AirInsight: Thanks for being with us today, John. Embraer has been quite successful in the regional market in the US with the E-175. It appears that scope clauses may preclude the E175-E2 from market entry when it enters service in 2020. What are your contingency plans for the US market?
John: To clarify, the E175-E2 is scheduled to enter revenue service in 2021.
It’s important to highlight that the current E175 has been extremely successful in the US market. Since the last scope negotiation in 2013, Embraer has sold over 420 E175s, representing more than 80% of the market share in the US and making it the unbeatable leader in this segment.
If airlines are able to negotiate scope, however, the E175-E2 will greatly benefit their fleet and business as it is the most efficient and comfortable aircraft available in this segment.
Providing both the first and second generation aircraft of the E175 as a solution for airlines, gives Embraer a competitive advantage since it is the best positioned OEM regardless of the US scope clause scenario.
The E175-E2 is an excellent aircraft for developing an airline’s network in regions like Latin America, India, and China – where new local policies are focusing on developing regional aviation.
On the other hand, in mature markets like Europe, where we have a sizable E-Jets customer base given that regional aviation is a well understood need, we are confident that the enhanced efficiency and reduced environmental footprint will make the E175-E2 a desirable aircraft for the region. Additionally, the E175-E2 is an excellent solution to replace long-haul turboprop flying.
AirInsight: The E175 has a strong advantage over the competing CRJ in passenger comfort, given the relative sizes of the cabin. In recent years, we have seen airlines opting for comfort and a more consistent passenger experience when they choose regional aircraft, and a relative market share leadership for the E175. With economics becoming increasingly important, do you expect passenger comfort to continue to be a key factor in fleet planning decisions?
John: I absolutely believe that both passenger comfort as well as economics are key factors to the fleet planning decisions of airlines. This is why, as an aircraft manufacturer, we are in constant pursuit of challenging ourselves to improve with each aircraft. The fantastic thing about the first generation E175, however, is that since it is a perfect combination of efficiency and comfort, an airline does not have to sacrifice one for the other. As mentioned, the E175 is the best aircraft available in the 76-seat segment today. It is the most fuel efficient airplane and has the most comfortable cabin, which explains the success this aircraft has had in the US.
AirInsight: You are facing both existing and new technology competitors in the regional market with the CRJ-900 and forthcoming MRJ-90, while uncertainty remains regarding scope clauses for the E175-E2. Has that uncertainty impacted your market, and will the signing of new pilot contracts in 2019 provide additional clarity for your sales strategy in the US market?
John: The E175 — whether the E1 or the E2 — is hands down the best aircraft available for the regional sector in the United States. By offering both generations of the E175, we are extremely well positioned to capture the largest market share of regional jet replacements regardless of the US scope clause scenario.
AirInsight: Historically, the US market has been the dominant player in the regional industry. Do you foresee a shift in the regional markets by 2030, and where do you project the highest growth internationally?
John: North America and Europe will take half of worldwide deliveries and we expect more action coming from emerging markets. The main drivers for this will be premium seating in the US regional market (mostly to serve markets traditionally flown by 50-seat jets), small NB bridging the gap between regional and majors, an increase in regional jets in Europe and Africa, replacement of long-haul turboprop flying, regional aviation development in emerging markets (China, India, Brazil), and new LCC entering into service.
AirInsight: In recent years, sales of the existing E190 and E195 have slowed, while the E175 has shown remarkable market resilience. The Farnborough Air Show appears to have broken through some sales barriers once the E190-E2 entered service, with multiple orders totaling 300 aircraft. To what do you attribute this recent success, and can we expect to see a continuation of that trend through 2018 and 2019?
John: In my opinion, the pickup in sales came after the E190-E2 certification and the success we experienced with Widerøe because of the reliability that came from having a mature product EIS since day one. As the development of the E195-E2 progresses, we are seeing a growing interest from airlines worldwide. The E195-E2 certification is very near, and some airlines like Azul are eager to introduce the aircraft to their fleet.
Of course, the E175 continues to generate interest (and orders) among the majors in the US. Needless to say, we are pleased with the success of our sales campaigns.
AirInsight: The E190-E2 and E195-E2 now have a more formidable competitor since the CSeries has moved from Bombardier to Airbus, which has both a deep product line and deep pockets. Do you expect a major change in the competitive dynamics in sales campaigns?
John: Embraer believes that this partnership endorses the enormous opportunities we see in the market of up to 150 seats, which highlights the success of our strategy and creates even more competition in this space. It is still too early to comment on all aspects of this partnership but Embraer has full confidence in the success of E2, which is the best and most efficient jet family in its segment. Embraer is fully committed to continuing to lead in this segment. This of course, is subject to fair market conditions.
AirInsight: There have been rumors in the industry that Embraer has been working on an E3 turboprop aircraft. Is there anything you can tell us about your advanced product planning?
John: As the market leader in the segment of up to 150 seats, we are always keeping an eye out for new opportunities to improve/ expand in this segment, and the turboprop market is definitely something we are looking into. Embraer is constantly researching state-of-the-art technologies and how they could best be applied. With 13 new aircraft programs in the last 14 years, it is evident that Embraer is committed to continuous development and improvement.
The turboprop market is stable and its current players are based on 30-year-old platforms. In order to mature our view on potentially adding this type of program to the Embraer portfolio, last year we met with an Advisory Board made up of some airlines that could shed light and provide insight about the turboprop market. Our interest in the segment was welcomed with open arms.
Naturally, airlines want competition, and they see the benefit of having a leading brand like Embraer come into this important market. We still are in the early stages of evaluating a business case, so it’s premature to elaborate any further.
We can say, however, that as both the ATR72 and Bombardier Q400 feature technology that is “decades old,” naturally we expect that new generation airplanes (Jets or TPs) could take advantage of current technologies available for better economics and passenger comfort. New engines, materials, and technologies are under analysis. We will pursue the most optimized combination of engineering solutions, customers’ needs and cost balance to generate the best airplane to our customers.
AirInsight: While we understand that responses to questions on pending transaction cannot be provided, Embraer could clearly go head to head with Airbus when aligned with Boeing. However, should the unthinkable happen and the transaction not move ahead for political or other reasons, would Embraer require a strategic alliance to better compete with Airbus, or can you successfully go it alone in the marketplace?
John: I believe the partnership scenario represents the best for Embraer as it would combine the competencies of two extremely respectful companies. If the partnership is not completed, however, Embraer still to offers the most competitive products in the segment of up to 150 seats, giving us the confidence that we would continue to lead in this segment.
AirInsight; Thanks for taking the time to be with us today.
President AirInsight Group LLC