Embraer 170 finds its bearings as first airplanes enter service

 - March 30, 2007, 8:02 AM

Brazil’s Embraer delivered its first batch of newly certified Embraer 170s to three customers last month, just as the company prepared to score a major U.S. sale for the 70- to 78-seat twinjet. Indianapolis-based Republic Airlines–the sister company of Embraer devotee Chautauqua Airlines–will become the second U.S. airline to commit to the company’s newest product under a plan to press into service 16 of the airplanes for its newly signed code-share partnership with United Airlines (see “Regionals Update”on opposite page).

Meanwhile, Embraer appeared ready to deal another humiliating blow to rival Bombardier, after Air Canada told representatives from its mainline pilot union that it wants to replace half of its recent tentative order for thirty 75-seat CRJ705s with 15 Embraer 170s or 175s. In December bankrupt Air Canada split an order for 90 airplanes between the two manufacturers, but ongoing negotiations over regional and mainline flying rights have prompted Air Canada to reconsider the planned fleet mix and place the Embraer jets with the mainline, convert the remaining 15 positions on CRJ705s to an order for 70-seat CRJ700s, and award those to Air Canada Jazz.

As Bombardier union leaders called for intervention by the federal government in Ottawa to foil Air Canada’s latest fleet plans, US Airways sped preparations for the launch of its enigmatic MidAtlantic unit, now scheduled to fly its first Embraer 170s out of Pittsburgh on April 4. Early destinations will include Albany and Syracuse, N.Y., Atlanta, Boston, Nashville, Tenn., and Newark, N.J. Next month MidAtlantic plans to add flights to Buffalo, Washington, D.C., Detroit, Philadelphia and Kansas City. On March 8 MidAtlantic took the first two of a firm order for 85 of the new jets, full delivery of which remains subject to approval of export financing by Brazilian state bank BNDES.

All the activity marks a dramatic swing in fortunes for the Embraer 170, dogged since its launch by no fewer than four separate certification delays and financial uncertainty of major customers such as US Airways, Swiss International Airlines and Alitalia. Fittingly, the first delivery went to one of the few financially stable airlines in Embraer’s 170 order book–Poland’s LOT, which planned to place its first 70-seat airplane into service late last month. A recent inductee into the Star Alliance, LOT saw a 14-percent increase in domestic travel last year and an 11-percent increase in passengers flying from Warsaw to Europe and the Middle East.

Already flying 14 Embraer 145s throughout its European network, LOT expects
the 170s to provide more range for new services and supplement capacity on existing intracontinental routes, particularly to Germany and Scandinavia. German destinations served by its ERJ-145s include Berlin, Dusseldorf, and Munich, while, in Scandinavia, LOT flies the Brazilian jets to Oslo, Stockholm and Copenhagen.

Crisis at Alitalia

In stark contrast to LOT, Alitalia plunged into crisis earlier this year after former chief executive Francesco Mengozzi clashed with unions and the center-right government over proposed job cuts aimed at restoring profitability by next year. Company general director Marco Zanichelli replaced Mengozzi in February, after the former CEO sparred with Premier Silvio Berlusconi over a restructuring plan that would have seen the loss of 2,700 jobs during Berlusconi’s reelection campaign. Last month Alitalia asked stock-market regulator Consob for permission to delay publication of its 2003 financial results while Zanichelli prepares a new restructuring plan. Alitalia said data points to a loss of some E400 million ($493 million) last year.

Given the new restructuring plan will likely center on Alitalia’s ailing long-haul network, the chances of any drastic change to the Embraer 170 deployment plan appear remote. Now flying 14 ERJ-145s under the Alitalia Express banner, the government- controlled airline accepted its first of six Embraer 170s on March 10, three weeks after company directors approved a sale-leaseback acquisition plan. It expects to place its first 170 into service April 26.

Embraer planned to deliver a total of eleven 170s last month. In all, it expects to ship 160 jets this year, nearly a 60-percent increase over last year, when it delivered 101.