Has Embraer turned the corner?

Embraer, in the last few years, has been hit by several events outside of its control, including the deal breakup with Boeing, the global pandemic, and continued pilot union intransigence regarding the scope clause, impacting the regional jet segment in its largest global market. The impacts of these actions sent revenues plummeting from $5.4 billion in 2019 to $3.7 billion in 2020, which recovered to $4.5 billion in 2022. The company is projecting revenues between $5.2 and $5.7 billion in 2023, close to 2019 results before the multiple crises. Their CEO, Francisco Gomes Neto, has set a target of $8 billion in revenue in 2027, an ambitious growth plan. Has Embraer turned the corner since the Boeing breakup and global pandemic in 2020? We’ll examine that question market segment by market segment. Embraer has four major business segments, commercial aircraft, business aircraft, military aircraft, and service and support. The company also holds the majority of equity in Eve, the leader in urban mobility that it spun off as an IPO to fund development. In this series of articles, we will examine each sector and comment on each business unit's near and longer-term outlooks. TECHNOLOGY DEVELOPMENT - ENERGIA and EVE Embraer is pushing ahead with new technology in multiple areas. EmbraerX is an innovation incubator working on new concepts within the company, and EVE, the current market leader in Urban Air Mobility, is its first spin-off. Energia is an internal research program within Embraer to explore technology alternatives, including aircraft electrification and hydrogen propulsion. Both concepts have made substantial progress in evaluating the feasibility of innovative ideas and understanding what it will take to bring them to market. EVE EVE is Embraer’s entry in the emerging Urban Air Mobility (UAM) market and is funded by selling shares to outside investors. Currently, Embraer owns more than 80% of EVE, providing it with a unique growth opportunity in an emerging segment of the industry. EVE, coming out of Embraer X, has the unique advantage that it can access all of Embraer’s engineering support and research facility. Essentially, it is positioned to have the agility of a start-up with the major advantage of easy access to Embraer’s substantial intellectual know-how and resources. Currently, EVE is the market leader in the UAM market, with more than 2,770 commitments for new aircraft. As UAM is forecast to become a $3-4 Trillion dollar business by 2040, having an industry-leading position should enable Embraer to achieve a high return on its Embraer-X spin-off. Currently, EVE has multiple aircraft solutions in mind but is working initially on a four-passenger, high utilization, 100% electric design with eight rotors organized into a lift and cruise design tailored for Urban Air Mobility with a 100km range. The aircraft will be piloted, with the potential for autonomous operations being examined when the time is right. The EVE aircraft is expected to be six times less expensive than a helicopter and operate at under 50% of the cost. The program is moving forward well toward a potential EIS in 2026. EVE is currently utilizing rig tests for its rotors, and wind tunnel testing was completed earlier this year. Later this year, EVE expects to select key suppliers, define the system architectures, build a first prototype, conduct the initial test campaign in 2024, and trial software for UAM, drone, and aircraft traffic separation, a key element of the required infrastructure for successful operations. There is a lot to be aligned in bringing a new concept to market, and EVE is active in multiple areas, not only the design of a UAM aircraft. The company is also concentrating on the infrastructure needs for UAM operations, ranging from vertiports to air traffic control systems and pilot-assisted or autonomous flying. Several parties will need to join to create the required ecosystem together, and EVE is coordinating with leasing companies, the supply chain, and infrastructure and logistics companies that will help operate innovative flight operations. An example is vertiports. EVE is examining three alternatives, including one with an FBO and full airport security for connecting flights at a major airport, an operation with just the basics required for safe operations, and a simply parking lot operation. Each has its own challenges and requirements. With 150 staff members supported by 300 engineers on loan from Embraer, EVE is meeting its development plan targets. The company also has completed an industrialization plan for aircraft production and is working with Porsche Consulting on optimizing production processes with learning from the automobile industry. EVE is moving forward full speed ahead, with strong energy and participation by Embraer. From a funding perspective, it is likely that Embraer may raise additional equity in the public market to fund the industrialization plan but maintain a majority share and control of the company. ENERGIA Embraer's Energia program, introduced in 2021, entails a family of four potential emerging technologies for aircraft propulsion that would be environmentally sound. The concepts included battery electric power, hybrid-electric power, hydrogen fuel cells, and direct-burn hydrogen concepts. The concepts were aimed to determine the feasibility of and potential applications for and limitations of those technologies to propel future regional and mainline aircraft. The initial concept for the Energia family is shown in the illustration below. Since the program's launch, the four models have been distilled down to two: a hybrid-electric aircraft for the 2030 time frame that would utilize both battery and conventional power by 2030 and a hydrogen fuel cell model that could be introduced around the 2035 time frame. In each case, the business case has looked at expanding seating capacity to provide the required economics for airline operators, and 3 and 4 abreast configurations are currently under study in the 19-30 seat range. As the industry develops sustainable aircraft concepts, Embraer plans to be at the forefront of research and to provide a sustainable roadmap for regional applications over the coming decade. Embraer’s environmental initiatives also include using SAF, for which the E2 is 100% compatible, and the Phenom and Praetor business jets. Retrofit of the E1 aircraft to use 100% SAF is also planned by 2030 to help the existing fleet move closer to carbon neutrality. Since 2000, Embraer has introduced 20 aircraft models, each more efficient and environmentally friendlier than the aircraft they replaced. Replacing the E1 fleet with E2 jets will provide a 20-25% benefit in carbon reduction. The use of SAF could take these aircraft to near carbon neutrality once the infrastructure for widespread adoption of SAF is in place. Embraer hopes to be carbon neutral by 2040, a full ten years before the industry goal of carbon neutrality by 2050. The Bottom Line Embraer is engaged in emerging technologies for conventional aircraft and the emerging Urban Air Mobility sector. With an industry-leading position for EVE and strong technology resources behind Energia, Embraer is well-positioned to achieve carbon neutrality well before the industry deadline 2050. Embraer’s technology resources, product development track record, and ability to develop new aircraft on time and on-budget bodes well for the future.

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