A surge in orders for commercial “E-Jets” is fueling a rebound in Embraer’s backlog after a painful downturn, but the top executive at the Brazilian aircraft builder says there are no plans to raise production levels anytime soon.
President and CEO Frederico Curado says the company expects to deliver 90-95 E-Jets this year and a similar number in 2014. “It’s going to be pretty much stable for the next year,” Curado said in an interview following a Sept. 13 ceremony at the company’s headquarters to mark the delivery of the 1,000th E-Jet to Republic Airways.
Embraer was forced to slash production of E-Jets – the 170/175 and 190/195 families – by 40% after the onset of the global economic crisis in late 2008, to about eight aircraft per month. But demand is now rebounding. The company has won 281 firm E-Jet orders so far this year, including 150 for its new “E2s,” which will be enter service between 2018-20 and offer 16-23% improvements in fuel burn and 15% lower maintenance costs.
A spate of E-Jet orders from airlines such as United, SkyWest and Republic helped increase the company’s total backlog by $4.6 billion in the first half of 2013 to $17.1 billion, its highest level since 2009. And that figure is likely to rise when the company reports its third quarter results, thanks to a July order from International Lease Finance Corp. for 25 E190-E2s and 25 E195-E2s worth $2.85 billion at list prices. While Embraer also has defense and business aircraft units, the increase in backlog “is mainly from commercial aviation,” Luis Carlos Affonso, chief operating officer for commercial aviation, told reporters.
The improved demand has convinced some financial analysts that Embraer will move to boost output. “We would expect to see a ramp in production rates beginning in 2014,” says an Aug. 26 report from RBC Capital Markets. But Curado signals the company will be extremely cautious in raising rates. He expects E-Jet production rates will remain at about eight per month through next year, noting that while the company’s backlog has improved recently, it is still well below its peak of nearly $21 billion in 2008.
Embraer is taking a similarly cautious approach to overbooking. Airbus and Boeing made it through the economic downturn largely unscathed because they had taken orders for more aircraft than their assembly lines could produce in anticipation that some would disappear when hard times hit. “We did not overbook our assembly lines and they did,” Curado said in a 2010 interview. “We were conservative, and maybe we were naive.” But today he says there are no plans to change course. “Boeing and Airbus have done well with overbooking,” he says. “But we’re not ready to take that risk.”
The E2s will switch from a GE CF34 powerplant to Pratt & Whitney’s PW1000G geared turbofan, but Embraer officials stress that the enhancements will go well beyond similar reenginings of the Airbus A320 and Boeing 737. “Boeing and Airbus are just changing the engines, but we are doing much more – [improved] wings, gears and systems,” Affonso says. “It will be as efficient as if we were designing a clean sheet airplane.”
Strong demand in Europe for the larger 190/195 family jets has helped that region overtake North America in recent years as Embraer’s largest market. Europe accounted for 31% of the company’s sales last year, followed by North America at 25%. Brazil and China tied for third place at 14% each. But Affonso predicts new demand from North America – especially for 175s, which are mainly used as hub feeders – will restore that region as the company’s largest market within the next two years.
Embraer has retreated from a plan to add advanced wing tips to the current-generation 190 and 195, opting to wait instead for the bigger gains promised by the E2s. But the company is proceeding with a plan to add new wing tips to the 175, since that aircraft’s successor will be the last of the three E2s to enter service, in 2020.