Brazil is a large country in real estate terms – 8.5M km2, or 14 times bigger than Alaska, making it only slightly smaller than the entire USA. We know how crucial air transportation is to the United States, and this also applies to Brazil. While Brazil may be nearly as big as the US, its population is two-thirds that of the USA and its GDP per capita at $15,200 pales against the $54,800 in the US.

Getting around Brazil requires air travel regardless of the correlation between GDP and air travel. Brazil has nearly 4,100 airports, of which nearly 700 have paved runways. Of these we estimate more than 100 have sufficient runway length for jet service. Turboprops could likely service another 150 or so if traffic warrants.  From these few data points it appears obvious that Brazil is a country ripe for commercial aviation growth.

The county’s airlines had 286 commercial passenger aircraft in operation at the end of 2014. Of these only 18% were turboprops. Which is an important number to remember. The next two charts illustrate the Brazilian commercial passenger fleet by aircraft and engine OEMs.

2015-04-30_9-50-07This fleet is operated by 14 airlines which vary widely in size. The following table lists the airlines in descending order of fleet size. The top three account for over 86% of Brazil’s commercial passenger fleet.

2015-04-30_9-51-25In the following table we list the commercial passenger fleet by airline and OEM. Note that the small airlines are typically flying locally made Embraer aircraft. The aircraft typically used by the smaller airlines is the EMB-120.

2015-04-30_9-52-26Brazil’s commercial jet fleet is biased towards smaller aircraft. Of the total fleet, only 13 (4.6%) are truly long haul capable. This is another important data point. Brazil is a country with a rich economic capability because of its natural resources. It has the potential to be a key part of the global economy. Such a role demands a far more capable long range fleet. This gap is likely what spurred Azul to order long range Airbus aircraft.

2015-04-30_9-53-58Brazil should grow its long haul fleet substantially. By comparison, the US’ passenger fleet is 19.6% long haul capable. Traffic between the US and Brazil is almost certainly being carried more on the US fleet – losing Brazil important high-yield traffic revenues.

The smaller 150-180 seat fleet is currently sufficient for regional service. IATA reports that Brazilian airlines had load factors of 81.5% in 2014 and domestic demand grew by 7.9% in January 2014 compared to 2013, considerably above the 5.3% expansion in capacity.  So sufficient now, but for how long? GOL has ordered (60) the 737 MAX, while orders for the Airbus neo program are at 35 for Azul and 25 for LATAM. No doubt the leasing firms will be adding to this.   Since the current average age of the Airbus and Boeing single aisle fleet is under ten years, these new orders are expected to boost the fleet count.

In the sub-150 seat segment, Embraer has a lock as of now. The few Avianca A318s are likely to be replaced by either Embraer or Bombardier. Avianca also has ten F-100s that are aging – the fleet averages 22 years. These are also ripe for an Embraer/Bombardier tussle. But don’t count out SuperJet because it will have the lowest purchase price. One would assume the local OEM has a strong “home court” advantage; but even Air Canada flies Embraers, so its no certainty.

In the sub-100 seat segment, ATR is the only player. But its ATR42s are aging; five are well over 20 years old. There ten EMB120s are also aging, but there is really no natural replacement for these. We would guess that Brazil is ripe for a lot of turboprops to connect the smaller communities across the country. Jets are too big for many airports. Can Bombardier make the case to local airlines that its high speed Q400 serves their needs? Or do these airlines stay within the ATR fold? Azul has 28 ATRs and this may be an influence on others because of local MRO expertise.

The Bottom Line

We think Brazil is a market opportunity for aircraft OEMs. The next table lists the Brazilian airlines, their fleets and aircraft ages.  The numbers in red are aircraft we think may be ready for replacement.  If we take the orders announced, Brazil has 120 new aircraft on order.   2015-04-30_10-20-29The current financial crisis is something that comes and goes – fleet planning has to look beyond election and economic cycles. Brazil, in our view, offers opportunities for long haul aircraft (the A330neo looks to be an excellent offering here). The narrow-body market has two low fare carriers, one with a Boeing and one with an Airbus fleet. In the sub-150 seat market Embraer will be tough to unseat, but not impossible. Finally in the sub-100 seat segment we believe the market requires additional turboprops. While many focus on China and India as emerging aviation markets, don’t forget the substantial potential in Brazil.

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