Embraer lays down ‘Rule of 70 to 110’

 - October 10, 2006, 4:26 AM

How have the preparations for the JetBlue deliveries progressed?

The context is intense; there are several things going back and forth. Our technical people are in New York, their technical people are here…everything is going all right; JetBlue is preparing for the delivery very  professionally. I have never seen such a preparation for an entry into service. I anticipate they will do quite well.

What led Embraer to extract more range from the 190/195?

The range increase came out of a desire from JetBlue. We started looking at this possibility several months ago; of course we required some reinforcements of the fuselage and more fuel. It’s basically a weight limitation–some increase in the basic operating weight and empty weight of about 100 kilograms (220 pounds). The range increase depends on each airline’s configuration but it’s about 300 nautical miles.

How will the closure of the Boeing 717 line affect the market?

That was really no surprise. It clarified the competitive scenario a little bit. That’s not to say it’s going to be easier, but now Boeing is clearly focusing on the 737-600. By the way, the 717 is a good airplane; whoever operated them seemed to be satisfied with their performance, but the market acceptance was so poor, especially in the financial community, that it was hard to finance it, so a large amount of the fleet is owned by Boeing Capital.

But I think it was a wise decision on Boeing’s part; I don’t think [the end of the 717] affects the 100-seater competitive scenario significantly.

Does Embraer harbor any ambitions to expand its product line beyond 110 seats?

We deliberately designed our products for what we believe is the gap between 70 and 110 seats. We made that decision absolutely consciously. Now, in the future, do we have any plans to move into bigger airplanes at this stage? Not at all. Can we stretch the 195 to be a 130-seater? Technically it would not be a great airplane. No, we don’t have any intention of making that airplane anything comparable to a 737-700 or an A319. Anything’s doable, but it is not part of our strategic vision to really attack the -700 and A319.

The market is not demanding new products there; both of the existing airplanes are good and in high demand, so we don’t see any room for a third player in that market.

Bombardier seems to hold a different view.

Absolutely. But when you talk about a niche of 110 to 135 seats, this is just not real. It is not there. By bringing a family into this market if they ever do, we will compete head-to-head with the 110-seater with the 190 and 195. There’s no question about it. It will be as stiff a competition as we have had in the last 10 years in the 50- and 70-seater market. So there’s no illusion on our side or on their side.

But what about the bigger member of the C Series?

If you look at the 135-seater, this is an A319. This is the 737–not the -600, but the-700–this is the airplane; it’s the core of the Boeing and Airbus narrowbody family. So to put yourself in the position to bring a new product into the market by 2010 to compete with the A319 and the 737-700, and knowing that Boeing is launching a replacement of the 737 probably some time soon after that…it is not on our agenda to do that.

Could the C Series’ transcontinental range change the picture?

The question is, ‘Do they need it?’ Ninety percent of all routes in the U.S. flown with airplanes of up to 120 seats are less than 1,700 nautical miles. Is there a use for transcon? Yes. But does it justify a $2 billion investment? Not at all. But, of course, this is our market vision, not theirs.

Could a bigger market evolve toward more use of smaller jets on transcontinental trips?

It hasn’t since we’ve been tracking this thing down since 1995. Maybe in the next 10 years it will…maybe. But keep in mind we have a 2,300-nautical-mile range in the 190, so we can make it, for example, from the East Coast to the Rockies. It’s not transcon, but in aviation everything is a compromise. If you want transcon, fine. But you’re going to have higher weight in the aircraft. Time will tell.

You recently landed your first sale in the Middle East, with Saudi Arabian Airlines for 15 Embraer 170s. (See AIN, June page 62.) What market forces drove the airline’s decision to challenge the status quo in that region?

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

Could the expected arrival of more liberal access to markets
in the region have influenced the decision?

No, it is not about Open Skies. This is really about, let’s say,
rightsizing of routes, opening of new markets I suppose. They’ll be returning some A300s, but we don’t have a
lot of details about their network. They certainly expect high-yield passengers by the way they’ve configured the aircraft. They will have 15 rows of coach and three rows of first-class with a 40-inch pitch, three abreast, which makes it a 66-seater.

Was [Comair president] Fred Buttrell angling for negotiating leverage with Bombardier with his apparent endorsement of the Embraer 170?

No. I know Fred. He’s a very straightforward guy. I don’t think he’s the type of person to play games. I think he made sincere comments. Probably they were amplified. What we expect from Comair and from Fred is a fair fight.

Why has Embraer’s forecast for 50-seaters fallen so dramatically in the past three years?

One reason will answer 90 percent of your question, and that is scope clauses. If you asked anybody 10 years ago what the market size would be nobody would ever have foreseen 2,000 jets. That growth of the 1990s and early 2000s was very much driven by the scope-clause restrictions. Now scope clauses are moving toward 70 seats–just about everyone now can fly 70-seaters. US Airways is going to fly 76-seaters and try to push it even farther, to 90 seats or something like that.

Has less demand for hub feed contributed to the trend?

I think partially, yes. The hub-and-spoke system clearly grew so dramatically it has reached a saturation point. I am not one of those guys who believes the model is dead; I think hub and spoke will always be there in our lifetime, but maybe not with the same power as before. Today you are already seeing several applications of 50-seaters to routes of two hours, two-and-a-half hours, which is a clear indication that there is a movement toward point-to-point flying. Is that a panacea? No. It’s moving toward a better balance.