LABACE Convention News

Embraer Counters Flat Market Demand With Focus On Value

 - August 10, 2017, 1:17 PM

The expected uptick in business jet demand is likely still a year or two away, but that isn’t stopping Embraer Executive Jets (EEJ) from seeking advantages in the marketplace. The Brazilian aircraft manufacturer’s business aviation unit is using 2017 to double down on delivering customer value through enhanced products and new services, eschewing a market-share battle in what is expected to be a flat year for deliveries.

The shift comes early on the watch of new CEO Michael Amalfitano, who took over EEJ's top management slot on March 1. A 35-year veteran of corporate aircraft finance, Amalfitano is leading “a strategic shift from price to value,” he told AIN soon after he joined Embraer. The approach leverages three things: the desirability of EEJ’s aircraft, boosting customer loyalty, and new solutions. Results are expected to come quickly.

“I do expect that, in the second quarter or max in the third quarter, we are going to see different numbers that will reflect more of this strategy,” then-Embraer president and CEO Paulo Cesar de Souza e Silva told analysts in May. “We are [emphasizing] a higher focus to reduce costs in the business jet unit. And our market approach is to look more at the value that we are offering to our clients than going for market share.”

One of Embraer’s major focuses is enhancing its existing product line. In early April, it delivered its first Phenom 100 EV to an undisclosed U.S. customer, and since has delivered more Phenom 100 EVs to Brazilian and Mexican operators. An advanced version of the Phenom 100, the EV features the Prodigy Touch flight deck, based on the Garmin G3000. Embraer introduced the flight deck as an option on the Phenom 300 in mid-2014. The EV also includes Pratt & Whitney Canada PW617F1-E engines, which boost the model’s speed and hot-and-high performance.

The OEM also announced Air Hamburg as the launch customer for the Legacy 650E. Building on the success of the Legacy 650 and 600, the 650E features an upgraded Honeywell Primus Elite Advanced Features avionics suite with synthetic vision, two iPads—with mounting systems—that serve as electronic flight bags, and autothrottles as standard equipment. The aircraft also has a restyled interior and Honeywell Ovation Select cabin entertainment and management system. First delivery is expected in the third quarter.

Other product-line value-enhancements are more subtle. For instance, Embraer has extended the time-between-overhaul (TBO) interval for Phenom 100 and 300 main and nose landing gear from 96 months to 120 months or 12,000 cycles, whichever comes first. The change, announced earlier this year, came after a sampling program that looked at five gears sets, including two that underwent complete overhauls. “The best news is that no application or inspection is required to qualify for this TBO extension, nor is a change required for any aircraft hardware or software,” Embraer says. 

The company also is expanding its footprint of both customers and services in Latin America.

Earlier this year, Embraer cracked Argentina's business aviation market, when two Phenom 100s became the manufacturer’s first Argentina-registered business jets operating there. “This market is gaining momentum,” said Gustavo Teixeira, EEJ’s v-p of sales, Latin America.  “We are seeing more and more sales opportunities for preowned and new aircraft in Argentina, considering its aging aircraft fleet. There are 170 business jets in Argentina, and 80 percent of this inventory is more than 10 years old.”

The news came on the heels of January’s approval by the Administración Nacional de Aviación Civil de Argentina (ANAC), the Argentinian aviation authority, of EEJ's Sorocaba, Brazil, service center. Embraer has seven service centers in the region: four in Brazil, two in Mexico, and one in Chile. The company plans to expand the network to Argentina, Colombia, and Venezuela. 

Embraer also has revamped is services approach, launching a dedicated business unit that consolidates after-sales support for all Embraer products—including commercial and military aircraft as well as business jets. Embraer generates about 15 percent of its revenues from aftermarket support, and it hopes to boost this to 25 percent within four years. “We believe that we cannot only enlarge in terms of client base, the services and support that we provide, but also we can increase the number of parts that we touch in the aircraft and do more than what we have been doing,” said Silva, referring to Embraer’s entire installed fleet.

Embraer’s global fleet of more than 1,100 business jets—the milestone was reached with a Phenom 300 delivery to NetJets in May—includes more than 200 in Latin America. About 75 percent of Embraer’s fleet is in Brazil, which has the third-largest business-jet fleet among countries—about 760 aircraft—trailing only the U.S. (13,000) and Mexico (980). The OEM is projecting about 650 total business-jet deliveries in 2017, with the vast majority—85 percent—going to the two biggest business-aircraft regions, North America and Europe. 

Embraer (Static Dsiplay, Booth 5115) expects that its production will account for 105 to 125 deliveries for the year, including 70 to 80 light jets and 35 to 45 large jets. It delivered 39 business jets in the first six months of the year: 27 light jets and 12 large jets. While year-over-year delivery figures were down 10 aircraft, the mix points to a strengthening of its large-jet segment. The Legacy 450 accounted for eight of the large-jet deliveries. It also handed over three Legacy 500s and a single Legacy 650.

Looking further ahead, Embraer sees demand for about 570 aircraft in Latin America over the next 10 years, which would account for about 7 percent of the projected global demand of 8,400. The projection for Latin America is roughly the same as China, and slightly behind the combined markets of the Middle East and the rest of Asia-Pacific.  

Brazil, which has more than doubled its business jet fleet in the last decade, remains one of the most promising markets, along with Mexico, the regional fleet-leader. Demand in Brazil is likely to ramp up slowly, however. “The economy is finally emerging from a severe and protracted recession,” a mid-year Organization for Economic Co-operation and Development analysis noted. “Still, the recovery is projected to be weak and slow.”

The recent economic slump has reduced demand for new business aircraft, Embraer acknowledges. That said, there is some limited demand for small and mid-size jets and pre-owned aircraft, the company adds, noting that some 4,000 cities rely on general aviation for their air transportation needs, while only about 130 have commercial air service.

One market that Embraer is keeping an eye on is Colombia. While it has only about 45 business jets—the fifth-largest fleet in the region behind Mexico, Brazil, Venezuela, and Argentina and just ahead of Chile—65 percent of them are 10 years of age or older. Add in nearly 300 turboprops, and the market, which grew 15 percent last year, is promising for business-aviation suppliers.

Embraer’s business aviation division has accumulated a compound annual growth rate (CAGR) of 19 percent since 2002, when the first executive jet model was delivered. In 2016, Embraer’s market share represented 18 percent of the industry’s global deliveries. The Phenom 300 recorded 63 deliveries, ranking it atop the business-jet charts, overall, for the fourth consecutive year, totaling 266 deliveries from 2013-2016.

Its business jet product portfolio, which the manufacturer touts as “the broadest in the market,” consists of the entry-level Phenom 100 and the light Phenom 300, the midsize Legacy 500, the mid-light Legacy 450, the large Legacy 650E, and the ultra-large Lineage 1000E.

Looking further down the road, Embraer has teamed up with several companies that are working with transportation network provider Uber on its Elevate project. Embraer's Business Innovation Center, a new initiative based in Melbourne, Florida, will contribute to Uber’s study of providing small vertical takeoff and landing (VTOL) vehicles for short, urban trips. 

The announcement is an initiative to put us more into this kind of situation—new business models, new technologies,” Silva says. “Since the VTOL will be an electric vehicle, it is [aligned with] our interest in developing a much deeper understanding of electric or hybrid aircraft.” 

Uber’s ambitious timeline calls for the first VTOLs to start carrying paying passengers by 2020. The Embraer partnership is one of several announced earlier this year that will focus on developing the vehicles and infrastructure.

We think the market is very big,” says Silva. “But the bigger question is, will the stakeholders, the ecosystem, achieve these markets or not? We need the certification. We need the authorities to approve flying in big cities. We need to find a good solution for the battery and for [recharging] the battery. So there's a lot yet to happen.”

The potential payoff is worth the effort, he said. 

When we talk to Uber, the numbers are really big, and the efficiency of the system, if implemented, will be a success. I have no questions about that,” Silva says. “Uber is in 75 countries, 450 cities. And there are 60 million people that [use Uber] monthly. So we can imagine the huge demand for this service.”