Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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No changes to US labor Scope Clauses for indefinite future, says Embraer
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By Scott Hamilton
Nov. 22, 2024, © Leeham News: Embraer doesn’t see any changes in the US airline labor contract Scope Clause for the foreseeable future. This means that the E175-E1, equipped with previous generation engines, will remain in production for the same period.
Arjan Meijer, president and CEO of Embraer Commercial Aircraft. Credit: Embraer.
The E175-E2 with current generation Pratt & Whitney Geared Turbo Fan engines is stillborn.
The Scope Clause is a long-standing contract provision for American, Delta, United, and Alaska airlines that restricts the passenger capacity, weight, number of aircraft, and sometimes the operating range of regional aircraft that may be operated by airline subsidiaries or independent regional carriers on behalf of the mainline airline.
The Scope Clause aims to protect higher-paying pilot jobs from being farmed out to lower-paid pilots flying regional aircraft.
Airline managements see a cost benefit to farming out these jobs. They also recognize that many markets can’t support bigger airliners, yet these markets are crucial to feeding the hubs that dominate the US airline industry.
Embraer is now the only manufacturer outside China and Russia producing a regional jet designed specifically for these markets. The E1 entered service in 2004. The company launched the E2 program with a new engine, updated systems, and aerodynamic improvements only nine years later. The smallest original E-Jet, the E170, was dropped. The E175/190/195 was offered as the E2.
However, US unions refused to alter the Scope Clause to allow the E175-E2 to replace the E175-E1 to accommodate the heavier weight of the E2, which exceeded Scope restrictions by only a few tons due to heavier engines. Thus, Embraer put the E175-E2 on indefinite hold and continued to sell updated E1s to US airlines.
Supply chain problems weigh on Embraer deliveries
By Leeham News Team
Nov 8, 2024, © Leeham News: Embraer has revised down its expected commercial aircraft deliveries for 2024 to between 70 and 73 aircraft, from 72 and 80, amid what CEO Francisco Gomes Neto called continued “obstacles” in the global supply chain.
In its 3Q24 results released on Friday, the Brazilian plane-maker reported revenues totaling $1.692 billion in the period, up 32% yoy.
Both the Executive Aviation and Defense & Security divisions performed particularly strongly, with 3Q24 revenues of $561.5 million and $219.6 million respectively, with each achieving a 65% yoy growth.
On the commercial side, 3Q24 revenues totaled $473.3 million, 11% higher yoy, though gross margin decreased from 6.5% to 4.3% yoy because of supply chain delays, and the product and customer mix. Supply and Services unit revenues were $425.5 million, 16% higher yoy.
Embraer said its revenue guidance for the year remained unchanged at between $6-6.4 billion, with the adjusted EBIT margin between 9-10% (up from 6.5% and 7.5%).
Speaking to investors to mark the release of the Q324 results, Gomes Neto said “supply chain problems” and “ongoing obstacles” had impacted deliveries on the commercial aircraft side of the business.
Embraer versus Boeing JV arbitration decision results in $150m cash payment
By the Leeham News team
September 16, 2024, © Leeham News: Embraer issued a short investor release today stating that the arbitration was concluded regarding Boeing’s unilateral termination of the agreement of a Commercial Aircraft Joint Venture and a partnership regarding the C-390 aircraft. Boeing did the M&A termination in April 2020.
The result is that Embraer will receive a $150 m cash payment from Boeing. The payment is below the market expectations, which were around $300m to cover the Embraer carve out and carve in costs. The issue of the Boeing merger and its effects on Embraer is now history, which is positive even though Boeing’s damages payment was lower than expected.
Embraer will most likely use the cash injection to lower its net debt, which is already at a low $1.3bn and has a leverage to EBITDA of 2.0.
It was in July 2018 that Embraer announced it would sell 80% of its Commercial Aviation business, then valued at a 100% value of $5.25bn to Boeing. The Master Transaction Agreement was signed in January 2019. It included a joint venture for marketing the C-390 Millenium multi-mission military cargo jet.
Bullish Embraer sees backlog reach 7-year high in 2Q24 results
By Leeham News Team
Aug 8, 2024, © Leeham News: Embraer presented a strong set of results for 2Q2024 on Thursday, with a jump in aircraft deliveries pushing the Brazilian planemaker’s order backlog to a seven-year high.
Revenues totaled $1.494 billion in the period — an increase of 67% compared to the previous quarter, with the commercial aviation division achieving revenue growth of 176% over the prior three months.
Embraer delivered 47 jets in 2Q24, including 27 executive jets (20 light and seven medium), 19 commercial jets and one of its multi-mission C-390 Millennium transport aircraft. Collectively, that amounted to an increase of 88% versus the 25 aircraft delivered in the first quarter.
For the commercial division, aircraft deliveries were up 12% year-on-year, although defence deliveries were flat and business jets were down 10%. Read more
Boeing, Embraer differ on the future of upgauging
By Judson Rollins
Introduction
July 30, 2024, © Leeham News: Embraer’s new 20-year Market Outlook, released during the Farnborough Air Show, forecasted the demand for jets with more than 150 seats for the first time. This comes as market observers speculate the Brazilian jet maker is mulling a move into aircraft larger than its current flagship E2 family.
However, the Brazilian jet maker delivered temperate commentary on the future of upgauging, citing one-time developments it believes are unlikely to repeat. It said, “The market environment that led to [an] increase in average aircraft size will not be the same in the future. Consequently, the growth trend likely will not continue.”
For instance, a typical two-class Boeing 737-800 Layout of Passenger Accommodations (LOPA) in the mid-2000s comprised approximately 150 seats. By the late 2010s, this shifted to 160-166 seats. A similar Airbus A320 LOPA went from 140 to 150 seats.
Source: Embraer Market Outlook (data from Sabre).
Will the pre-COVID upgauging trend continue, and what are its implications for future aircraft selection? Boeing and Embraer have decidedly different views, and the latter’s view will drive its decision whether to enter the market for 150+ seaters.
Summary
- Boeing says upgauging will continue, driven equally by cabin densification and aircraft size selection.
- Embraer believes upgauging is largely over.
- Both OEMs’ views have key flaws.
- The upshot: “Bigger” doesn’t always equate to “more profitable.”
Farnborough, Day 4: Airbus comes from behind to win order contest
July 25, 2024, © Leeham News: Airbus came from behind today with a big order from flyNAS, a Saudi Arabian low cost carrier, for 75 A320neo family members and its first widebody order, for 15 A330-900s.
The announcement is a Memorandum of Understanding.
Airbus ends the show with 139 orders and commitments. Boeing ends the show with 118 orders and commitments.
ATR announced its only order for the show yesterday, for four ATR-72s from Air Tahiti.
De Havilland Canada ended the show with 22 orders and commitments for the Twin Otter and Certified Refurbished Dash 8-400s.
Embraer didn’t announce any commercial orders, but added nine C-390s to its order book.
Embraer’s outlook improves as supply chain stabilizes, near-term availability drives demand
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By Judson Rollins
Introduction
July 8, 2024, © Leeham News: Embraer is on track for a relatively upbeat Farnborough Airshow later this month, having been spared most of the supply chain headwinds plaguing Airbus and Boeing.
It is expected to reveal updates to its E-Jet family at Farnborough, including lower maintenance costs, cabin upgrades, and more.
Source: Embraer.
In May, the Brazilian OEM reaffirmed its target of 72-80 commercial deliveries this year, citing the stabilization of its global supply chain. It doesn’t disclose its commercial production rate. But its peak production reached 96 E-Jets per year pre-COVID.
Embraer’s reported backlog as of March 31 was the highest in company history: 187 E175s, 12 E190-E2s, and 178 E195-E2s. The company has since taken orders for 10 more E190-E2s and 13 E195-E2s, and has delivered approximately 18 E2s overall, according to Planespotters.net.
Most previous-generation E175s are being built for major US airlines subject to pilot “scope clause” or regional airlines operating on their behalf. Scope clause restricts how many aircraft can be flown below a certain number of seats (generally 76-80) or 86,000 lbs MTOW to protect mainline pilots from having their work outsourced to lower-paying regional airlines.
Summary
- E2 delivery slot availability is a key advantage.
- E195-E2 economics favor smaller markets, while the A220 is better suited to longer routes.
Aircraft production woes stretch far beyond Boeing
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By Judson Rollins
June 17, 2024, ©. Leeham News: Estimating airplane delivery rates isn’t much more than a guessing game nowadays.
While many headlines point fingers at beleaguered Boeing and Spirit AeroSystems, aviation’s production woes are much more complex. Even in 2024, the labor shortage legacy of COVID-19 and raw material shortages exacerbated by the Russia-Ukraine war loom large over the industry.
Airbus struggles to deliver airplanes on time, and engine makers also see their deliveries constrained by supply chain issues.
Source: AFP via Aviation Week Network.
Summary
- Boeing commercial production is far below advertised rates.
- Airbus deliveries suffer from shortages of seats, other parts.
- Embraer says deliveries would be higher without supply chain issues.
- COMAC’s disruption opportunity is dampened by likely trade conflict.
- Pratt and GE Aerospace slowly ramp up delivery of redesigned components.
Embraer: Improved results, but no plan for new narrowbody
By Leeham News Team
May 7, 2024, ©. Leeham News: Embraer presented its 1Q2024 results today, showing revenues for the period up 25% and deliveries up 67% year-on-year.
Notably, however, the Brazilian planemaker dampened speculation of a push to launch a new narrowbody to compete with the A320/B737.
Embraer’s firm order backlog now stands at $21.1 billion, its highest point over the past seven years.
That was helped by the firm order from American Airlines for 90 E175 jets, plus purchase rights for 43 more.
Francisco Gomes Neto, Embraer’s CEO, highlighted during a call on Tuesday the company’s campaigns for more than 200 aircraft within the commercial division – including both the E1 and E2 family.
For 2024, Embraer is still expecting to deliver between 72 and 80 commercial aircraft, compared to 64 in 2023. Read more
Embraer goes for growth after ‘solid’ 2023
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By Tom Batchelor
March 18, 2023, © Leeham News
A strengthening order backlog and an uptick in deliveries helped Embraer turn a profit last year.
In a call with investors as the company outlined its 2023 earnings results, Francisco Gomes Neto, president and CEO of Embraer, said commercial activity had “intensified” over the last 12 months, with “solid demand” across its markets.
Unsurprisingly, Embraer has felt the effects of supply chain delays buffeting the entire industry (though it said not as acutely as in 2022). The company still managed to deliver a total of 181 jets, up from 160 in 2022.
Of those, 64 were commercial aircraft, 115 were executive jets (74 light and 41 medium, helped by the strong performance of the Phenom 300) and two were military C-390s. E2 family deliveries more than doubled year-on-year, from 19 to 39 in 2023.
The recent firm order from American Airlines for 90 E175s, with purchase rights for 43 additional jets, had resulted in a “great start to 2024”, Neto added.
Revenues totaled $1.975bn in the fourth quarter and $5.269bn across 2023, which was 16% higher than in 2022 but at the lower end of the guidance range for the year.
In 2023 as a whole, the company reported adjusted EBIT of $350m, with adjusted EBIT and EBITDA margins of 6.6% and 10.7%. Adjusted EBIT stood at $181.7m in 4Q23, with adjusted EBIT and EBITDA margins of 9.2% and 12.8%, respectively.
Looking ahead to 2024, Embraer said total company revenues would sit in the $6 to $6.4bn range, with an adjusted EBIT margin of between 6.5% and 7.5%.