June 17, 2015, Paris Air Show, c. Leeham Co. With focus, as always, on Airbus and Boeing, and an airplane that neither exists nor is about to any time in the near-term (the Middle of the Market aircraft), little attention was paid to Embraer, currently the third of the Big Four commercial aircraft companies.
Embraer finished the Air Show (which essentially ends June 18 for the industrial sector), with 50 orders for the E1 and E2 E-Jets.
John Slattery, the chief commercial officer, said the company is ending the first half of the year with 125 firm orders for the two platforms. EMB now has 70 customers, headed for its target of 100 by 2017, and an important new customer joined the ranks, albeit through a used airplane transaction. Delta Air Lines will purchase 20 E-190s once a new pilot contract is ratified. The airplanes will be flown by Delta pilots for the mainline carrier, not one of its regional partners.
“Embraer has enjoyed an enormous tailwind from our partners in North America on the 175 platform over the course of the last 24 months,” Slattery told LNC in an interview. “You’ve seen the news from Delta Air Lines selecting our 100-seater platform, the 190. They are hoping to bring that into operations. They are in discussions now with their pilots to validate that for the Delta group. That for us is very exciting to bring the 190 into another network carrier in North America. American Airlines Group already has the 190 in their platform.
Delta’s mainline pilots will fly the E-190s because there was no change in the new contract to the scope clause, the provision that limits partner-operated small jets in Maximum Take Off Weight (86,000 lbs, in Delta’s case) and in seating capacity and number of airplanes.
“More broadly in North America, regardless of scope, the idea that the 100-seater is the right size for that market is gaining a lot of traction complementing the larger A320s/A321s and the 737-800s/MAX 8s in the future,” Slattery said. Still, the near-term growth market for EMB will be Southeast Asia and China, where the Hainan Group ordered the 195 E1 and E2 within last few weeks.
“As I look, what’s exciting to me, it’s not an E1 or E2 program story, it’s an E1 plus an E2 program story,” Slattery said. Orders are coming in for both airplanes, often as a coupling.
The scope clause among US airlines limits sales opportunities of the E190 and E195. Although no change occurred at Delta, and none is likely in Embraer’s view at American or United airlines when their pilot contracts are negotiated in 2016 and 2017, Slattery hopes that the rounds after that will bring some changes.
“We knew the conversation was coming up [at Delta] between the management and the pilots. They made their decision. At Embraer we have a long history of working with the management teams and the unions and respecting their decisions,” Slattery said. “They made their decisions. They are not planning to change the MTOW. It clearly is an issue for one of our competitors, in particular, where their aircraft is not compliant with the 86,000 lb MTOW. You can always fix the seat issue.” Slattery is referring to the Mitsubishi MRJ90 on MTOW. The airplane exceeds the current weight restriction in the Delta contract. Regional partners SkyWest and TransStates airlines ordered hundreds of the airplane.
Embraer’s E-175 E2 also exceeds the current MTOW, but Slattery isn’t worried. First, he hopes for a scope relaxation by the time the 175 E2 is ready to enter service in 2020. Second, the current 175 E1 can remain in production longer, if necessary, to provide a solution.
“We have an airplane that is not only compliant with the 175 with the current scope limitations, but it’s also an aircraft the airlines continue to order in size. We’ll see how Delta’s position impacts the decision-making processes at the other two large network carriers in North America. That will take a couple of years to play out.
“Embraer is continuing to be committed to delivering the 175 E2 to our partners in 2020 as planned. Our expectation is, and our hope is, that by then we will see some developments on scope, particularly around MTOW. However, at the moment we have an aircraft that is compliant, the 175 [E1]. It’s continued to be ordered by airlines. We have an aircraft the airlines want, with over 80% of the market share since January 2013 with the 175 platform,” he said.
“We have the organizational capability to extend the production of the 175 platform if needed, if that’s the only compliant solution for them. But we believe that by 2020, the 175 E2 will be compliant with the then-appropriate scope.”