Embraer envisions a long, slow industry recovery

NBAA Convention News » 2009
October 14, 2009, 12:54 PM

While there are signs of an economic recovery–often difficult to see and even more difficult to interpret–Embraer president and CEO Frederíco Fleury Curado is anticipating that a recovery of the business aviation industry will be long and slow.

Before the bottom fell out of the economy, the Brazilian aircraft manufacturer had just celebrated certification of the newest addition to its business jet inventory–the Phenom 100 compact very light jet; was about to begin certification flight tests of the Phenom 300 light jet; had begun taking nonrefundable deposits for its newly launched super-midsize Legacy 450 and large-cabin Legacy 500; and was anticipating the first delivery of the Lineage 1000 bizliner.

Embraer has since taken “firm and swift” action to adjust to the global market crisis and credit crunch, from imposing layoffs to making reductions in production rates, Curado said, adding however, that the company remains focused on becoming a major force in business aircraft manufacturing.

In August 2006 Curado took the reins from Mauricio Botelho, the man credited by many with saving Embraer from bankruptcy and leading it into a position as the world’s third-largest aircraft manufacturer. By all accounts, he has filled large shoes. In an interview with NBAA Convention News, he addressed some tough questions at a tough time.

How has the ecomomic crisis affected Embraer’s business aircraft sales and production?

The impact on the business aircraft industry was indeed severe, with a sharp decline in new sales and many customer requests for deferrals and cancellations. These have affected all OEMs and production lines, although in different intensities. In our case, we have reduced the production rate of the Legacy 600 line and smoothed down the Phenom 100 production ramp-up.

What steps did the company take to weather the current recession?

We took firm and swift actions to adjust the company to the new market reality, including labor, administrative and commercial expenses, capital expenditures and supplies, among others. Prioritizing cash solidity has been our main focus, which also included temporary reduction in the dividends paid to our shareholders. It has been a broad and coordinated effort of all parts of the company.

Regions of the world other than the U.S. lately have represented a growing share of the global market for business aircraft. Do you see that market share changing after a financial recovery?

Historically, the U.S. has been, by far, the largest market for business aircraft. Over the last few years we have witnessed a general trend of other markets–the Middle East, Eastern Europe, Latin America and, to a lesser degree, Asia–to grow at a faster pace than the U.S. We expect this trend will not fundamentally change because of the current crisis, and we believe the U.S. will keep representing the largest market for executive jets.

Embraer introduced the Phenom 100 and Phenom 300 and the Legacys with the intent of becoming a major player in the business aviation market. How is that strategy working?

We remain fully committed to fulfilling our long-term vision, which is to become a major force in the executive jet market by the middle of the next decade. We have three products in the market–the Phenom 100, Legacy 600 and Lineage 1000–and
a fourth, the Phenom 300 is just months away from certification.

In the mid-term, we shall have the addition of two brand-new designs–
the Legacy 450 and Legacy 500–which will then provide Embraer with a broad, modern and competitive product portfolio to address the global market.

How has your business aircraft order book been affected by the recession?

We have solid backlogs for the new products that we are introducing into service now–the Phenom 100 and Lineage 1000 and the soon-to-be-certified Phenom 300. This has alleviated the impact of the crisis on the company, allowing us to keep stable revenues in our executive jet business. We also decided to keep the new Legacy 450 and Legacy 500 on schedule, with the view that they will be important players when the market rebounds within a few years.

What plans does Embraer have to cut back on construction of its new facilities at Melbourne Airport in Florida?

Our plans in regard to our Melbourne facility, both in terms of the Phenom assembly line and our customer center, remain valid and firm. We plan to have Phenoms being delivered to our customers from that factory before the end of 2011.

At last report, Embraer had laid off 4,000 workers. What percentage was from the business aviation side? Have  you begun rehiring?

The most affected areas in the company overall were manufacturing and administration. Apart from the mechanics at the Legacy 600 line, many of whom were transferred over to the new growing Phenom line, there was virtually no impact to the business aircraft team.

What signs has the company seen that the business aviation industry is turning the corner and a recovery has begun?

We do not see such signs yet.

We believe that the world’s economy, including the full recovery of the global banking system, has still some time to go. The business jet market [recovery] will depend on how fast and how solid this recovery is, but we do not believe it will be short-term. We believe it will be long and not necessarily steady, with ups and downs as the scenario gradually improves.

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