Will Embraer C-390 success lead it to larger jets?

Will Embraer C-390 success lead to larger jets? The company just signed a deal with Sweden for the C390 Millennium military transport, making it the sixth European customer for the aircraft, four of whom are NATO members. The initial success of the aircraft bodes well for its future, as it appears to be the modern replacement for the venerable but aging C-130 platform. Several key procurements are coming up that are looking positive for Embraer, including a potential order from India for 80 and Saudi Arabia for 50 aircraft. Landing those would solidify Embraer as a key player in this sector, and provide the company both manufacturing and support experience in mainline-sized aircraft rather than simply regional jets, cross-over jets, and business aircraft. At that point, the natural progression for the company would be to enter into the mainline aircraft market, competing with Airbus and Boeing in the mainline commercial jet market. Could Embraer become the fourth member of an aviation oligopoly? We believe they could, as they have virtually all of the technical requirements and a successful reputation in the industry. Design Embraer has a strong track record in bringing new products and new models to market on-time and on-budget. Their engineering talent is extensive, buoyed by relationships with educational institutions that utilize real-world problems and internships in their educational processes. Over a 15 year period this century, Embraer introduced 14 different models, all on-time and under-budget. During that same time frame, Boeing has struggled with programs running late and safety issues post-certification. Apart from having strong engineering talent and a built-in supply from aviation-trained university students, that talent is well managed internally, with lower levels of outsourcing than their competitors. For example, Embraer has its own landing gear business unit, while most of its competitors utilize outsourced solutions. Embraer has the design experience from the C-390 and E2 jets that provide a sound basis for undertaking new challenges. Manufacturing At its peak, Embraer was producing E-Jets at significant rates, with more than 1,800 aircraft delivered. While this is a far cry from what Airbus and Boeing have produced in their main-line programs, Embraer’s manufacturing processes are scalable. Emulating the Airbus strategy for multiple final assembly lines, the company could quickly ramp-up capacity by investing in countries looking the build up their aerospace infrastructure. Embraer already has facilities in Brazil and the US, and component production in Portugal. Add in India and Morocco and Embraer could produce aircraft in North America, South America, Europe, Africa and South Asia, as demand and investment funding evolve. As the OPEC countries try to diversify their activities, they may be willing to locate and fund final assembly and MRO operations in the middle-east as well. Embraer will have no shortage of countries interested in gaining a piece of the aerospace pie. Aircraft The key for Embraer will be a design to leapfrog current offerings from Airbus and Boeing. That could entail new aerodynamics, ranging from supercritical wings to lifting body designs. Embraer is capable of innovating and producing a product that both passengers and airlines prefer. That happened with the E-Jets in the regional market, and Embraer is in a position to force Boeing’s hand by developing an all-new aircraft. If we look at the track record of who could produce an all-new aircraft faster and on-budget, we’d have to bet the farm on Embraer over Boeing. The Bottom Line Aircraft markets are changing, particularly in China. While COMAC is slowing ramping production of the C919, it will steadily gain experience and market share with a long-term strategy to carve out a position as a key industry player. If Embraer wants to remain a key player in commercial aviation, the company will need more critical mass in its product offering to compete with Airbus via larger jets. Currently, the E2 Jets don’t directly compete with Boeing and COMAC, but face the A220 head on at Airbus. With a larger portfolio, Airbus can bundle multiple aircraft deals for airlines and offer the A220 at discounted rates from deals that include higher-margin larger jets. Without a narrow-body competitor, Embraer faces a more difficult task marketing its E2 jets without the ability to bundle multi-aircraft deals. To truly become more successful, the company will need to expand upward, and expand its current commercial aircraft portfolio beyond E2 Jets.to include larger jets. A mainline narrow-body jet would provide the larger jets the company needs, and provide the ability to more effectively compete against Boeing, Airbus, and COMAC at the heart of the market. Will Embraer enter the mainliner market with larger jets? It will take capital, and a concerted effort to innovate and differential a new offering from the competition. With international funding and manufacturing support, the company has a unique opportunity to exploit Boeing’s current weakness and carve out a successful market position based on superior engineering and design. The world is looking for an alternative to Boeing’s delays and safety issues, and that opportunity is now at hand.

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