Dubai Air Show

Saudi Arabian prepares to launch Embraer service

 - December 6, 2006, 1:19 PM

This past year has seen Embraer’s influence traverse industry sectors and spread to every corner of the globe. No longer simply a regional airline supplier, the Brazilian company has seen its products find homes with the likes of Air Canada, Finnair, Hong Kong Express, Panama’s Copa and India’s Paramount Airlines. The first of 101 newly certified 98-seat Embraer 190s ordered by New York-based JetBlue went into service last month [October], marking the start of the company’s first real venture into the discount-fare market. But of all the accomplishments Embraer can recount, one of the least noticed–its first regional jet sale in the Middle East–could prove one of the most important.

Never a hotbed of activity for the West’s two regional jet makers, the Middle East market for RJs has long seemed as barren as the Arabian Peninsula’s Empty Quarter. But like the oil riches that lie beneath the desert sands, a demand for smaller, more efficient airplanes has finally surfaced with a little coaxing from Embraer. This month  it delivers the first of 15 Embraer 170s ordered by Saudi Arabian Airlines, marking the start of an association it hopes will serve as a model for the rest of the region.

The $400 million sale establishes Embraer in what company commercial vice president Fred Curado described as a market ripe for development. “I think it is very clear; the region is economically growing very, very strongly, so I think there is a lot of potential,” he told Aviation International News. “In Saudi Arabia alone, there are 26 airports that will be served by this airplane. So if you consider the whole region this number goes up to around 200 probably.”

For Embraer, just how much significance the sale carries will largely depend on whether or not other airlines in the region follow Saudi Arabian’s lead. As always, Embraer CEO Mauricio Botelho seemed genuinely enthused, if not only by the deal’s effect on his balance sheet, but by the prestige associated with a sale to such a high-profile customer.

“I think it is very important for us, our introduction in the Middle East, [with] a very known airline,” said Botelho, speaking with AIN on the day of the contract signing from Riyadh. “We believe this operation will be watched very closely by a lot of other airlines.”

For varied reasons, regional airplane salesmen have struggled to place airplanes in the Middle East. Overwhelmingly government owned, Middle Eastern airlines haven’t had to follow strict rules of economics, leaving many routes perhaps best served by small airplanes the province of altogether bigger machines. For example, travelers from Dubai to nearby Muscat, Oman, may find themselves aboard a sparsely populated Airbus A330 and served a meal during a 250-mile, 40-minute flight.

Meanwhile, the region remains subject to rigid rules on ownership and control that work against a move toward market freedom. Of course, the lack of “Open Skies” in the region also stifles competition, and thus little need exists for varied service options. But in a twist of fate, European rules that now require bilateral agreements to embrace the entire EU membership could force Middle East countries to allow more liberal access to their airports.

Although slow in coming, more regional cross-border competition appears likely, perhaps opening a market in need of more varied airplane types to match capacity with demand. “It has not actually happened, but it is in the process of happening,” said Botelho. “Now with the development of the area, the requirement for medium routes has increased a lot. This event with Saudi Arabian Airlines is important because it will be the first experience of handling a regional operation, not only domestic but short haul to other countries in the region. And they were very keen in saying we are willing to exchange capacity for frequency.”

In this case, Curado dismissed any notion that anticipation of open skies drove the decision. Plans call for all the 170s to fly within Saudi Arabia’s borders. However, the kingdom soon hopes to privatize the airline, a move that would lead to more competition domestically as well.

“I don’t have any other explanation than common sense, really,” said Curado. “To our knowledge there’s no event triggering their decision other than very sound network planning. We do hope that this will become an event to call attention to other airlines, to get more interested in the concept.”

Scheduled to start service with the Brazilian RJs next month, the airline plans to establish a pair of new mini-hubs, in Ha’il, located in northern Saudi Arabia, and in Abha, near the southern Red Sea coast. Configured in a two-class 66-seat layout, the airplanes will cater to high-yield business passengers as well as vacationers, offering three rows of three-abreast seats with a 40-inch pitch in first class.

Saudia expects to take its second 170 next month and two more in January, followed by one per month until December 2006. Now flying a fleet of 139 Boeing 747s, 777s, MD-90s and Airbus A300-600s, the airline plans soon to start retiring its aged Airbuses, allowing it to add frequency to existing routes, open new routes and shuffle its fleet to better match airplanes with markets.

For Embraer (Stand No. E604), other targets of opportunity in the region will not include the ultimate prize, Dubai’s Emirates Airline, whose chairman, H.H. Sheikh Ahmed bin Saeed Al-Maktoum, has as much as dismissed any mention of regional airplanes in his fleet. Although in 2003 Gulf Air issued a request for proposal for 70-seaters, it too has soured on the idea after other airlines saturated many of the markets on its wish list. However, Egyptair has surfaced as a strong candidate for a 70- to 90-seat acquisition, as has Oman Air, one of the few carriers in this part of the world that has already embraced regional airplanes in the shape of Avions de Transport Regional’s ATR 42 twin turboprops.