Embraer reports that in 3Q17 it delivered 25 commercial aircraft, and over the first nine months of the year delivered 78 commercial aircraft. The table below comes from the OEM’s report.
In September, Embraer added 45 orders to its order backlog for the current generation of E-Jets with two separately announced deals with SkyWest. The orders comprised 15 E175 jets in the 76-seat configuration and 30 E175 SC (Special Configuration). The deals’ combined value was slightly above $2bn at list prices. All 2017 SkyWest’s orders have been for E175s, reflecting the popularity of this model among US regional airlines.
Embraer claims market leadership in the sub-150 seat segment, providing this chart as support.
It should be noted the deliveries of the last five E170s are unlikely since it was eclipsed by the E175. The E175 remains popular in the US or regional airline service, where it the best seller. As long as the US scope clause remains as it is, we expect the backlog to be delivered. The backlog of 100 E175-E2 is all with US-based SkyWest. Those will not be delivered until scope moves, which we do not see happening until 2025.
The E190-E2 and E195-E2, on the other hand, should be delivered as they promise to be very attractive. The E190 was a much stronger seller than the E195. Yet it now looks like the E195-E2 has stronger demand. Embraer‘s E2 flight test program has been only delivering good news, which will give customers encouragement to replace current generation E-Jets with the newer models. For that to happen though, we need higher oil prices, because the current active fleet of 672 E190/195s averages only six years old. There are about 40 parked averaging just over eight years old. The E-Jet program has been arguably the greatest success for Embraer. But having a new model so soon (they had no choice with the market evolving) makes it tough on current asset values and does not make the new models irresistible. Which is why Embraer would love to see oil back over $100/BBL.
The upbeat report should be tempered with the consideration that 23% of the backlog is in E175-E2s. If US scope does not move and SkyWest decides to swap the E175-E2 for the current E175, then the backlog looks much stronger. The OEM has told us they will keep building the current E175 as long as the market buys them. We expect the E175-E2 to slide further back in development because of the influence US scope clause has on the regional market. (This same issue is likely to see Mitsubishi also be in no rush on their MRJ program)
