Embraer Sees Brighter Skies Ahead
While it has certainly felt the same pressures as its competition, Embraer expects a change in the bizjet market to come soon. Though the manufacturer saw its first-half business jet deliveries slashed nearly in half from 60 in 2010 to just 31 this year, it still expects to hand over 118 aircraft (100 Phenom 100/300s and 18 Legacy 600/650s and Lineage 1000s) by the end of the year, less than the 145 it finished with in 2010, but nearly the same total as 2009.
“We believe 2011 was the trough, and we really believe and really hope that we’ve reached the bottom and that we’ll start seeing a recovery for the balance of the year and, of course, into 2012,” said Ernest Edwards, Embraer’s recently promoted president of the executive jets division.
“The good thing from our perspective is that it seems like the U.S. economy has recovered,” he told a group of journalists at the end of August at the Brazilian airframer’s media tour. “If you look at the numbers here in terms of corporate profits, we’re doing better than we were just before the crash in 2007-2008.”
Analysis of indicators such as U.S. corporate profits, which have surpassed pre-recession peaks, and the global stock markets, which had largely rebounded from the economic malaise of 2009 (at least in early September), has led to an increase in flight hours both in the U.S. and Europe.
“The other thing that we track that is really important is how many business jets are for sale on the pre-owned market, and this is good news for us as well,” said Edwards. Recent trends have shown a slow but steady decline in the number of available aircraft delivery positions and used (less than 10 years old) inventory since the peak in the first quarter of 2009.
Ten-year Forecast Revised
Accordingly, Embraer’s market analysts have revised their 10-year forecast, which now calls for deliveries of 11,275 new business jets over the next decade with a value of $260 billion, a $50-billion increase over last year’s forecast. Based on its prediction, Embraer sees a new delivery peak set somewhere in the 2018-2019 time frame as the market continues to climb.
As to the geographic breakdown of those aircraft, the manufacturer sees 47 percent or 5,265 aircraft worth $109 billion going to North America; 3,415 jets (30 percent) valued at $88 billion destined for Europe, the Middle East and Africa; 1, 690 aircraft (15 percent) worth $48 billion to Asia (excluding China, which will account for 635 business jets on its own, calculated at $21 billion); 905 units to Latin America (which, in Embraer’s accounting includes Mexico and all of Central and South America, as well as its home country, predicted to receive 550 aircraft worth $8 billion).
Broken down by aircraft type, the forecast calls for a rebound in the light and entry-level segments, with the two accounting for 35 percent of the deliveries over the next 10 years. The large, ultra-large and ultra-long-range categories should total 28 percent. In dollar terms, the large-cabin aircraft and above will garner 60 percent of the expected $260 billion.
According to Edwards, Embraer has no immediate plans to launch an ultra-long- range competitor to Gulfstream’s G650 or Bombardier’s growing Global family, citing other project priorities within the company, such as the military KC-390 and changes to its regional jetliner products. “We’d love another airplane to sell, for sure, but not in the foreseeable future,” he said.
Well Situated in Market
Despite that gap and based upon that forecast, Embraer would appear to be well-situated in the market given its current product line-up, with the large cabin Legacy 600 (and its extended-range sibling, the Legacy 650, which was certified last year) and the bizliner Lineage 1000, and at the opposite end of the spectrum, with the entry-level Phenom 100 and light Phenom 300.
As a result of the introduction of the Phenoms, Embraer’s share in the business jet market has jumped from a little over 3 percent in 2008 to 19 percent in 2010, trailing just Cessna and Bombardier. Such an increase lends credence to the company’s vision statement, which was adopted in 2005 with the founding of its executive jet division: to become a major player in the business aviation market by 2015.
Currently the company has more than 440 aircraft in operation worldwide, with the largest concentrations in North America (more than 170 aircraft), Europe, the Middle East and Africa (more than 150 aircraft), Latin America (approximately 100 jets, with 90 percent of them in Brazil alone) and fewer than two dozen in the Asia Pacific region.
While declining to discuss actual numbers of deferrals in its order book, Embraer, like other OEMs, has noted some softness at the lower end of the market. “Certainly the entry-level and light-jet category have been a challenge,” Edwards told AIN, noting the company has always strived to work with customers who wish to delay the delivery of their aircraft. “At the same time, there have been people who were at the tail end [of the company’s backlog, which at one point stretched into 2014] who have wanted to take earlier deliveries, so we’ve been able to blend the two to a satisfactory conclusion.” Since many of the delivery postponements were from orders placed early on at launch pricing, Embraer has also taken the opportunity to restructure the pricing on those aircraft deferrals.
Moving to Melbourne
The manufacturer is currently in the process of relocating its U.S. executive jet division headquarters from Fort Lauderdale to Melbourne International Airport in Florida, where it has set up a second final assembly line for the Phenom 100.
The first U.S.-completed example of the $3.9 million twinjet is to be delivered by the end of the year, and the airframer expects to ramp up production at the site starting next year. The $50 million Melbourne facility will also be home to the company’s U.S. sales and marketing efforts as well as a customer design center for its entire lineup.
Also currently under construction is a 330,000-sq-ft manufacturing facility in Évora, Portugal, which is to produce structural components for the Legacy 450 and 500. The section that will produce composite structures, such as the vertical and horizontal stabilizers, is to be completed by the end of the year, with production to start in 2013. Building on the second part of the facility, which will manufacture metallic airframe structure such as the wings, is to commence soon.