With Bizjet Pricing Still Soft, Embraer Stresses Value

 - April 20, 2017, 12:49 PM
In his first interview with aviation trade media, Embraer Executive Jets president and CEO Michael Amalfitano outlined the company's "strategic shift from price to value.” (Photo: Chad Trautvetter/AIN)

As pricing for new business aircraft remains soft in the current market environment, Embraer Executive Jets is embarking on “a strategic shift from price to value,” newly installed company president and CEO Michael Amalfitano told AIN on Tuesday. He said that “value” includes production innovation, service and support, aircraft reliability and responsiveness to customers. Notably, price wasn't included in his list.

“Aircraft reliability is in our DNA,” he said, noting that the company started out making regional airliners. “We’ve also made great strides in aircraft innovation, including offering the only fly-by-wire control system in the midsize category via the Legacy 450 and 500, and we’ve built up an executive jet support network that was rated number one in last year’s AIN Product Support Survey.”

In addition, Amalfitano pointed out that Embraer Executive Jets rated highest of all business jet OEMs in “aircraft value for price paid” in the latest reader survey from AIN sister publication Business Jet Traveler. In fact, 48 percent of respondents in the survey said its aircraft offered “excellent value,” with a further 44 percent saying Embraer's business jets offer “good value.”

As proof that the strategy can indeed work, he cited MGM’s flight department, which traded in its fleet of “Brand X” airplanes late last year for two Lineage 1000Es after being pitched on the value proposition of the Embraer bizliners.

European Outlook

While Europe is the second largest business jet market—at 2,850 aircraft, or 14 percent of the world fleet—there are still better growth opportunities there for business jets than for airliners, according to Embraer Executive Jets senior vice president of marketing Luciano Froes. Airline flights in Europe account for 22.9 percent of the 32.8 million scheduled flights per year worldwide, but business aviation flights in the region account for just 12.6 percent of the annual world total.

This gap, he said, presents an opportunity. However, Europe’s 1.8-percent GDP growth is below the world average of 2.9 percent, somewhat holding back the market’s full potential. That said, emerging markets have yet to really pan out for the business jet industry, leaving the U.S. and Europe as the most important markets, according to Froes.

He said data shows that the post-crisis adjustment in the European business jet fleet has eased, peaking at a net loss of 187 aircraft in 2014. Year-to-date, the European business jet fleet has contracted by 24 aircraft, though Froes expressed optimism that this trend could be reversed and turned into a net fleet addition by year-end.

He is further heartened by improving sentiment and a resurgence of first-time buyers in Europe led by light and ultra-long-range jets, though Embraer Executive Jets does not yet have a product in the latter category. In addition, European business jet flight activity—a leading market indicator—is up by 12.2 percent year-over-year in the first three months, running just shy of the 2007 peak.

While Froes is optimistic, he cautioned that 2017 is unlikely to be a growth year for the industry, predicting about 650 business jet deliveries this year—unchanged from 2016—with the U.S. and Europe accounting for 85 percent of them. “We expect the growth to come in 2018 and beyond,” he noted.

Overall, Embraer is forecasting that 8,400 jets worth $244 billion will be delivered over the next 10 years. Notably, two-thirds of these shipments are expected to be in the light and midsize business jet categories—segments in which Embraer is a strong player.

The company predicts that Europe will take 23 percent of those 8,400 new business jets (meaning 1,900 aircraft) over the next decade. By value, they would be worth $60 billion, or 25 percent of the forecast total.