News / Economy

Planemaker Embraer Sees American Closing Out US Regional Jet Cycle

Private jets are seen at the Embraer headquarters in Sao Jose dos Campos, Brazil, May 14, 2013.
Private jets are seen at the Embraer headquarters in Sao Jose dos Campos, Brazil, May 14, 2013.
Reuters
— Embraer SA, the world's third-largest commercial jet maker, expects just one more big regional jet order as a result of its current U.S. sales campaign, Chief Executive Officer Frederico Curado said in an interview, after the Brazilian planemaker clinched three of four major deals since December.
 
“After the American Airlines competition, the game is over for a while,” Curado told the Reuters Latin America Investment Summit late on Thursday, reinforcing views that Embraer has come away victorious in the latest round against Canadian rival Bombardier Inc.
 
Curado said much of the lingering demand for regional jets over the next year or so, which could amount to between 150-250 planes seating up to 76 passengers, is likely to be satisfied by outstanding options in recent contracts.
 
Embraer booked the lion's share of those contracts over the past six months, with 117 firm orders from United Airlines and regional operators SkyWest Inc and Republic Airways - plus options for an additional 247 jets.
 
Bombardier's only major U.S. contract in the same period was a December deal with Delta Air Lines for 40 firm orders and 30 options.
 
Bolstered backlog
 

Embraer's flurry of new orders this year, worth at least $4.8 billion at list prices, guaranteed stable or growing output of its regional E-Jets in coming years, Curado said, in his first interview since a “milestone” Tuesday order from SkyWest.
 
Bank of America Merrill Lynch analysts estimate that Embraer's order backlog may rise from a six-year low last year to 16.1 billion Brazilian reais ($78.58 billion) by June -its highest since 2009.
 
While U.S. demand has concentrated on the smaller E175, due to renegotiated labor contracts for regional airlines, Curado said there is ongoing sales activity for larger models in the E-Jet lineup, despite a slowdown in their traditional markets.
 
“Europe is facing a tricky economic outlook and the Chinese market for regional aviation has been settling. So at this point we're talking about smaller volumes, but the E190 is the most-sold of the E-Jet family and that should continue,” he said.
 
Embraer's backlog should continue to grow next year, according to analysts at Brazilian investment bank BTG Pactual, pointing to the outlook for smaller orders from emerging markets and continued demand in North America.
 
Curado said he expected most demand for jets of around 100 seats to come from fleet renewals over the coming decade, rather than market growth. He mentioned hundreds of aging Fokker 100, McDonnell Douglas DC-9 and Boeing 737-200/300 that will need to be replaced.
 
While that represents a small slice of airlines' global fleets, Curado said it will remain Embraer's core business, justifying a hefty investment to renew the E-Jet lineup with more fuel-efficient engines, wings and other systems by 2018.
 
Engineers have been working two years on the specifications of the next generation of planes, Curado said, but the program is still awaiting approval by Embraer's board of directors.
 
Many analysts expect the formal launch of the next generation next  month at the Paris Air Show, which Curado neither confirmed nor denied.
 
If Embraer does go ahead with the program, Curado said it could cover development costs using cash flow and debt, with no need to raise new capital.

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