Airlines have been flush with cash in recent years, and they've taken the opportunity to modernize their fleets. That's been a big benefit for Embraer (NYSE:ERJ), as the Brazilian manufacturer of smaller commercial aircraft and business jets has capitalized on meeting demand for planes that can serve markets that don't have the traffic levels to support larger wide-body aircraft.

Coming into Tuesday's third-quarter financial report, Embraer investors were already prepared for troubling news, as early sales numbers had shown pressure on the manufacturer's pipeline of future business. Yet in addition to weaker top-line figures, Embraer also posted a significant loss for the period, and that has some investors looking forward to a new administration in Brazil that might take a kinder view of efforts from U.S. industry giant Boeing (NYSE:BA) to acquire or invest in its Brazilian counterpart.

Blue and white aircraft banking left toward the sun on a partly cloudy day.

Image source: Embraer.

The latest from Embraer

Embraer's third-quarter results showed ongoing struggles for the plane maker. Revenue dropped almost 12% to $1.15 billion, accelerating its descent compared to recent quarters and faring far worse than the 2% drop that most of those following the stock had expected. Embraer lost $29.1 million on an adjusted basis, and the resulting per-share loss figure of $0.16 fell far short of the consensus forecast for a profit of $0.05 per share.

As expected, aircraft delivery numbers were the biggest source of trepidation for investors. The company delivered only 15 commercial aircraft during the third quarter, down from 25 in the year-earlier period. Business jet activity did pick up to some extent, with Embraer delivering 24 executive jets, up from 20 a year ago. The gains came in the light business jet class, which rose from 13 to 17, while large business jet sales of seven aircraft stayed flat from the year-ago quarter. The disparity showed up in Embraer's segment revenue numbers as well, where commercial aviation posted a 45% plunge even as executive jet revenue soared by nearly the same percentage.

Strength in the defense segment also prevented Embraer's sales drop from being worse. The unit saw a 48% rise in revenue, with deliveries of aircraft to the Brazilian Air Force and Navy helping to bolster results. Services and support revenues were roughly flat compared to year-earlier numbers.

However, investors weren't pleased to see Embraer's backlog figures drop substantially. At the end of the quarter, the Brazilian aerospace company had just $13.6 billion in its backlog, down by more than $5 billion from a year ago. That reflects the major cancellation of E190-E2 commercial aircraft orders from JetBlue Airways (NASDAQ:JBLU), which opted instead to go with aircraft from Airbus.

What's next for Embraer?

That's not to say that Embraer has been completely unsuccessful in paving the road ahead for its future. The Farnborough Airshow in the U.K. brought substantial activity, including sales commitments and order confirmations from key players like United and Republic Airways. Yet the E2 program has gotten off to a somewhat slow start, representing just 135 out of more than 1,700 firm orders in its commercial jet book of business.

Embraer also remained confident in its guidance for the full year, despite the difficult performance during the quarter. In particular, Embraer still sees itself able to deliver 85 to 95 commercial jets and 105 to 120 business jets during the year, and revenue of $5.4 billion to $5.9 billion and pre-tax income of $270 million to $355 million both remain in reach.

The biggest news, however, might well come from outside the earnings release. Embraer still expects to work with Boeing toward combining forces on the commercial aircraft front, and the election of Brazilian president-elect Jair Bolsonaro could make it easier for a deal to go through. Many see Bolsonaro as being friendlier to business than the previous Brazilian administration, and that could open the door to ongoing discussions working out favorably.

Embraer shareholders didn't like the shortfall in earnings, and the stock was down more than 2% in pre-market trading following the announcement. In some shareholders' eyes, the best possible resolution for Embraer would be to make a major deal with Boeing, with the intent of joining forces and taking advantage of their joint positions of strength to dominate the aerospace industry.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.