Industry Perspective:Embraer Executive Aviation

NBAA Convention News » 2007
September 20, 2007, 8:09 AM

Luis Carlos Affonso is an aeronautical engineer and private pilot, the product of a Brazilian engineering education and a man for whom a life at Embraer is as much a calling as a profession. After 22 years with the Brazilian aircraft manufacturer, he stepped into the position of vice president of Embraer Executive Aviation in the spring of 2005 with the blessing of then president and CEO Mauricio Botelho.

Two years later, under Affonso’s leadership, the outlook for the company’s business aircraft division has never looked better. The order book for the Legacy 600, the company’s first executive jet, has passed 110, and the new Phenom 100 very light jet and Phenom 300 have a combined order tally of 500. Ten orders have been placed for the Lineage 1000 executive/VIP version of the Embraer E190 airliner and Embraer here this week unveiled a full-scale mockup of a clean-sheet business jet
to fit in the market segment between the Phenom 300 and the Legacy 600.

When you were offered the job as executive vice president of Embraer Executive Aviation, what were your first thoughts?
My first thought was related to where we wanted to be in five years and 10 years, what strategies we had to adopt, what products to introduce, how to market them and sell them and how to support them. [Also] this is a new division, a different business and different culture from the airline business. We needed to understand those differences and create a different culture.

Are the early goals for executive aviation translating into reality?
I think our goals are coming to fruition. The business at Embraer is growing even faster than we had anticipated. I had thought the Embraer brand was less known in the executive jet world, but it wasn’t true. This is the best time in the existence of business aviation, and I think the timing for creating Embraer Executive Aviation was perfect.

How do you see emerging markets around the globe affecting Embraer’s strategy?
Even though we’re successful in the U.S. market with about 60 percent of our current sales made there, we see increased demand from Eastern Europe, Russia, the Middle East and Asia, which reflects growing economies in these regions. All four of our airplanes have the largest cabins in their price ranges, and in those emerging
markets, cabin size is the differentiator.

At this point, the only Embraer business jet in service is the Legacy 600 with around 110 in operation. What expectations do you have for this aircraft going forward?

We delivered 13 Legacys in 2004, 20 in 2005, 27 in 2006 and for the foreseeable future we anticipate delivery of 25 to 30 airplanes a year. Here at NBAA, we are introducing several improvements to the 2008 Legacy, such as a more elegant interior, a more functional galley and a recessed floor option providing more headroom. Even with Legacys in service in 20 countries, demand is still very high and we expect to have the airplane in our portfolio for some time to come.

Did the Legacy contribute to the learning curve for the current Phenom 100 and Phenom 300 programs?
Absolutely. The first Legacy was delivered at the end of 2002, two and a half years before the launch of Embraer Executive Aviation. It was a learning experience in terms of production, maintenance, support [and] customer desires. By the time I arrived, people at the company had already been working in executive aviation for two years. All we needed was the focus provided by the official launch of the executive aviation division.

What is Embraer’s total investment in the new executive aviation division?
Altogether, including training and service centers, about $300 million.

Now that you have one Phenom 100 in the air and a second one coming soon, how are sales looking?
We have 500 firm orders for the 100 and 300 with non-refundable deposits–$5,000
at the time of signing of the contract and an additional $100,000 following the first flight.

What seems to be the Phenom 100’s best selling point?
It’s the biggest airplane in its category. It has the biggest cabin, a huge baggage compartment and an enclosed lavatory.

At this point, what surprises, good or bad, have you encountered in the Phenom 100 certification program?
So far, so good. It’s a simple airplane. Our pilots had extensive training in
the simulator, and the real airplane is responding just as it did in the simulator. We’re very happy with what we’re seeing.

The reason for launching the Legacy 600, a derivative of the ERJ 135
airliner, is fairly obvious. Why did Embraer choose to launch its clean-sheet entry into business aviation with two airplanes at the low-price-point end of the market?

We talked about that at length and decided to start in the owner market
segment as a way to win customer loyalty for a quality product and quality service,
and if we did that, long-term customer loyalty would follow as we grew into other market segments.

With the Phenom 100 to be certified next summer, the 300 a year after that, the Legacy 600 program still going strong, and the orders of 10 Lineage 1000s, everyone is wondering about Embraer’s next executive aircraft? Can you offer any details?
In terms of market position, somewhere between the Phenom 300 and the Legacy 600 makes the most sense. We have several pre-designs and we’re showing a full-scale mockup concept of one airplane here at NBAA. We’re very diligently studying designs and price points, but we’re not ready yet to announce a launch.

One of the biggest challenges to the success of a new airplane is after-market support and service. What is Embraer Executive Aviation’s plan to create a viable network of support and service centers?
We knew from day one that this was a key to our long-term success. We’ve done surveys to understand customer requirements and have an idea of what is currently considered good and bad in the existing market. We came up with a form plan and budget of $100 million and a green light from the board of directors to use the money. We plan to have seven factory-owned service centers, complemented by 38 authorized service centers, and parts inventory and distribution using services such as UPS, which we have already selected in the U.S. We actually expect to lose money in the first two or three years, but our first commitment is to the customer.

Can you offer an update onthe Lineage 1000 program?
The first Lineage 1000 is being assembled now and will
be delivered to PATS in Georgetown, Delaware, later this month for completion. We have 10 firm orders with non-refundable deposits. We expect to deliver two next year and three or four per year thereafter.

What indicators do you have at this point to suggest that you’re succeeding in business aviation?
Revenues for executive aviation jumped from $703 million in 2005 to $11.53 billion last year, and firm, non-refundable orders have jumped from $600 million to $2 billion. By the end of next year, Embraer is hoping for a 15-percent worldwide market share.

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