Aug. 26, 2019, © Leeham News: My column July 22 entitled Embraer counts on Boeing heft for E2 sales boost raised a few hackles in Sao Jose dos Campos, headquarters of Embraer.
It wasn’t meant to. Rather, slow sales of the E-Jet E2 this year caught the attention of more than a few in the market, so I thought putting some perspective on the issue was worthwhile.
After all, sales of the Bombardier C Series were slow between the announcement of selling 50.01% of the program and consummation of the deal nearly a year later.
Such is the case with E2 sales pending consummation of the Boeing-Embraer joint venture, which has a target date of closing by year end, I wrote.
John Slattery, CEO of Embraer Commercial Aviation and CEO-designate of the JV Boeing Brasil-Commercial, said last week in an interview that E-Jet sales in the last 12 months were outstanding.
They were good. But mostly, they were for the E1.
There were 38 first orders last year for the E2. Through mid-August, Embraer announced firm orders for 27 E2s, all 195 models. (As usual, there were a lot of options and purchase rights in each year, but firm orders are all we’re counting here.) That’s 65 E2s in 19 months. But the E1 still is carrying the day, notably the 175 model that is compliant with US Scope Clause labor contracts.
But Slattery, as recently as the EMB pre-Paris Air Show media days in May, said some airlines were waiting for the Boeing deal to close before making decisions about the E2. He also said once certification for the new E2s was received, orders would pick up—although this has seemed to be the case so far after certification of the E190-E2 or, more recently, the E195-E2.
In our conversation a week ago, Slattery reaffirmed his pre-air show observations, but steadfastly touted the sales record of the last 12 months.
He also expressed confidence that there will be more orders for the E2 by year end, including for the E175-E2, which has no firm orders—but 100 conditional orders from US regional airline Skywest.
Embraer has deposits from Skywest, but these conditional orders are contingent upon Scope compliance and contract renewals from its major, partner airlines.
Under accounting rules followed by Embraer, these can’t be listed as firm orders. Slattery notes that Mitsubishi’s orders for 150 MRJ90s (now called the M90 SpaceJet) are also conditional under the accounting standards followed by Embraer, but Mitsubishi’s accounting standards must be different—for the airplanes are still listed as “firm” orders. (MITAC is not a public company and the accounting rules applicable to Embraer don’t apply.)
The E175-E2 and M90 maximum take off weights exceed the 86,000 lb restriction in the US pilot Scope Clauses.
Embraer (and Mitsubishi) counted on Scope relief this year and next, with current pilot contract negotiations. It’s not going to happen, everyone (including the OEMs) concedes. The next opportunities will be in 2023-24. Absent a major economic shakeup in the US airline industry, the consensus is Scope relief may not come even then.
It’s the E175-E2’s non-Scope compliance that causes some in the market to question whether this model will proceed past the prototype that is now in production.
Slattery’s hot Irish temper emerges on this one.
He bristles at the suggestion and says current campaigns outside the US should produce orders this year for this model.
At the same time, he says certification and entry into service (the latter planned for 2021) might be delayed a year due to market conditions. The certification process isn’t a question; any rescheduling will be market-driven, he said.
Those who question the E175-E2 future are, Slattery said, “beyond nonsense.”
“I would be disappointed” if some of the interest in the E175-E2 doesn’t result in orders perhaps by year end, he said.
Slattery believes the three models each will account for about one-third of E2 program sales. Based on E1 sales to date, call it about 500 airplanes per sub-type with the E2, a more even distribution than with the E1 and “Classic” E-Jets, which was weighted more toward the E175/175-E1 and the now-discontinued E170.