Swiss deferral highlights Embraer 170 setbacks

 - February 4, 2008, 10:47 AM

Embraer has suffered a major setback following the decision of 170/190 launch customer Swiss to slash its firm orders and options for the Brazilian manufacturer’s new series of aircraft. In late March the Basel, Switzerland-based carrier announced it was reducing its original firm order of thirty 70-seat Embraer 170s and thirty 108-seat 195s to 15 of each model and deferring delivery for a year. It also reduced the number of options for both aircraft from 100 to ten 170s and ten 175s, though they can be converted to any of the four 170/190 variants.

Relaunched after the 2000 bankruptcy of Swissair, Swiss cited the “generally unfavorable economic situation and the carrier’s current condition in particular” for the revised Embraer order. Swiss confirmed that a revised agreement with Embraer provides for rescheduling of delivery of the first aircraft from August 2003 to August 2004, when four 170s will be delivered, followed by eight aircraft in 2005. Even before its latest move, Swiss had already changed Embraer delivery arrangements several times, halving its delivery schedule from eight to four this year and from 12 to eight aircraft next year. The airline is also negotiating deferral of delivery of five Airbus A340-300s due for handover next year.

According to Embraer, the new arrangement with Swiss means that the first Embraer 170 will now go to Alitalia, most likely in September. However, Swiss Aviation Training’s simulator for the Embraer 170 will be installed in Basel this summer, according to plan. Deliveries of the 108-seat Embraer 195 remain unchanged, starting in 2006.

An Embraer spokesman said that his company would refund Swiss part of the advance it had already paid. “The refunds will not involve any cash payment since the advance payments are maintained in escrow and therefore have not been reflected on Embraer’s balance sheet,” he said. “The Embraer 170/190 development program is otherwise proceeding as planned, with the Embraer 170 expected to be certified in the second quarter of this year to allow deliveries to Alitalia and GECAS.”

Certification ‘On Course’
Luis Carlos Affonso, program director for the Embraer 170/190 series, confirmed that certification of the 170 is “on course for mid-June” after successful fly-by-wire tests. “This will be followed by the first flight of the Embraer 175 during the same period, with the 195’s maiden flight scheduled for the third quarter. Development of the 190 begins this year.” He said Embraer is also considering building a business jet based on the 170/190 family.

Affonso told AIN that the “entirely new 170/190 program is the basis of Embraer’s aircraft development for the next 10 to 15 years.” Launched at the 1999 Paris Air Show, the 170/190 line comprises the 170, 175, 190 and 195 mid-capacity jets, seating respectively 70, 78, 98 and 108 passengers with a 32-inch seat pitch. Six pre-series 170 prototypes and two structural test articles are involved in the development and certification program. The 170 first flew on February 19 last year, 32 months after the official launch. The aircraft is designed with first-class seating capability, two forward and two aft doors, forward and aft galleys and lavatories and large forward and aft cargo compartments.

According to Affonso, first deliveries would immediately follow JAA and Brazilian Aviation Authority (CTA) certification of the 170. In the wake of Swiss’ revised fleet-renewal plans, the initial delivery will now go to Alitalia, which has a firm order for six 170s and options on six more, to replace its MD-80s. Alitalia’s options can also be used for the larger 190 or 195.

Affonso said Embraer has guaranteed Swiss it will certify the 170 for use at London City Airport, which requires a 5.5-degree approach angle. “We have already made some simulated steep approaches to assess the airplane’s drag and its ability to meet a steep-approach requirement, and we are confident that we will be able to achieve this. Our target is to be able to do this by mid-2004.”

Frederico Curado, Embraer executive vice president for the airline market, confirmed that the 170 should achieve approval to operate into London City Airport “about a year after its initial certification, due in mid-2003.” In other words, he said, it should be “cleared at London City by mid-2004. Swiss understands the situation and will be working with Embraer on the London City approval.” He said that, apart from the slats, the aircraft will be fitted with ventral speed brakes. These will be inoperably locked for the initial aircraft certification but will then be unlocked to get the London City approval. He insisted that there were no major problems with the London City approval but that the “process simply takes a long time and has to be fitted in alongside the main aircraft certification.” He also believes that the smaller ERJ-135 will receive London City clearance by year-end. The Legacy, a business jet version of the ERJ-135, has already flown into London City for a demonstration flight, and Curado is confident it will also get approval at the airport. Embraer will not be seeking approval for the ERJ-145 at London City.

Chris Mason of the UK’s CAA told AIN that the Embraer 170 will be certified by the JAA. He confirmed that Embraer has applied for certification for steep approaches, and this will be reviewed by the JAA team. However, as this is an optional capability, Embraer may choose to complete that aspect of the certification after the initial certification.

Following Swiss’ new plans, Embraer at the beginning of March had firm orders for 73 Embraer 170s and options for 106, in addition to firm orders for 15 Embraer 195s and options for 42. Other orders comprise Alitalia’s aforementioned order and GE Capital Aviation Services’ order for 50 Embraer 170s and options on 78 and options for a further 22 Embraer 195s. Additionally, Guadeloupe-based Air Caraïbes will take two 170s and has options on two more. According to Jean-Paul Dubreuil, Air Caraïbes’ owner, the order was originally slated for delivery at the end of this year to replace its ERJ-145s but was postponed until “at least 2005 because of the downturn in the industry.” Dubreuil to date has not changed his order, but said he might if market trends dictate.

Embraer’s released orders and options do not include the announced firm order for 10 Embraer 170s and options for another 11 by LOT, Poland’s flag carrier. The final contract negotiations under way include the possibility of converting all or part of the order to the 190 and 195. LOT already flies 14 Embraer ERJ-145s, and the 170 contract includes possible negotiations for the trade-in from 2006 onwards of three of its ERJ-145s and up to three more depending on the number of options it confirms.

Another announced transaction currently in final contractual arrangements and not yet counted in Embraer’s firm order backlog includes Jet Airways, India’s largest private domestic airline, which, with firm orders for 10 and options on another 10 placed at last year’s Farnborough Air Show, will be the 175’s launch customer when the contract is signed, with deliveries taking place between 2004 and 2007.

Renegotiation of Swiss’ order is not the only setback Embraer has suffered recently. During the 2001 Paris Air Show, Embraer and family-owned TAM, Brazil’s second-ranking domestic carrier, signed a memorandum of understanding to purchase 25 Embraer 195s to replace some of its Fokker 100s. Turmoil in the group, including the death in an air crash of TAM president and founder Rolin Amaro just after the airshow, appears to have changed its plans and a subsequent contract was signed with Rolls-Royce to maintain the Tay engines on its Fokkers.

Still Hope for TAM Order
Affonso said, “TAM’s F100s will have to be replaced and Embraers are closer to their needs.” On March 10, TAM and leading Brazilian carrier Varig began a code-sharing agreement that, if approved by the government, is expected to lead to a full merger by June 30 and provide about 70 percent of Brazil’s domestic flights. Alberto Fajerman, Varig executive vice president of corporate planning, told AIN that Varig’s reorganization and the utilization of its fifteen 50-seat ERJ-145s were successful. The group not only intends to keep its 145s but will most likely consider purchasing 70- to 108-seat Embraers, he said.

After 9/11 Embraer lost little time in revising its market outlook and adjusting forecasts. Before the end of September 2001 it announced cost-cutting measures, including a 14-percent staff cut and a reduction in 2002 aircraft deliveries from 205 to 132. In fact, 131 aircraft were delivered, including 82 ERJ-145s, 36 ERJ-140s and three ERJ-135s in the commercial aviation segment, seven Legacy Executive jets and one Legacy shuttle in its corporate aviation business and one ERJ-135 and ERJ-145 for defense and government-support operations.

The downturn in the aerospace sector has also resulted in Embraer agreeing in February to reschedule deliveries of Embraer ERJ-145XR regional jets ordered by ExpressJet Airlines. Embraer’s revised plan is to deliver 132 aircraft this year and 136 next year, down from 136 and 140, respectively. The 170/190 family of aircraft is expected to account for 12 percent of all deliveries this year, doubling next year when 170 production will be in full swing.

Affonso told AIN that the 170’s static structural-testing campaign “successfully surpassed its most critical phase and was concluded within the schedule established for both Embraer and its risk-sharing partners with only minor complementary tests remaining.” He emphasized that the completion of the wing-fuselage static structural tests is a “milestone of particular importance. Among all load conditions, the wing-up bending is the most critical, as the wing structure is subjected to 1.5 times the maximum load expected in service, and must support it without failure for at least three seconds.”

He said the fuselage, wing, landing gear attachments, engine pylons and vertical stabilizer have been tested to limit and ultimate load conditions at Embraer’s Euginio de Melo facility. Other sections such as the horizontal stabilizer (built by Gamesa of Spain), slats (from Sonaca of Belgium) and ailerons (manufactured by Kawasaki Heavy Industries of Japan) also passed the static-test campaign with “flying colors.” The remaining static structural tests of flaps and spoilers (both built by Kawasaki Heavy Industries) and rudder and elevators (made by Gamesa) were completed in February.

At about the same time next month that the 170 is due for JAA and Brazilian certification, the Embraer 175 is earmarked to make its first flight. The heavier 175 required some minor structural reinforcements of the aircraft’s fuselage and wing root, which do not affect commonality with the 170 (about 95 percent, including the GE CF34-8E5A1 powerplant). The 170’s full-passenger range is 2,100 nm, and it is 1,600 nm for the 175. Affonso said that because of the high degree of commonality, the certification campaign will be shorter than that for the 170, with type certification expected in the second quarter of 2004 and delivery to India’s Jet Airways immediately following.

The Embraer 170’s biggest brother, the 108-seat Embraer 195, represents the company’s second most ambitious project in terms of manpower. Affonso said the “critical path” for that program’s development lies with 195 wing production by Kawasaki at its Gavião de Peixoto facility in Brazil. “We are progressing well on the 195 with tests on three prototypes and two airframes for static and fatigue testing.” Affonso expects the General Electric CF34-10E engines, developed specifically for the 195, to gain certification in September, followed by first flight during this year’s third quarter and certification by the end of next year. Meanwhile, Embraer has begun carrying out the preliminary engineering evaluation of the 98-seat Embraer 190. Development of this 2,300 nm-range model is slated to begin this year, with certification targeted for the end of 2005.