Embraer’s E190 – challenges and opportunities

Embraer is pushing hard to get its E2 family into the market. But it faces a similar challenge that Airbus faces with its A330neo - the replacement aircraft is much better, but the current model is still relatively young, not fully depreciated and performs well. Airlines need really compelling reasons to retire aircraft and move into something new. Embraer has seen better success with new customers (Wideroe) rather than a replacement. Losing their largest E-190 customer (JetBlue) was a bitter pill. As we can see the E-190 program has been a success. As of 1Q18 Embraer had delivered 726 aircraft. Note also that there has been a steady rise in the number of these aircraft that are parked. As the JetBlue fleet is retired one has to wonder where they go - new homes or parked? Looking at the fleet by age we can see just how young it is. The parked aircraft are slightly older - but any aircraft under a decade old is by no measure "old" or could be considered economically inefficient. What else do we know about the parked aircraft? Most of the parked aircraft are in Europe or the USA. Adding the JetBlue fleet to the USA parked fleet will considerably add to the numbers. What else can we see? There are none in Africa - a bursting market where Embraer has been successful in placing some used E-190s. Clearly, this the most obvious place to move the rest of the parked fleet. Asia and the Middle East surely offer opportunities. Even Latin America should offer opportunities. The parked fleet is only 5% of the total delivered. Embraer should be able to place them. But moving parked aircraft into airlines doesn't help with the E2 though. The most likely customers for the E2 would be relatively strong airlines which means Europe, Asia, and North America. But those operators that have the E-190 in service are in no apparent rush to upgrade. Embraer has seen strong demand for its E-175 while the larger models (E-190 & E-195) are facing softer markets. The E190-E2 and E195-E2 are both compelling aircraft but face a hurdle from the existing fleet which is young and serving well. Embraer has to find more customers like Helvetic which needs to replace older Fokkers and BAe jets. This is a small pool to fish in and Embraer faces an aggressive Airbus with the A220. What is the extent of the market opportunity out there for replacing aircraft as Embraer did at Helvetic? We estimate 523 of which 420 are in-service and note that not every opportunity is a natural win for Embraer. And the operators of some the really old aircraft (F28) are more likely to be used E-190 customers. The replacement market is thinner than is generally thought. And Airbus will make it tough. But Embraer has more tools than Airbus does. Embraer can offer used E-190s or E190-E2s as customers budgets allow. This helps to get Embraer into more deals, but every single opportunity will be a fight.

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