Embraer expects to command significant market share by ’15
In five years, Embraer has increased its share of total business jet deliveries from 2.2 percent of the total to 14 percent, thanks to the growing number of models offered by the Brazilian manufacturer. Looking at the typical market niches for business jets, there remains only one it hasn’t filled: ultra-long-range jets.
In its market forecast for the next 10 years, Embraer expects manufacturers to deliver 10,000 business jets worth $190 billion. But, added Luis Carlos Affonso, executive vice president, Embraer executive jets, “we should not be too pessimistic. In the next ten years this business will be bigger than it was in the previous ten years.” He pointed out that “actual data has always been better than [Embraer’s] forecasts.”
During the forecast period, the OEM projects the largest compound annual growth rate in the China market, at 11.1 percent. The next highest will be Asia Pacific, at 7.4 percent, followed by Latin America, 5.5 percent; North America, 4.7 percent; and Europe, Africa, Middle East, at 2.2 percent.
However, in terms of total dollar volume during the next 10 years, the largest market remains North America ($91 billion); followed by Europe, Africa, Middle East ($65.5 billion); Asia Pacific ($15.7 billion); Latin America ($11.4 billion); and China ($6.7 billion).
“I believe we’re very far from saturation in those markets,” Affonso said. “Demand is starting there. If you compare the size of the economies, corporate profits, the number of high-net-worth individuals and you compare to the number of business jets in those regions, there is a huge room for growth, and we believe this will happen in the next ten years.”
“We don’t believe that these markets will reach the same level as the United States,” said Claudio Camelier, vice president for market intelligence, corporate jets. “The number of business jets, high-net-worth individuals, GDP–it’s really a high number, which is related to cultural aspects of the population that is used to the benefits of the business jet. And this is something that was acquired over a 30- to 40-year usage of airplanes for this purpose. In Asia, business aviation is still a new thing, so it takes time for the cultural benefit of business aviation to be accepted.”
While Embraer is confident about its forecast, there are potential roadblocks. “The first obstacle is the strength of the economies,” said Camelier. “If we look, historically, at why there are so many more airplanes in the U.S. than in the rest of the world, it is associated with the sizes of the economies.” Emerging countries have much greater participation not only in the global economy today but also in growth, he said. “Today, the majority [of GDP growth] is coming from emerging markets. This is a driver.”
But other obstacles such as infrastructure, cultural attitudes and regulations also stand in the way, he added. “Our goal is to show to the markets, the public, potential customers, the benefits of the business jet. I believe the culture is changing. More and more people in the emerging markets do business worldwide. And they need business jets.”
Since Embraer launched its executive jet growth plans in 2005, said Affonso, “Our vision remains the same–to become a big player through technology, differentiated products and service solutions, and we have been evolving even ahead of our plans.”
In that same year, Embraer’s only business jet was the regional jet-derived Legacy 600, which was launched in 2001. In that same year, the company launched the Phenom 100 and 300 programs, both of which are now in service. In 2006, it produced the Lineage 1000, another airliner-derived jet; then in 2008, it introduced two new clean-sheet designs–the Legacy 450 and 500–and last year the Legacy 650 joined the Embraer family. “So in five years we have launched six new jets,” he said. By the end of this year, he added, “out of the seven machines, five will be certified and in production and only two [the Legacy 450 and 500] still in development.”
Although Affonso admitted that Phenom 300 deliveries are running behind this year, he expects that Embraer will deliver the 120 Phenom 100s and 300s that it had planned. The slow start for the Phenom 300, he said, is due to normal ramp-up challenges “with the parts, components supply and streamlining of production. Of course, we want to streamline the production before we accelerate. I believe the ramp-up is always like that, either internally or with our suppliers. They are starting their production lines and many times they have to do small modifications here and there. But I’m optimistic we will meet our target of the end of the year.”
Affonso added that there has been some movement on the customer side that is affecting the delivery pace for the Phenom 300. “We have seen some movements, people asking for deferrals, like we saw for the 100. But the number is very limited for the 300. The main driver is really the production ramp-up.”
For both the Phenom 100 and 300, the largest markets so far have been the U.S. and Brazil, Affonso said. More than 50 of the delivered Phenoms are already operating in Brazil.
Embraer’s 2010 deliveries should include 120 Phenoms and 17 Legacys and Lineage 1000s.
As for the ultra-long range niche, Affonso explained, “Today we are not actively looking into that segment. We still have a good four years on the Legacy 450, 500 family. These are important developments, so it’s early to think of another platform. For [the ultra-long-range] segment, it would be a new platform, and it would be unwise to develop two new platforms simultaneously. So there’s no decision to go into that segment. We are focusing on the current programs.”