Sheila. Thanks for the question. Yes, indeed, you noticed well, we’re now to $14.5 billion. I think that now we’re entering the phase of the campaign, sales campaign. We’re passing also the LOI. We’re still signing LOIs because interest from the customers keep coming to us, and of course, we entertain because at the end of the day, the LOI in the backlog shows and demonstrate the interest and demonstrate how the customers understand that Eve is bringing the whole solution. So we don’t stop signing LOI. I think it’s footprint that needs to grow. As of course, we will be eventually getting certification done as per the various countries. First will be the ANAC and FAA, but as we go, we’ll expand. So that’s why, LOIs, are important, important to demonstrate the solution that we’re bringing.

And it tells the world how once we certify, then customers will sign in for a personal agreement. But at the same time, we are really starting the sales campaign. And I think this is really best practice. Let’s come up with a less price value, the backlog and as a reference price. And then of course, we don’t disclose the price that we’re negotiating the aircraft at. So I think it’s better that way.

Sheila Kahyaoglu: Okay.

Johann Bordais: Edu may be on the accounting wise. Sorry Sheila.

Eduardo Couto: There is no accounting on backlog. It’s a non-U.S. GAAP measure.

Sheila Kahyaoglu: Perfect. Thank you. Thank you both.

Johann Bordais: Thank you.

Operator: And the next question will be from Austin Moeller from Canaccord. Please go ahead.

Austin Moeller: Hi, good morning, Johan and Edu. My first question here. Do you expect the $280 million in total liquidity to be sufficient to get development through all of 2025?

Eduardo Couto: Yes, we are very comfortable, guys, in terms of liquidity and cash, right. As we show in the first quarter, our cash position, the actual cash position only declined $19 million, was a very small decline because we access even though we increased, right, the cash consumption because we access $50 million from the long-term finance that we have from the Brazilian Development bank. We now have this $280 million still left, which is a pretty big cash position. We are discussing. I think, this combination of equity with long-term finance has been quite a successful funding strategy that we have implemented. We are discussing potential, additional, long-term finance lines so we are comfortable. I think this $280 million gives us well into 2025.

I would say for sure second half of 2025 more towards the end of 2025. But as I said, we really like this mix of debt and equity, especially when it’s a long-term debt that fits our profile. We are pre operational company, so long-term finances of 15, 16 years, those are the ones that fit our profile. And because of that, we are already exploring some additional long-term finance. So we are very comfortable in our liquidity will remain strong.

Austin Moeller: Excellent. And then do you view the increased weight of using lifters and a pusher propeller as significant and impacting the range? Or was it more important to simplify certification by not using tilt rotors to get to that 2026 date?

Johann Bordais: So the question about the rotors is one that we really went very deeply in Austin and for us, it was very important to optimize the vehicle for the mission that we are proposing it to have. So with the urban mobility mission in mind, we see that the eventual loss of range that we have with respect to another configuration, for example, the tilt rotor configuration is more than offset with the gains that we have not only for the simpler systems that we get on this configuration, but also, for example, the clear path to certification. So it’s really a matter of optimizing the vehicle and really making the choices that makes it most fit for the mission that is being proposed. And for our case, we think that this is the best balance that the vehicle can have.

Eduardo Couto: That will add and coming from customer support and services also the aftermarket and the operation, the guarantee, the availability of the aircraft, which guarantee also the return for the operator, simplicity, more and more pieces subject to break on the field. And then of course, you need to have the competent mechanic and the parts on stock and on the site. So also a big advantage for the customer.

Austin Moeller: Excellent. Thank you for the insight.

Operator: Thank you. The next question will come from Andres Sheppard from Cantor Fitzgerald. Please go ahead.

Andres Sheppard: Yes, thank you. Good morning, everyone. Thanks for taking our question and congratulations on the quarter. I wanted to go back to the backlog and the revenue recognition from that. I realize you are not commenting on the negotiating prices with the customer. But I guess with the uptick in the listing price, I guess I’m just curious, are you basically – are these customers going to now be paying a higher price than they initially expected? Does that change at all their interest in the LOIs, just like, in other words, if we go from three to five, will that have an impact in the order book or what’s the best way to think about that? Thank you.

Johann Bordais: Thank you, Andres. Thank you for putting the question. It’s a good one. I think the customers we’ve been doing, we’ve been very close to our customers since the first time that we introduced the concept to them. But also when we negotiate the LOI and see the scope and also when we do those various Advisory Board, human machine interface workshop, we are developing the solution for them and together. So they know the challenges that we have. They have been following up very closely. And I think this is part of transparency that we want with our customers. We are the frontiers of the technology here. We are all learning the things that we’re learning as we go. This is why we have a prototype right now, and then we’ll have the conforming for prototype later on.

And this transparency just makes sure that we built the business model for Eve, but also for the customer together, right. It’s not only just for Eve, it’s for the customer. At the end and that also goes back to the simplicity we’re talking about it needs to be a vehicle that flies, and operates and gets the return for the customers. So when we have those discussion, we have different scenarios that we look, the optimistic scenario based – depending on the, all the parameters, and the typical operator will have the lending fees, and operation fees, and what’s the cost of the asset, and so on. So, having those different scenarios, it’s a one-on-one discussion, but when it comes to the market, that’s why we want to make sure that we have this blest prices, as you may call it.

I don’t think the price right now is really what so determinant for the customers and for the backlog. I think that what is important for them is to make sure that we certify, we bring the technical solution of the aircraft. We make sure we also have the service and support team ready to support them for any interruption that we may have in the field, and yes, make a model that will just – that will work for them, all right. So I think this is where we are. They want to be in, they want to make it happen and they understand there’s a range, there’s challenge, and we’ll evolve those discussion with them as we go, especially on the price. And then does it back the backlog, as you said? At some point yes, probably. But I think what impacts the backlog is not the price of the vehicle, but it’s the readiness of the ecosystem.

This is what’s going to make an operator, choose one city on another, it just make sure that the ecosystem is ready. Once it’s ready, then we’ll have the operation up and running. And then, of course, we can go with firm orders and then optional, and then, just as you can see, we’ve shown it before, it’s a program that has – that needs to deliver the first airplane. We should retrain, this is the strategy of Eve. We have few key customers that we’re working on. We get the ecosystem ready, get the operation ready, and then it will serve as a vitrine, and then we’ll get the orders.

Andres Sheppard: Got it. Okay, no, that’s super helpful. I appreciate all that context. Maybe just a quick follow-up. I just wanted to clarify, apologies if I misunderstood this, but just on the timeline for your prototypes and test flights, so, if I understood correctly, you’re expecting the first prototype to be assembled in Q2 of this year, and then the other four in the second half of the year. And then, similarly, to begin test flights of that first prototype in the second half of this year. I just want to make sure I got the timing right. Thank you.

Johann Bordais: Right. Thanks, Andres. That’s important. Indeed, the first full scale piece of that without the cabin, non-conforming, as we call it, is being assembled and will be, let’s say, assembled by the end of the second quarter. That’s correct what you mentioned. But then we will start the production of the five conforming prototypes that will be finished, assembled next year, in 2025. Okay?

Andres Sheppard: I see. Okay. And then the test flights for the first one will be in beginning in the second half of this year.

Johann Bordais: That is correct. That is correct. So we’ll have different ground test that we’ll be doing, like the ground vibration test, the electromagnetic interference, this type of thing, right, flight control system testing, instrumentation, and so on, before we can really start the flight test and eventually the flight.

Andres Sheppard: Got it. Thank you so much. That’s helpful. I’ll pass it.

Johann Bordais: Thanks, Andres.

Eduardo Couto: Thank you, Andre.

Operator: [Operator Instructions] The next question is from Marcelo Motta from JPMorgan. Please go ahead.

Marcelo Motta: Hi, everyone. Thank you for taking the questions two follow-up here. First, going back to the average price of the EBITDA, should we read that as just like a pass through of higher, let’s say, construction cost or development cost? That doesn’t necessarily mean that you have higher margin on the sale of those vehicles. So just this follow-up. And on the certification you guys mentioned about the updates with ANAC conforming prototypes. So, the base case continued to be to have the certification by 2026. So, could we have any potential negative surprise here? So just to understand a little bit more on the timeline of the certification? Thank you.

Johann Bordais: Hi, Marcelo. Thank you for those two questions. The first one, you’re talking about the margin, I think, again, we’re creating a new segment. There’s a lot of challenges whether it’s on the COG side. We decided to go for the best-in-breed suppliers. It’s a risk sharing partnership that we have with our suppliers. We decided to have them and go for help us only – not only for the vehicle and the development, but also the production, the series, the certification and also the aftermarket. We’re all learning, let’s call it. We do have challenges when it comes to the weight, the performance of the vehicle. We have also on the lead time and also the – well, the development in general. So I don’t think it’s about margin right here and making sure that we’re going to be making a lot of margin on this vehicle.

Like I said it’s to make sure that we first of all certify. We’re very, very cautious and cost cautious about how we spend the money that we have right now and the cash. We talked about this. Edu made it clear that we’re in a comfortable position, but got to be very careful, and that’s what we’re doing. It needs to take us to the certification and it will be the second part of the question that you had or the answer that Valentini will give you an update. But right now it needs to be reasonable and what we’re focused on is not only Eve to make money, but also the customer. It needs to make sense. There’s actually no point of delivering eVTOLs to customers that will demonstrate not to be profitable for the operator. It will just only – will be only selling in 100 of them, and that will be, it will kill the segment and that’s not the purpose.

So I think this is exactly the sweet balance that we’re trying to look for with the customers, with the operators to see first, yes, are we going to be charging and what’s going to be the cost of eVTOLs? You got to get the return and how much you’re going to be charging on the packs. And we all know that we want to go similar to a premium risk sharing platform, but it’s a long way, right. You want to make sure that you can do this effectively. So I think it’s a partnership that we have with our customers and both customers and ourselves and suppliers need to be profitable, so if we want to be for the long run and we want to be for the wrong run. And for the second part, Valentini.

Luiz Valentini: Yes. So, hi Marcelo, thank you for the question. So you remember that ANAC is developing a certification basis specific for our eVTOL project, as is the case with the FAA. And it’s very important that we understand what the requirements are early on in the project so that we can define the vehicle solutions in a way that they will comply eventually with the requirements that are established, right. So that’s why we’ve been working so hard with ANAC, our primary certification authority to get these requirements defined and then be able to move on to other stages that we call means of compliance, detailed design standards, which really are the way in which we will show compliance to the requirements that are defined, right.

We are confident in the step that we are today and how mature the basis of certification is. But of course we need it to advance and that’s why we put that as one of the goals for this year. And so we are working both with ANAC, as I mentioned, and the FAA to make sure that what we have established will support the development of the vehicle for the next phases of the project. We still have some significant uncertainties on how to align the bases with a basis of other authorities in Europe, for example. And we also have some significant uncertainty. And this is something that affects the whole industry, not only our project, on the operational requirements. So both ANAC and the FAA are still developing what the operational requirements will be for these vehicles.

This includes things like reserves for flight, but also includes training, pilot requirements, things like that. So there is still a lot to be done. This affects the development and we are working on that with the authorities. With respect to entry into service in 2026, you mentioned we’re still maintaining that date. We think that based on where we are today on the project, that’s still something that we are targeting, but also depends as you pointed on the development that we have on the certification basis and with the authorities in general.

Marcelo Motta: Perfect. Super clear. Thank you very much.

Operator: And the next question will be from Cai von Rumohr from TD Cowen. Please go ahead.

Cai von Rumohr: Terrific. Thank you so much. Guys when do you expect to basically start flight test of the conforming prototype? And then secondly, when do you hope to start certification flight tests? And what are the other key milestones that we’re looking for to get us to certification and maybe give us some time frame? I know it’s not a specific date, but timeframe as to when you might start those? Thank you.

Johann Bordais: Hi Cai. Thanks for the question. So we are expecting to fly the prototypes in the second half of next year. We think that that’s a timeline that supports the entry into service in 2026 because as you know, there is some maturing of the vehicles to be done during flight and then after this development period that we really start to get credit for the flights towards certification. So there is usually, and that’s the case with, let’s say all of the projects, even with fixed wing airplanes, things like that, that you have some period in which you’re flying to finalize. Let’s say tuning of control laws, deflection of control surfaces eventually any aerodynamic fixes that have to be made. So you finalize the configuration, definition and in flight and then you really get to a configuration in which you can start taking credit for certification.

So flying in the second half of next year is something that we believe will support this development, still in time for entry into service in 2026. With respect to important milestones, until then, certainly the certification basis definition is one of them. We are working with ANAC, as we mentioned now that we have the commenting period closed, trying to support them as much as we can in their process of finalizing the certification basis, but also advancing, as I mentioned earlier, discussion on means of compliance, for example. So these next steps of the certification process, such as defining what the means of compliance will be, and then the certification plans being approved by the authorities will support the taking credit of the flights for certification.

So there will be other stages that we will communicate after finalizing the certification bases. These I believe will also help you to see the progress and the preparedness for the start of the flight test for certification.

Cai von Rumohr: Thanks a lot. And then what are the key technology challenges you anticipate? For example, I know with beta, which is the other eVTOL, it has a lift cruise design. I think the transition from lift phase to cruise, they basically, I think have done it now, but that took them a little longer than expected. What do you think the key tech challenges are? Maybe for Valentini?

Luiz Valentini: Sure. So I think there are a few. I mean, one I think that everybody encountered first was making everything work with the electric power, right? So using batteries only, we know that the batteries today still are quite limited for longer ranges, but also for higher payloads, right? So it’s making this integration and having the vehicles work is a challenge, I think that everybody that is on the stage of development that we are, have already encountered. Then after that there are some challenges with respect to flights. So for example, these vehicles they don’t have an inherent stability and flight that conventional fixed wing configurations have. And so that means that we are much more dependent on the fly-by-wire flight control systems, for example.

And so this is something that has to be developed in these new transition phases or these new phases of flight that eVTOLs have, right? Being a lift + cruise or a tilt rotor or any other configuration there is a change in flight between the hover flight and the cruise flight that requires a lot of complexity on the fly-by-wire flight control. So this is something that we see for us that will be a significant challenge also. But it’s one that we feel prepared with the background that we bring from Embraer of developing flight control systems with fly-by-wire something that we have been doing at Embraer or that Embraer has been doing for the last few projects, right. So Praetor, C-390, E2 these are all fly-by-wire airplanes in which we are basing very much of our technology, and it’s something that we bring with very high maturity.

So – so I think that combining just to summarize the systems with the battery power in the eVTOL flight, and the vertical flight is a challenge that I think everybody has faced. And then getting this to fly in the different phases of flight especially with the fly-by-wire that I mentioned, I think is something that will also be challenging for all of the manufacturers.

Cai von Rumohr: Terrific. Thank you. Great answer. I have one last question, which is, as you know, I think the FAA is expected to – has a schedule to finalize the operational requirements, where two of the keys are, what is the reserve requirement and the training? Do we need to be able to have two pilots upfront to do the training? Do you know where they are on that? And do you still expect the FAA, and I assume ANAC also to kind of reach finalization of the operational requirements because obviously that will have some impact on whether your design needs to be changed or not? Thank you.

Johann Bordais: Yes. No, thank you, Cai. These are very important points. You’ve been following that the FAA has been going through, I think quite a significant process in the development of these requirements, right. And the industry has had, I think, previously an expectation that these would be finalized by now. There was, you remember the publication of a draft of these requirements last year. These were, I think, received a significant pushback from the industry. And a couple of the most important points are the ones you brought, right. But there is really, I think an expectation from the part of the industry that they are finished soon, but we don’t really have a very clear visibility from the FAA when that will happen.

So there is, I think we have the same information that you mentioned that we have the expectation that by the end of the year there’s going to be a new publication. We expect this to be final publication of the requirements. We expect, I think, as Eve, but also as industry, that there is significant change. For example, on requirements for pilot training and reserves, but there’s really not a clear statement from the FAA where that will end, where these will be when final publication comes and when that will happen. So we still work with this timeframe that you mentioned of the second semester, but without any more detail than that.

Operator: And thank you. Ladies and gentlemen this concludes our question-and-answer session. I will turn the conference back over to Lucio Aldworth for any closing remarks.

Lucio Aldworth: Thank you, Chad. And thanks to everyone who joined the call today. As you can see, we accomplished several important milestones this past quarter. We’re fully engaged and moving fast and there’s much more to come. So we’re going to continue updating you on our prototype, on the progress throughout the next few quarters, as well as the prototype to progress and look forward to meeting you in the upcoming events we are going to attend. As always, if you have any questions, please don’t hesitate to reach out to me or to my team. Thanks and have a good day.

Operator: The conference has concluded. Thank you for attending today’s presentation. You may now disconnect.