Curado stays patient as Embraer considers next move

 - October 1, 2010, 7:38 AM

No one would ever accuse Embraer CEO Frederico Curado of letting ego or impatience influence his decision-making. So when he insisted Embraer’s advantageous competitive position affords him the luxury of time as he deliberates over a new product strategy for the single-aisle airliner market, the company’s stakeholders could rest assured that Curado soberly considered the implications of waiting.

“The point is we’re in a relatively good position to spend more time analyzing, understanding and seeing everybody else’s moves to make the right decision,” said Curado.

“The market is coming back–slowly–but it is coming back and our products are competitive, I think,” he added. “I do not anticipate any decision from our side until we fully understand the competitive landscape, so it’s not something I anticipate for the short term.”

Embraer has, in fact, given itself until at least the end of the year to decide whether to re-engine its existing line of E-Jets, ­create an all-new model or, perhaps, do both. While Boeing and Airbus examine re-engining their 737 and A320 series, respectively, and Bombardier continues with its development of the C Series, Embraer, as Curado put it, needs to “understand ­better how several moving pieces in this puzzle will fit before we act.”

In any case, it appears re-engining the E-Jets would require more than a replacement of the current GE CF34s and associated redesign of nacelles, pylons and integration. Any new engine, be it from Pratt & Whitney, GE or Rolls-Royce, will almost certainly use a larger fan to facilitate the higher bypass ratio needed to deliver the advertised fuel-burn improvements. Therefore, said Curado, Embraer would likely have to raise the airframe “a little bit,” requiring a redesign of the wings and landing gear. “Of course, as we change the aircraft, the investment goes up,” added Curado. “We have to be certain about the market demand for or a requirement for a [re-engined] aircraft. Today it’s not clear at all; quite the contrary.”

Introduced in 2004, the E-Jet series in ordinary circumstances should produce market demand for at least 20 years; but the fact that engine technology has developed faster and more convincingly than Curado imagined five years ago has raised the question of whether or not the airframes will need an upgrade to reach their lifespan potential. Promising a 15-percent improvement in fuel burn, new engines could reduce operating costs by 5 to 6 percent, said Curado.

Nevertheless, said Curado during the company’s second-quarter earnings call, he hasn’t felt any pressure from airlines to re-engine.    

In fact, Curado can legitimately point to the company’s sales successes at the Farnborough airshow as evidence that the present version of its E-Jet line remains commercially viable. Led by a potential $5 billion deal with the UK’s Flybe that included firm orders for 35 E175s, options for 65 more and purchase rights for another 40, Embraer signed several high-profile contracts at the show, while anticipated orders for Bombardier’s C Series never materialized.

Other business included a letter of intent covering 15 E190s and options for five more from Air Lease Corp.–the new leasing company formed by former ILFC chief executive Steven Udvar-Hazy. Embraer also announced a firm order from Brazil’s Azul Airlines for five E195s, a letter of intent with the world’s largest E-Jet operator, Republic Airways, for the sale of 24 E190s and, finally, a firm order from Brazil’s Trip Airlines for a pair of E190s.

Curado expressed confidence that Embraer would see the conversion of a number of options and LOIs during this year’s second half. Partly as a result of the new orders it logged at Farnborough, Embraer recently revised its ­revenue guidance for the year to $5.25 billion from $5 billion and its operational margin to 6.5 percent from 6 percent.