Embraer and the promising E2

Embraer’s greatest advantage is, as one industry person said, its ability to stay quiet and not be noticed.  While this view could be argued, Embraer has managed to quietly accomplish a great deal.  The company’s history includes a near death bankruptcy.  However the passion of its team pulled through and created the ERJ-145 which turned their fortunes and they haven’t looked back.

Today Embraer is doing well – it holds a commanding lead in the 70-130 seat market with 49% share of orders and 60% of deliveries.  Embraer can no longer operate quietly – it is too big and successful.  The company boasts a backlog of over 450 aircraft.  It’s current flagship, the E-Jet, delivers a 99.3% dispatch reliability and a 99.9% completion rate.  One can’t get much better than that.  Embraer has followed the same path as other aircraft OEMs, it relentlessly tweaks its aircraft to improve them and stay competitive.  Between 2008 and 2015, the E-Jet has seen ten distinct technical improvements.  Customers have reacted to this effort – Embraer has 1,100 E-Jets in service with 65 airlines in 45 countries. The chart below illustrates how this success has played out.

The E2-Jets are going to build on the success of the E-Jets.  With such a robust base, Embraer is able to harvest relationships and use the same message Airbus and Boeing have shown to be so effective.  Their re-engined and updated aircraft offers the lowest risk option in the market – it is a known brand with established record and requires only 3 days of pilot training (using a computer) to switch from an E-Jet to the E2-Jets.  Airbus and Boeing have shown that airlines and lessors like the message of continuity because of all things, airlines and lessors dislike and avoid risk above everything else.  The market has responded to Embraer as it did to Airbus and Boeing – there are 590 E2’s on order.

The following chart illustrates how Embraer is pitching its E2 solution – a deliberate attempt to show low risk with slight up-gauging.   You’ve seen the same think from Airbus and Boeing.  Perhaps it is this behavior that has allowed Embraer to not attract the ire of Airbus and Boeing the way Bombardier has.

The E2 is a lot more than a re-engined E-Jet.  Embraer has undertaken a number of improvements to keep their offering competitive.  Embraer  explained to us that they were not driven to this project by the emergence of the CSeries.  Rather it was the arrival of the Pratt & Whitney GTF that made it possible.  Perhaps. But one has to concede the GTF allowed the creation of the CSeries, the neo and then the MAX – and then the E2.  No OEM is going to redo a highly successful program if the universe doesn’t shift. So whether it was CSeries or not, the world moved and Embraer reacted.  The chart below shows just how much Embraer undertook to stay competitive.  Embraer claims the E2 project is being done for under $2bn.  That is an impressive claim and can be best understood when one considers how well conceived the E-Jet was at the start.

Some of the key items E2 will have include:

• Revised APU
• New stabilizers
• Fourth generation FBW (developed internally)
• Revised A/C
• Revised cabin
• Revised flight controls, bleed, ice, hydraulics and steering

Of particular note is the new wing.  Besides having to be stronger to handle the much heavier engine, the new wing also provided 400 NM more range than expected.  Embraer says they worked closely with customers who were adamant they wanted the physical size of the aircraft to change as little as possible.  This is particularly the case with the E-190, which operators wanted unchanged.  The E2 claims a 16% lower fuel burn, and this comes from 3.5% wing, 11% GTF and 1.5% FBW.

Th flight deck has been given a serious upgrade.  It looks much like the latest and greatest at Airbus or Boeing.  Despite the upgrades, pilots need less than 3 days to make the switch.  Embraer says no simulator or high level training is required.  Operators no doubt appreciate this.

In terms of the cabin, Embraer has offered a novel staggered seat premium cabin, giving passengers a sense of greater space (no close neighbor).  Larger overhead bins accommodate 22″ bags and with four abreast seating carry-on bags should not be as much of a test as it is now.  The new cabin was recognized at the recent Aircraft Interiors event, winning the Crystal Cabin Award.

With all these refinements, what does this offer an operator? The chart below illustrates where Embraer is aiming. “Rightsizing” is a term that is increasingly popular.  Airlines appear to be less focused on fleet streamlining as they once were.  It is clear that airlines need to vary their fleets to accommodate aircraft that can serve their markets most efficiently – misusing an aircraft is not attractive over any length of time.

The E2 does not have the seating capacity of an A320, as the yellow bar shows.  But look at the trip costs and see how rightsizing kicks in.  So what is the market extent? The next chart illustrates the market for segments using under 130 seats is substantial.

So even as Airbus and Boeing exit the sub-150 seat segment there appears to be a good sized opportunity for Embraer.  Since the E2 has nearly 600 orders, airlines seem to agree.

Ernest Arvai

President AirInsight Group LLC

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