We missed the recent media briefing in Brazil, but Embraer kindly offered us an opportunity to put forward some questions to President & CEO, Embraer Commercial Aviation John Slattery.
- Can you tell us yet about the E3?
As the market leader in the up to 150-seat segment, we are actively studying a new-generation TP aircraft.
In order to mature our view on this possible program, in 2017 we met for the first time with some airlines in an Advisory Board to address the turboprop market. Our interest in the segment was very welcomed. Naturally, airlines see us as a leading brand coming into this important market.
Although it is a market based on 30-year-old platforms and projected deliveries of 2,300 units, we are not even close to launching a new program. We are evaluating potential new technologies, including hybrid propulsion. We are continually analyzing advancements in technology to ensure our products deliver the efficiencies and economic benefits that keep our customers competitive and profitable.
Currently, there are aircraft designs that use economical and well-performing electric engines, but for now in small models. A clean-sheet design can potentially reduce the weight and range penalty of large commercial turboprops by better integrating the system with the airframe structure.
- There has been a positive reaction to the additional range for the A220. This follows a long time after EMB announced its own range increase on the E2. How attractive has additional range proven to be in this segment?
We believe that the E2 offers the best combination of range and cost-effectiveness in the segment. Range-wise, the E-Jets E2 can cover 99.9% of all routes served by single-aisle aircraft worldwide.
The E2 has better economics than the direct competitors, including the Airbus and Boeing smallest aircraft, by a wide margin. The E195-E2 can offer a capacity up to 146 seats, it can approach the seat cost economics of the larger A320neo, but deliver roughly 20% lower cost per trip.
The E2 is the result of the market needs and requirements. Aircraft spec was defined based on the knowledge and core mission of a crossover narrow-body aircraft. It is not a concept that was envisioned in-house. It was precisely developed for the mission a crossover narrow-body jet is supposed to serve.
- Embraer faces a challenge with the E2 (as does Airbus with the A330neo). Its natural replacement market is still young. i.e. the E1 fleet is, on average, young. What can and is EMB doing to overcome this challenge?
When we developed the E2, our current customer base was always considered to be a sizeable prospect. Azul Linhas Aéreas, the launch operator of the E195-E2, is just a materialization of that.
We have been continuously broadening our franchise footprint in terms of operator base and geography with the current generation E-Jets. Embraer has today a diversified customer base with over 75 E-Jets operators in every continent, operating all business models: Regionals, Full-Service Carriers, LCCs and Charter operators.
As the fleet ages, we’ve been successful in the secondary market. In 2018, we had 40 placements in 11 different customers. It’s been an important competitive advantage for us as it gives us the availability to expand our footprint — 5 out of the 11 customers we placed used E-Jets were new, never operated any E-Jets before.
And this also gives us a better penetration to place E2s in the future. Helvetic is a remarkable case. We recently announced an order for 12 E190-E2s, only three years after they added the first used E1 to their fleet.
In addition, we also see an important demand to address airlines’ organic growth. Specifically the E195-E2, as the most radically different design, holds within it the potential to unlock the largest addressable market Embraer has ever faced.
- As fuel prices start to rise again, should we expect to see faster retirements of older aircraft and replacements with the next generation in the sub-150 seat market?
Over the long run, new generation aircraft can also represent a natural operating hedge against surging oil prices. Fuel efficiency is the long-term alternative to reduce the impact of oil price volatility.
Irrespective of whether the rise in fuel price is transient or structural, its volatility poses a risk. As every industry looks for untapped opportunities to improve efficiency, the aviation sector will increasingly strive to keep its current financial health. The operation of used, less-efficient aircraft will only prove economical as long as oil prices remain at low levels – and even then, their use will only be stretched until the next major overhaul. What is notable is the amount of airlines – particularly in the US and Europe – that have entered into long-term lease agreements deep into the 2020s for mid-life narrow-body aircraft, particularly types such as the A319 and 737-700 that until oil prices started to trend downwards in 2014 were seen as having increasingly limited secondary market prospects. It should be assumed that there is a degree of flexibility with the lessors factored in such that lease terms can be reduced if the aircraft economics cease to make sense, but even so, the repercussions on fleet strategy for those airlines could be significant.
- Follow on – can you give us an estimate of the size of this market, please?
Over the next 20 years, Embraer forecasts a demand for 10,550 new aircraft with up to 150 seats. Steady performance and stable volumes compared to last year’s projection when the expected future market size was also 10,550 units. North America and Europe on aggregate will take half of the worldwide deliveries, and we expect more action coming from emerging markets. Main drivers: 1- premium seating in US regional market, mostly to serve markets traditionally flown by 50-seat jets; 2 – small NB bridging the gap between regional and majors; 3 – growth from RJs in Europe and Africa; 4 – replacement of long-haul TP flying; 5 – regional aviation development in Emerging Markets (China, India, Brazil); 6 – entry-level of LCC operation.