ERJ Embraer SA

Notes to the Interim Condensed Consolidated Financial Statements

In millions of U.S. dollar, unless otherwise stated

Embraer S.A. (“Embraer” or “the Company”) is a publicly held company incorporated under the laws of the Federative Republic of Brazil (“Brazil”) with headquarters in São José dos Campos, State of São Paulo. The corporate purpose of the Company is:

The Company’s shares (B3: EMBR3, NYSE: ERJ) are listed in the enhanced corporate governance segment of the Stock Exchange in Brazil (“B3”), known as the New Market (“Novo Mercado”). Embraer S.A. also holds American Depositary Shares (evidenced by American Depositary Receipts—ADRs) which are registered with the Securities and Exchange Commission (“SEC”) and listed on the New York Stock Exchange (“NYSE”).

The interim condensed consolidated financial statements of the Company as of and for the period ended June 30, 2020 were approved by the Company’s Management on September 8, 2020.

On January 24, 2019, Embraer, Boeing and certain subsidiaries of Boeing and Embraer entered into the Master Transaction Agreement (“MTA”) and other transaction documents, which defined the terms and conditions for the creation of a joint venture covering Embraer’s Commercial Aviation business unit with a participation of 80% of a subsidiary of Boeing and 20% of Embraer, as well as the creation of a joint venture to promote and develop new markets and applications for the C-390 Millennium multi-mission transport aircraft, with a participation of 51% of a subsidiary of Embraer and 49% of a subsidiary of Boeing (collectively, “Transaction”). Until April 25, 2020, Embraer and Boeing continued to be obligated to perform their respective obligations under the MTA with respect to the consummation of the Transaction, and therefore, Embraer maintained the classification of the assets of the Commercial Aviation business and related services as “held for sale” and “discontinued operations” as of December 31, 2019.

On April 25, 2020, Embraer received a notice from Boeing communicating its decision to terminate the MTA, based on Boeing’s assertion that certain closing conditions in the MTA had not been satisfied by Embraer by the April 24, 2020 termination date in the MTA. In addition, Boeing terminated the Contribution Agreement. Embraer strongly believes that Boeing wrongfully terminated the MTA and the Contribution Agreement and that it had a continuing obligation to abide by the terms thereof. Embraer strongly believes that Embraer was in full compliance with its obligations under the MTA and the Contribution Agreement. Embraer is pursuing all remedies against Boeing for the damages incurred by Embraer as a result of Boeing’s wrongful termination and violation of the MTA and the Contribution Agreement, including by means of arbitration proceedings that have commenced by both sides in connection with the termination of the MTA and the Contribution Agreement by Boeing. No assurance can be given as to the timing or outcome of the arbitration proceedings or any recovery that Embraer may receive or loss that Embraer may incur therefrom or with respect to such arbitration proceedings.

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Embraer S.A.

Notes to the Interim Condensed Consolidated Financial Statements

In millions of U.S. dollar, unless otherwise stated

Due to the unexpected and wrongful termination of the strategic partnership by Boeing on April 25, 2020, from this date forward the Company stopped designating and measuring the assets and liabilities associated with the Commercial Aviation Business and related services as “held for sale” and its generated results as “discontinued operations,” which are to be reclassified as “held for continuous use” and “continuing operations”. The main impacts over the condensed consolidated financial statements are summarized below:

Embraer has been monitoring the COVID-19 pandemic situation and its impacts on its employees, operations, the global economy, the supply and the demand for its products and services. The Company implements contingency plans to act as quickly as necessary as the current situation unfold.

Since the beginning of the COVID-19 pandemic, Embraer has been engaging in several initiatives supporting the health and safety of its employees. The operations were interrupted for certain period in order to adapt industrial facilities in relation to healthy and safety measures. Social distance measures were taken, as the implementation of work from home for certain group of employees. Furthermore, several measures to preserve jobs were taken, as reduction in working hours and pay cuts, collective vacation and temporary furloughs.

In addition, as a result of the COVID-19 pandemic, the Company has started three voluntary dismissal plans for specific group of employees.

Due to the uncertainty related to the spread of COVID-19, on March 26, 2020, we also suspended the projections relating to our expected results for 2020. We will issue updated projections for 2020 when we conclude the assessment of the effects that the COVID-19 pandemic will cause to our business.

We expect that 2020 will be a distinct year in terms of orders and deliveries due to the impacts of the COVID-19 pandemic. The airline business has been adversely affected due to COVID-19, and we will have to review our production chain in order to reflect the new and uncertain demand scenario.

As a result of the COVID-19, on April 6, 2020, Standard & Poor’s downgraded our rating by one notch to BBB- with a negative outlook, due to expectations that many airlines will delay new deliveries at least until the end of the third quarter of 2020. On April 28, 2020, Fitch also downgraded our rating from BBB- to BB+ as a result of the negative expectations relating to the commercial aviation industry due to the COVID-19 pandemic. On April 29, 2020, Moody’s also downgraded our rating from Ba1 to Ba2 with a negative outlook.

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Embraer S.A.

Notes to the Interim Condensed Consolidated Financial Statements

In millions of U.S. dollar, unless otherwise stated

Defense & Security

In the Defense and Security business unit, the programs have been hit by the COVID-19 global pandemic on its operations and supply chain. Some vendors were closed for several weeks due to the pandemic, jeopardizing their ability to delivery parts and goods. Logistics were also affected due to lower international flights availability adding longer cycles for parts shipment. It should be noted that no customers orders were canceled on Defense programs due to the pandemic. Adjustments required on committed deliveries were already negotiated with customers. The Company has taken actions to overcome the challenges imposed by the COVID-19 and to minimize its impacts on Defense deliveries.

Executive Aviation

In the Executive Jets business unit, restrictions on travel and emergency quarantine have posed some challenges for aircraft deliveries to international customers. As of the date of this report, production lines of our business aviation products are abreast for attending planed supply levels, with no major supply shortages. We are supervising the risks and controlling the supply chain and postponements in demand in order to prevent obstacles that may arise from this global crisis. As a result of COVID-19, one of our executive jets customers cancelled its firm orders and some of our executive jet customers postponed their scheduled aircraft deliveries. Although we cannot fully predict the impact of the COVID-19 outbreak in the short-to-medium term on our business, we expect that some customers will continue to postpone their scheduled aircraft deliveries and will continue to cancel their orders.

Commercial Aviation

In the Commercial Aviation business unit, due to extensive traffic disruption affecting our customer’s operations throughout the world, as a result of the COVID-19, it is reasonable to expect a material impact on our 2020 deliveries. According to Cirium, a data analytics and consulting company, as of May 2020, 60% of the global fleet has been placed into storage, and the International Air Transport Association—IATA projects a decline of 50% in commercial traffic for 2020 in year-over-year terms. As of August 31, 2020, approximately one-third of the global fleet was in storage, and IATA projects a decrease of approximately 60% in commercial air traffic (as measured by revenue passenger kilometers) in 2020, as compared to 2019 (Management’s estimates based on information provided by external consultants—not reviewed by independent auditors). As a result of COVID-19, some of our customers rescheduled their aircraft deliveries carrying them over to 2021 and beyond, which has affected our 2020 projected deliveries. As of the date of this report, no cancellation has occurred. The recovery pace is difficult to predict since this outbreak has no precedent in history. Although we cannot fully yet determine the impact of the COVID-19 outbreak in the short-to-medium term on our business, we expect that customers will continue to postpone their scheduled aircraft deliveries or request to cancel their orders.

As a result of the COVID-19 pandemic, the Company has taken measures to preserve cash flow, including (i) reductions in working hours and pay cuts; (ii) extension of payments terms relating to our suppliers; (iii) extension of tax payment deadlines; (iv) negotiation of new credit lines; and (v) adjustment of production chain.

In the six-month period ended June 30, 2020, the Company has recognized the following impacts in profit or loss as result of the COVID-19 pandemic:

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Notes to the Interim Condensed Consolidated Financial Statements

In millions of U.S. dollar, unless otherwise stated

On June 15, 2020, the Company finalized the terms of working capital and export financing agreements in an aggregate principal amount of up to US$ 615.0, with a term of up to four years. The amount of US$ 300.0 is financed by the Brazilian National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES), which agreement was signed on June 26, 2020, and US$ 315.0 is financed by private and public banks (Banco do Brasil, Bradesco, Morgan Stanley, Natixis and Santander).

The Company already concluded the signing of all definitive contracts with five private and public banks. The disbursements have begun and as of September 4, 2020, the Company had received all resources from BNDES and other banks (US$ 160.0 was received and recorded as loans and financing as of June 30, 2020).

This working capital and export financing will strengthen the Company’s cash position and guarantee funding for entire operational process, from production to product shipment for the export market.

The Company continues to evaluate additional financing opportunities in order to maintain a long-term indebtedness profile that supports and is aligned with business cycle.

These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Company’s most recent annual consolidated financial statements as of and for the year ended December 31, 2019. They do not include all the information required for a complete set of financial statements prepared in conformity with International Financial Reporting Standards (IFRS). However, selected explanatory notes are included to explain events and transactions that are significant in accordance with Management’s judgement to an understanding of the changes in the Company’s financial position and performance since the most recent annual consolidated financial statements as of and for the year ended December 31, 2019.

These interim condensed consolidated financial statements have been prepared under the historical cost convention, except when the account requires different criteria, and adjusted for assets and liabilities measured as at fair value in subsequent measurement, when applicable.

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management of the Company to exercise judgment in the process of applying the Company’s accounting policies. These interim condensed consolidated financial statements include accounting estimates for certain assets, liabilities and other transactions.

The areas which involve higher degree of judgments or complexities, or assumptions and significant estimates to the interim condensed consolidated financial statements are consistent with those described in the most recent annual consolidated financial statements as of and for the year ended December 31, 2019 (not included herein).

These consolidated financial statements include the balances as of June 30, 2020 of the Company and all subsidiaries and special purpose entities in which the Company has control, directly or indirectly.

All accounts and balances arising from transactions between controlled entities are eliminated during the consolidation process.

There were no changes in the Company’s corporate structure and consolidated subsidiaries from those disclosed in the most recent annual consolidated financial statements as of December 31, 2019.

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Notes to the Interim Condensed Consolidated Financial Statements

In millions of U.S. dollar, unless otherwise stated

Due to the change occurred during 2020 in the classification of the Commercial Aviation business unit from “discontinued operations” to “continuing operations” (Note 1.1.1), the comparative statements of income for the three and six-month periods ended June 30, 2019 and related explanatory notes has been recasted to present the Commercial Aviation business unit and related services as “continuing operations”.

In addition, in order to present and identify the expected credit losses recognized over trade accounts receivable and contract assets in the statements of income, as well as due to the materiality of this transaction in the current period as a result of the COVID-19 pandemic, the Company reclassified expenses of this nature from the caption of “selling expenses” to a specific caption of “expected credit losses over financial assets and contract assets”. Previously, the Company has not disclosed such expense segregated in the statements of income due to the immateriality of amounts involved.

There were no significant changes in the Company’s accounting policies from those disclosed in the most recent annual consolidated financial statements as of December 31, 2019.

New accounting standards and interpretations have been published or are in the process of being amended and will be effective in the coming years, however they were not cited, as, according to the Company’s assessment, no material impact arising from their application is expected.

The Commercial Aviation business unit assets and liabilities were measured and presented as assets and liabilities “held for sale” as of December 31, 2019, since on that reporting period the transaction started with Boeing was classified as “highly probable” as per definitions of IFRS 5. Details regarding of the now terminated transation are disclosed in Note 1.1.1.

The segregation of assets and liabilities “held for sale” considered the terms approved by the parties in the MTA related to the Commercial Aviation business unit and related services, as well as segregation criteria of certain assets and liabilities. Further details regarding the segregation process are disclosed in Note 4 of the annual consolidated financial statements as of December 31, 2019.

In the statement of financial position and explanatory notes as of June 30, 2020, the balances designated as “held for sale” as of December 31, 2019 were reclassified to its former accounts, as presented in table below:

Details of financial assets and liabilities “held for sale” as of December 31, 2019 are disclosed in Note 15.

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Notes to the Interim Condensed Consolidated Financial Statements

In millions of U.S. dollar, unless otherwise stated