In Conversation: Arjan Meijer. President & CEO Embraer Commercial Aviation

We had an opportunity to catch up with Arjan Meijer, President and CEO of Embraer Commercial Aviation, review the year, and peek at what is coming. AI: Thank you for taking the time to have a chat. Let's start with a brief market update. It's been about a year since we last spoke in Dubai. ARJAN MEIJER: Yes. And I think since Dubai, I'd say it's a better scenario. I think when we were in Dubai, the world was still very uncertain about the future. We didn't know what was next. I think now fast forward through 2022, I think we've seen that we've gone into a bullish market, at least in Europe, the US, and pretty much the whole world, except for Asia and China, which are lacking a little bit. We are seeing markets pick up and reopening. We've seen airlines being very bullish, a lot of demand, and we are seeing a lot of demand also for our aircraft with opportunities that have grown sharply over 2022. You have also seen that we have added quite a number of customers to the Embraer family mix more with Royal Jordanian, Salam Air, and TUI Airlines. And there are still another couple of customers that we are working on, so hopefully, we can announce more soon. AI: OK, that's great. The 100 to 145-seat segment is hot. It seems that the segment is attracting and an inordinate amount of attention in the segment’s history; it has never been as popular as it is now. If you look back at the days of Fokker and Avro, this market was never good. But now, it seems to be coming into a life of its own. ARJAN MEIJER: Yes, I think that's a good reason because the regionals didn't really grow into the segment in the old days. We had our 195 E1 that could technically go up to 118 seats but, on average, was closer to the 110-114 seating level. And the narrow bodies in that segment were the smallest variance of the family. They were always handicapped on operational costs. I think now, with the E2 family, we have stretched with the 195 E2, but also, of course, with the A220. The A220 is an even bigger aircraft, being closer to the bigger narrow bodies, and has been embraced by Airbus. I think we see an uptick in interest in that segment. And to be fair, all the aircraft in the segment offer very attractive economics. I think the E2 is a complementary tool; we see a lot of customers embracing it, for example, with the narrow bodies at KLM with the 737, and in the future, with the A320. And Azul is combining E2s with A320s. So, with the E2, customers now have a very good aircraft with a huge cost per trip gap to the nearest narrow body being A320NEO or the MAX8 and similar unit costs. So, I think airlines are seeing the benefit of the segment but are also seeing that - especially the 195 E2 in our case - is a very attractive aircraft that can compete with the bigger narrow bodies almost on equal seat cost, which is something that the industry has never seen in the past. AI: In China, we've seen some good news there, obviously with the E190-E2 certification and it seems now that this last couple of days that it's opening for travel again. Do you see that ARJ21 is a serious competitor? What do you think about the Chinese market? ARJAN MEIJER: Well, obviously the Chinese market is very big and hugely interesting for Embraer. We have been active with our EJet family in the past, with currently almost 100 aircraft flying in China today. We have a dedicated marketing team in the region, which is very helpful at the moment. Travel to China, is still very difficult, but our local team is working hard, and they managed to achieve this positive result of the 190-E2 being certified at the Zuhai airshow a few weeks ago. We will now work hard to add the 195-E2 into the mix. I believe that – together with the 190-E2 - it complements the Chinese products, on the bottom end the ARJ21 and on the top end the C919. The gap in the middle allows the 190/195 to offer a hand-in-glove fit with the Chinese indigenous products. So, I think it's a marvelous addition for China to complement. The 195-E2 has stellar economics to connect the major Chinese mainland to the bigger Metropole cities and the 190-E2 with a stellar performance that can fly to the higher Tibetan Plateau. The Embraer E190-E2 Tech Shark, seen here during the Farnborough Airshow. (Richard Schuurman) AI: Are you going to try and certify the E2 for places like Tibet? ARJAN MEIJER: Well, we did a demo flight to Lhasa in 2018. So, we showed that the 190-E2 is capable to fly in those regions and we are willing to work on the aircraft to make it fit for those markets. AI: Let's come back to the US for a moment. The regional market in the US is key for your business. But the scope clause seems to be stuck for the foreseeable future and of course, that's OK if they keep ordering E-175s. But can you talk us through the forthcoming turboprop prospects in that segment? ARJAN MEIJER: Well, let me say a few things about the US market. As you are very much aware, the 175-E2, we have paused for a few years because we don't expect the scope clause to change in the short term. Even though we still believe in the longer term, there could be openings, especially with the ESG footprint of the 175-E2. In the meantime, we have the 175-E1, which is a very strong workhorse for the US market. We have over 600 E175s flying with CPA providers, the regional carriers, all for the mainline operations in the US. We see that demand going forward well into the next decade. It's a strong aircraft, it has a strong footprint. From a sustainability perspective, we improved that aircraft seven years ago with a significant fuel burn reduction. So, we believe the 175-E1 is fit for the market. We also see a huge interest from the regional carriers and the CPA providers in the turboprop, you're aware we're studying 70 and 90-seat variants and the 50-seat variant we're offering to the US market. The requested 50-seater is effectively a 70-seater turboprop with a 50-seat layout. We get clear inputs that the US market needs a replacement aircraft as the current aircraft in that segment are aging. The launch of the Embraer Turboprop will take a little bit more time. (Embraer) Our market studies and conversations with operators demonstrate that a strong demand exists globally for a NextGen turboprop aircraft. However, the Program works only if it meets the overall targets which we set out at the start. These relate to financial, aircraft performance, maintenance, and sustainability targets. With the options currently on the table from a few key suppliers, at this point, we are not there yet. We, therefore, plan to work closely with potential suppliers during the course of 2023 to secure the business targets the program requires, to enable Embraer to launch the program. AI: Arjan, is the reason for slipping to the right engines? ARJAN MEIJER: It's key suppliers, Addison. There are a few systems where we have some targets to meet. We're a practical company. So we're just going to take a bit more time. We're not in a rush. I think that's the bottom line. AI: Outside of the US, there's a great push to become greener, and the quickest way to get there is SAF. How does Embraer view the situation? ARJAN MEIJER: That's a good question, Addison. Earlier this week, we did our Energia event. So, we have embraced the targets of the industry to get to zero emissions in 2050. We are studying - the lower seat segment - new technologies like electric, hybrid, and hydrogen. But of course, we're also embracing SAF. We believe that 60 to 70% of the net zero impact in 2050 will come from SAF and initially other technologies will likely have a relatively small contribution. However, we believe especially hydrogen could have an even bigger role beyond 2050 so it is important for Embraer to start small with this technology. If you talk about electric and hydrogen; these technologies have more challenging supply chain effects that need to be sorted industry-wide. So, we believe those are going to take more time in the next decade to mature. The initial focus will be on hybrid solutions as presented during our event. In parallel, we will prepare our platforms for SAF as that will be the most probable solution for the next decades to reach net-zero 2050. We have discussed bringing a turboprop to the market with 100% SAF compliance, that is still firmly on the radar. Plus, we are working - as we speak - on the E2 family. On this platform, we performed a demo flight a few months ago with Pratt & Whitney, where we flew one GTF engine on 100% SAF. There is a process where we are planning to get the E2 100% SAF approved still this decade. In conclusion, we are contributing across our product line from all the technology angles we see. In the sub-50 segment, we want to make sure we take the right step. We are not announcing a product yet, just our focus on two technologies: hybrid and hydrogen-fuel-cell. We are not going to rush into an aircraft just to grow into the segment. We are already in the segment below 150 seats with a strong product line. We need to make sure that’s what we're bringing to the lower seat segment is the right aircraft. Each of the technologies has its own application and its own size, and we want to make sure we come out of the box with the right application for the right market, and that's where we are. The message is: Embraer continues to look at the space, but we aree not going to get rushed into doing something because someone else is working on it. We want to do the right thing. AI: I'm glad you brought up the GTF engine. We've picked up some rumbles in the market. There's some rising frustration from GTF operators; one of them told us about engines coming off at 150 hours. What is your experience on the E2 fleet with the GTF? ARJAN MEIJER: Well, first, I'd start with two comments. First of all, the E2 came to market as third in line with the GTF technology. We were supposed to be the 4th, but with the MRJ discontinuing, we became the third in line. That means we have the benefit of having newer technologies already on board the first engines that we brought to market. As a matter of fact, the first engines that we gave to our first customer at the time were replaced by Pretty & Whitney shortly after to make sure that they complied with the latest technology inserts. There is another difference. The E2 is the smallest family flying with the GTF. So, you also see that our aircraft is 10% lighter than its direct competitors. This means it has less wear and tear on the engine, due to lower thrust and faster climb performance. That's not to say that customers don't see any issues with the engines. And I think we do see some challenges still on the engine that we're working closely with Pratt & Whitney to get to a resolution. But at this point, the supply chain in general, is still hurting the industry around the world, not only the OEMs on new aircraft deliveries. You also see that the issues affect the aftermarket of our industry which includes repair processes on aircraft, parts, and engines. So, there are still some challenges that we have to grow out of in 2023. But overall, I feel the E2 is relatively well positioned compared to other aircraft and we are working closely internally and with our suppliers to improve that further. AI: Can we have a quick review of the P2F segment? The P2F program provides you with a second life on the E-190 and E-195s, which is powerful. ARJAN MEIJER: Well, interestingly, if you look at all the freighters that are available in the world, what I just said about China with the local product, the same applies to the freighter. You have the ATR at the lower end, and then you move straight into the 737-800 and beyond. In the segment in the middle, there is nothing. There's a huge gap in aircraft capacity capability, and the EJets nicely fit in. And the economics of the EJets also fit perfectly from a customer perspective. Overall the EJet P2F versions are very interesting for the market. We launched a program because of this market fit. We will do the first few conversions in 2024, so that is still a few years out, but there are a lot of airlines we are discussing the concepts with, so I think it's going to be very successful. Also, the interest from lessors is a proof of this. You saw NAC embrace the P2F, and we have another undisclosed lessor that has embraced the P2F. There is very interesting traction on the P2F. We see a market of 700 over the next 20 years. AI: The last question, if we look five years ahead, what do you see in the crystal ball? ARJAN MEIJER: I am confident Embraer will see significant growth in the E2 segment. In the last four years we went both through uncertainties with the Boeing situation and COVID. We now get to a place where customers are more confident and ready to take a serious look at the segment. Available aircraft offer stellar economics and existing aircraft in the segment – including the first EJETS but also CRJs and still Fokkers – are getting to their replacement age. I see a healthy growth of the number of E2s that we're delivering over the next 5 years. Also overall for Embraer Commercial Aviation we expect a continuing recovery of deliveries in the next couple of years. Even though the current pilot situation in the US is delaying that a little bit on the 175-E1 deliveries, we expect that challenge to get sorted over time. Potentially, in the next five years, we may also see the US market finally embracing 175-E2 to get access to further valuable fuel burn improvements and CO2 emission reductions. In the global commercial aviation market, I still see a somewhat restricted upward trend in the next 12-24 months. Unfortunately, in these next couple of years, the industry still has to work around some supply chain limitations. But I think that the demand side for aircraft remains strong, especially so in the 135-seat segment. This is where the E2 can complement the bigger narrow bodies at competitive seat costs, allowing airlines to manage their risks in a more and more uncertain world. AI: Thank you for your time today.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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