Pontifications: Embraer, contrary to others, looks to momentum in 2017

By Scott Hamilton

Jan. 3, 2017, © Leeham Co.: Airbus, Boeing and Bombardier look toward 2017 as a bit of a punk year, as detailed in our Look Ahead for subscribers only. Not so by Embraer.

In an exclusive interview, John Slattery, the president of Embraer Commercial, said EMB will gain “momentum” this year. This is at a time where sales at the other three of the Big Four OEMs are expected to slow off an already slow 2016.

Closing deals on E1s, E2s

John Slattery

“We are working hard to close deals early in the new year,” he said. “Customers are now considering securing the inventory they want on the skyline and that’s also creating a good dynamic. I expect the pace of activity will continue to grow in these early quarters of 2017.  This time next year I hope we’ll reflect accurately on 2017 as one of momentum across all programs. That also very much means the E1s.”

Expansion in Russia

Slattery said that Russia’s S7 airline is taking delivery of a large fleet of E170s, growing their regional market.

“Don’t underestimate that move,” he said. “China will also play a major role in our activities again in 2017, including transactions with new and existing customers, hopefully.  The US will likely be our biggest market in 2017 and our teams are working hard to continue to win the mandates both for replacement of older equipment of our competitors, but also some opportunities for the larger E2 members in that market.”

Launch Operators 

“Launch [operators] for all E2 models are all identified, and will be announced between now and end of March,” Slattery said. “The E190-E2 on schedule for 1H2018. It’s on budget and on spec.”

He said the E195-E2, with planned entry-into-service in 2019 is also on time, budget and spec. The E175-E2 EIS was pushed back one year, to 1H2021, “perfectly timed for the next round of Scope discussions.”

The US Scope Clauses limit the weight, passenger count and number of aircraft regional airline partners can fly on behalf of Legacy airlines. The E175-E2, and the Mitsubishi MRJ90, are too heavy under current Scope regulations.

Used supply-and-demand in balance

Slattery said that supply-and-demand for used E-Jets have finally balanced, after a spurt of more supply than demand.

“Almost every single E170 and E190 that was available in 2016 is now committed with existing and some new operators. GECAS and NAC in particular played leadership roles in achieving this,” he said

Strong pipeline, sales reorganization

“I could describe a strong pipeline of transactions in the mix,” Slattery said. “There have been multiple changes in our sales organization, both in the leadership and on the ground, mostly executives progressing from being marketing engineers into sales executives.  A new chief commercial officer also demonstrates we are very focused on sustainability at Embraer, as we are always planning our bench strength.”

Oil’s upward trajectory

Slattery said deliveries in 2016 were “robust and in line with our guidance. Whilst we have not given guidance for 2017, I can only say the ‘valley’ some OEMs experience in advance of new technology has not in any meaningful way manifested for us.

“It’s starting to feel like oil is likely to continue on its upwards trajectory and this again reinforces the decisions of airlines to schedule deliveries of the most fuel efficient aircraft in each segment.”

Slattery said that in the 70-130+ sector, “that’s the EJet platform.”

Embraer will deliver the 1,400th EJet this year. This puts “the program on a robust setting in terms of operator base and residual values,” he said.

Other news: A380, SSJ100 and Delta Air Lines

The period between Christmas and New Year, when LNC was on vacation, finished with a couple of news items from Airbus, Sukhoi and Delta Air Lines.

A380 deferrals

Emirates Airline earlier in the year groused about Rolls-Royce engines for its current order of A380s failing to meet specifications. These “PIPed” (Performance Improvement Packages) Trent engines weren’t quite up to promises when EK placed the order. EK president Tim Clark telegraphed he might not take delivery.

Airbus announced that six A380s will be deferred from 2017 to 2018 and six from 2018 to 2019 in a three-way agreement between EK, Rolls and Airbus.

Airbus reaffirmed previously announced plans to reduce production of the A380 to 12/yr beginning in 2018. The deferrals from this year appears to reduce the planned deliveries from 20 to 14. Airbus said it will accelerate cost-cutting to minimize potential losses to the program.

SSJ100

The Russian government announced on Christmas Day that the Sukhoi SSJ100 was grounded after inspections discovered metal fatigue in one airplane in the tail section. The grounding was lifted a few days later for aircraft that had been inspected.

While the SSJ100 has apparently operated well in service, the program has been troubled from the start. Production is slow. Delivery delays were extended. Russia’s standing in the international community casts doubt over the after-market service.

It’s news Sukhoi didn’t need, and it further dents Russia’s industrial efforts for rebuild its commercial aerospace industry following the collapse of the Soviet Union in 1991.

Delta Air Lines

In a move that should be a surprise to nobody, Delta Air Lines and Boeing announced the cancellation of 18 787-8s that DL had continually deferred since inheriting the order when it acquired Northwest Airlines in 2008. NWA was the US launch customer for the airplane, placing the order in 2005.

It was well known in industry circles that Delta’s management didn’t like the 787-8 and all the design, production issues and performance shortcomings of the airplane.

It was also well known in industry circles that relations between Delta and Boeing were poor, and this didn’t help. Delta repeatedly deferred delivery of the airplane.

Then Delta ran a competition between Airbus and Boeing for wide-bodies. Airbus won in November 2014 with the A330-900 and A350-900. Boeing offered a combination of the 777 and 787-10. The 787’s future at Delta looked as bleak as ever.

Delta has a large order of 737-900ERs, some of which were placed during roughly the same period. Market Intelligence indicated to LNC then that this was connected to the deferral, and eventual cancellation, of the NWA order.

Ten of the 787s are listed by the Ascend data base for delivery in 2020. One is listed for 2021 and the remainder in 2022.

LNC believes that some of the 12 787-9s ordered by China Southern Airlines in October are 2020 Delta delivery positions. CSA takes delivery from 2018-2020.

For some reason, although the order was announced by CSA and Boeing, they wound up in Boeing’s Unidentified 787 customer tally.

 

30 Comments on “Pontifications: Embraer, contrary to others, looks to momentum in 2017

  1. DAL might regret not taking the 787-10’s in the future. Its payload/range fits most A330/767 routes and deliver more pax-payload at similar range as the A330-900. Just having Spirit in ATL with a bunch of 787-10’s would impact DAL.

    • Bjorn studied the 787-10s real world payload range, goes nowhere near the range of the A339, which is a genuine 8-12 hour aircraft. Having said that on less than 3000 mile 787-10 should win hands down, but looking at sales I guess Airbus can offer A333s, which are said to be as economical on short haul as the A339s, so cheaply the 787-10 doesn’t seem to be getting a look in.

      • “real world payload range, goes nowhere near the range of the A339, which is a genuine 8-12 hour aircraft.”

        That is odd as the ranges for both aircraft seems to be about the same (while the B787 carrying a bit more passengers). Is that correct? Was it the A330-800 that Bjorn might’ve been referring to?

        • Claes: Spirit is not a long range operator.

          Indications they are going to be?

  2. Delta and the A330 makes a lot of sense.

    It was funny to see them “play” Boeing as they obviously had no intent to buy the 787s.

    A380 is interesting (and noted in the blog of last year)

    Ocean freight company going bankrupt was interesting in how it affected air freight.

    • The A380 is a slow burn story, if RR are not supporting the PIPs then the one clear supporter of the A380 is gone, I noted the ‘3 way talks’, Airbus must feel vulnerable in those 3 ways… Having said that Emirates is on the point of eschewing the quality that the A380 currently offers them, easy to give up but then stuck with no differentiator down the line. A B77x will be nothing in comparison and for someone like me I will avoid rather than take their service. Simply put the A380 is Emirates sole way of being special, compensation for stopover journeys at the DXB meeting of cultures hellhole

  3. Delta will definitely regret not taking the 777/787 option. They had rolling options for more 777-200LR’s (read about it a few years ago, cant remember if it was from Delta themselves or a news source that reported it) which could actually have been converted to 777-300ER’s which could have replaced the 747-400’s transpacific. They could have also converted the 787-8 on order to 787-9’s, easily replacing the 767-300/-300ER fleet in the atlantic. Both have proven themselves and have the range and capacity to jump back and forth between transatlantic and transpacific. Even a split deal would have been good. Instead, they went with the a339/a359 option, which will hurt them in the long run.

    • Of course Delta could have taken the 777/787 option, but when the choice is close then important things like delivery/pricing come into play. A number of other carriers are replacing their 777’s with A350s so why get the 777-300ER now at the end of its production life. ( Delta are known for being a keeper as far as planes go.)
      Just saying it will ‘hurt them’ without any backing is just ridiculous.

      • This may have something to do with it:
        “Delta Air Lines is set to offer the world’s first all-suite business class, on certain long-haul flights beginning next year.
        The new Delta One suite will debut on the carrier’s first Airbus A350”

    • We don’t know how much Boeing are asking to upsize options to B777-300ER and B787-9. Too much aparently.

      • For all we know Boeing might well have paid Delta to go away,baring in mind the order was probably loss making.
        Nobody seems to be able to tell us what is going on with the A380 /Rolls Royce thing. Is it to enable Rolls to do some more development work without delivering too many sub standard engines? Or is it compensation? How are Emirates going to cope without these planes? Yet another drag on RR profits.

        • Weren’t EK about to start retiring early ones? Maybe do the heavy maintenance and keep them a few years more? Early ones had bracket cracking and maybe there is less to do on them this time around? Only guessing. It looks like RR are a bit behind on the T-900 PIPs, I was thinking their eng resourses might be getting a bit thin with two XWB engines entering service in a short timeframe, one of which isn’t as common to earlier Trents as had been originally hoped, all at a time when they need to push next gen Advance and Ultrafan to stay relievent in the next decade.

          • Tim Clark came out with the ridiculous statement the T-900 was more fuel efficient than the GP7000.

            Then said that’s why they were shifting. RR never did reach the GP efficiency , probably not the reliability and the engine costs for an RR are higher as is the maintenance. That 3 spool thing you don’t get something for nothing and in this case you got nothing for something and that being just more costly.

            Now we are finding out that it was Promised Improvement Possibility (PIP)

            All that was wrapped up in the A380NEO and stretch or 900 which was the delusion.

            Now? He has an engine that is nor performing, he will not get a stretch or a 900, he won’t get an NEO and he will pay a lot more for a split engine fleet.

            Well done TC!

          • TW you should really check what Tim Clark actually said!
            “Clark said the decision to go with the Rolls-Royce engine had been driven by the manufacturer’s willingness to improve reliability and inject technology from the Trent XWB engines developed for use on the Airbus A350.”
            It was all about the development path and all that GP was offering was their existing ‘ GP7000 as a PW4000 + GE90 fusion’

        • Grubbie: Boeing is not going to pay Delta to go away.

          If Delta kept the orders then at certain timelines they had to put up more money.

          They probably shifted it all over the 737-900 that Boeing is happy to sell, open up slots earlier as they never were going to be taken anyway.

  4. I wonder who is advising Mr. John Slattery about US airline scope clauses. He implies that he thinks the unions will be willing to modify the scope clauses. First, it has been taking years to reach new contracts so his concept of timing is misplaced. Beyond that, the major source of new hires for the major carriers are pilots from the regional carriers who can only be described as “mad as hell” about the years they were subjected to low pay and horrible working conditions at the regionals. I am a long retired pilot from American Airlines who never worked for a regional but I lurk on pilot websites a lot and can tell you there is almost universal opposition to making concessions on scope.

    If the new Embraer 190 E2’s find their way to the USA I expect they will have to be flown by mainline pilots. Nothing prevents that.

      • Sure. “Step right up, be the first to join Jimmy in the Meadowlands!” LOL (The Teamsters Airline Division claims to represent 80,000 on their website.)

        • Are you saying the Teamsters represent airline pilots ? The scope clause isnt in the baggage handlers agreement

          • @dukeofurl
            Yes, the Teamsters do represent airline pilots. Mostly regional carriers but also Allegiant pilots, I think – not sure about that.

          • Kalitta, Atlas, Polar, DHL (ABX), Horizon, Miami Air, USA3000, Cape Air, Silver, Southern. And Allegiant, as noted. Yes, ALPA and APA dominate the big boys for now, but maybe the Teamster gloves “come off” if ALPA dared weaken its stance on this.

      • @Grubbie,

        Certainly there are companies that have non-union staff but no major USA carriers. The problem now is that pilots are in such short supply (worldwide as well as USA) and the pilots of USA airlines that start out as non-union soon vote in a union.
        Why do you think the pilots at a major carrier should agree to let a regional carrier fly an aircraft like the Embraer 190-E2 rather than have the mainline pilots fly that aircraft?

    • Sort of wondering if E-195 E2 will end up comming in for US mainline carriers. Methinks EMB might be thinking about an E-170-E2 but not sure what they do about engines. PP-1000s might just be a bit heavy for it.

  5. I would thing BBC is on the upswing as well. They have a lot of C series to get out the door and the more the better.

    Is the E190/95-E2 excluded from scope clauses, its bigger, where does it fall in.?

    The 175 is delayed due to scope clauses.

    Where doe the C series fall in scope clause. ?

    • @TransWorld,

      The C Series are clearly mainline aircraft. Basically competing with the B-737 & A-319.

      • Yea I am starting to sort of getting my mind around all of it.

        What a stupid system.

        • @TransWorld,
          Are you referring to the regional system as a “stupid system”?

          If so, I would say it is a system that worked in its day for the major carriers but is coming to an end. When young people could take out a college loan to go to an aviation program anticipating that in 3 or 4 years they would be on with a major carrier, it worked for them and the majors who got cheap labor for their feed operations.

          The system was set up to leverage the regional pilot groups against each other and it worked – for a time.

          Then came 9/11 and the change in the retirement age from 65 to 70 and the gravy train came to a halt. The next generation of prospective regional pilots looked at what happened to the deal and decided to seek other occupations and many of the stalled and furloughed pilots left the field so now there is a deficit of pilots. What goes around comes around!

          • As far as I can see, there was never a need for this bizarre system anywhere else in the world.

  6. @Grubbie,

    I see your point but the US does have rather unique labor laws for airline and rail workers. That may be the difference.

  7. Correction (or freudian slip?) – The USA pilot retirement age was changed from 60 to 65 years old. Sorry!

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