Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
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Embraer faces new challenge from MRJ90
Part 2
Paulo Cesar, president and CEO of Embraer’s commercial aviation unit. Photo via Google images.
Sept. 10, 2015, © Leeham Co. Embraer is the dominant producer of commercial aircraft in the 70-125 seat sector, having overtaken Bombardier in the last decade following the development and 2004 introduction of the E-Jet. Bombardier’s CRJ family struggles, hampered by a sales force that neglected it and the Q400 turbo-prop as attention focused on the new CSeries.
Embraer in recent years faced new competition. However, the early entries—AVIC’s ARJ21 and the Sukhoi Superjet SJ100, both in the 70-90 seat sector, proved little to worry about. The ARJ21, now eight years late, proved to be a technological and industrial dud, a project that was more about learning how to design and build an airplane than producing a commercially viable one.
The SSJ100, while winning favorable reviews, was and continues to be plagued by a poor production system and in recent years the political overhang of Russia’s annexation of Crimea and its war in Ukraine.
Shortly, though, the E-190 faces a new challenger: the Mitsubishi MRJ90. It’s two years late, now forecasting an entry-into-service of 2017—just one year ahead of the redesigned E-190, the E-190 E2. The MRJ90, a 90-seat clean-sheet design, is Japan’s first commercial airliner since the NAMC YS-11 turbo-prop of the 1960s. The MRJ90’s first flight is scheduled for the second half of next month. Full flight testing moves to Washington State in the first quarter next year.
Embraer CEO sees opportunity for 100-seaters in USA
Part 1
Sept. 9, 2015, © Leeham Co.: The chief executive officer of Embraer’s commercial aircraft unit believes a trend might be emerging for US major airlines to directly operate 100- and plus-100 seat aircraft (and below the 125-seat sector), opening new opportunities currently precluding the largest E-Jets, and by implication, competing jets.
Paulo Cesar, president and chief executive officer of Embraer’s commercial airplane unit. Photo via Google images.
US major airlines have generally migrated away from the 100-125 seat aircraft, up-gauging to the 150-162 seat Airbus A320s and Boeing 737-800s and their re-engined successor. The “baby” Airbus and Boeing aircraft, the A319ceo/neo and 737-700/7, haven’t sold well in recent years.
But the Embraer E-195 E2, at 122 seats in a comfortable single-class configuration and somewhat smaller in two class, hasn’t yet penetrated the US market. Neither has the Bombardier CS100, a 100-110 seat aircraft in two- or single-class configuration.
Delta Air Lines is bucking history with acquisition of 88 inexpensive Boeing 717s from the used airplane market. Southwest Airlines and United Airlines are acquiring used 737-700s and United agreed to lease in 25 used A319s.
Cheap fuel and cheap capital costs help these decisions. But Paulo Cesar, president and CEO of Embraer’s commercial unit, sees an opportunity for his airplane.
PW chief credited MRJ with ripple effect leading to CSeries, A320neo, 737 MAX and E-Jet E2
David Hess, former president of Pratt & Whitney, credits Mitsubishi with the ripple effect that led to new developments at Bombardier, Airbus, Boeing and Embraer. Photo via Google images.
Aug. 20, 2015, © Leeham Co.: Conventional wisdom credits Bombardier’s CSeries with being the disruptor that prompted Airbus to launch the A320neo, which in turn caused Boeing to launch the 737 MAX and Embraer to launch its E-Jet E2.
But an academic paper by John Slattery, chief commercial officer for Embraer, reveals that David Hess, the former president of Pratt & Whitney, credits Mitsubishi rather than Bombardier as the catalyst for the dramatic changes that followed.
In a paper entitled Resources & Rivalry, A Case Study of The Single-Aisle Commercial Jet Manufacturing Industry, Slattery interview present and former executives of the Big Four airframe manufactures, the former CEO of ILFC and officials of P&W.
The paper provides a chronicle of thinking leading to decisions to move ahead with new airplane projects, including re-engining the A320 and 737 rather than proceeding with new, clean-sheet designs.
The interviews debunk some of the conventional wisdom surrounding the variety of programs. We’ll periodically report the findings of Slattery’s paper, starting with PW and Mitsubishi.
Mitsubishi opens Seattle Engineering Center ahead of MRJ90 first flight
The MRJ90 testing and entry into service timeline. Source: Mitsubishi. Click on image to enlarge.
August 3, 2015, © Leeham Co.: Mitsubishi Aircraft Corp. today opened its Seattle Engineering Center jointly with local company AeroTEC in advance of the first flight of the MRJ90 in September or October. During the second quarter of next year, four of five MRJ Flight Test Vehicles will be domiciled in Moses Lake in Central Washington for the bulk of the flight testing over the following year. Entry into service is planned for 2Q2017 with launch customer All Nippon Airways.
The engineering center represents the first in Washington State for an aircraft OEM other than Boeing. Mitsubishi will assign 50 engineers from Japan to the new SEC, in South Seattle a short distance from Boeing Field. One hundred engineers will be hired locally.
AeroTEC and Mitsubishi began discussing working together only last January, said president Lee Human, who added that the seven months from January to the opening of the SEC today was remarkable for the speed in which negotiations, contracts, permits and hiring was achieved.
Pontifications: Mitsubishi nears first flight for MRJ-90
By Scott Hamilton
Aug. 3, 2015, © Leeham Co. Mitsubishi is just a few months away from beginning flight testing on the first commercial airplane designed and built in
Japan’s first commercial airliner after World War II was the YS-11 turbo-prop. Photo via Google images.
Japan since the NAMC YS-11 in the 1960s.
The 60 passenger turbo prop had its first flight in 1962 and entered service three years later with ANA. Only 182 were built, and it had a surprisingly wide customer base in the primary and secondary markets. Google images has a nice montage of the operators, which spanned the globe.
Japan’s first commercial airliner since the YS-11 is the MRJ-90 by Mitsubishi. Photo via Google images.
The Mitsubishi MRJ 90 as yet doesn’t have wide acceptance. There are about 200 firm orders and about an equal number of options, but the customer base is thin: 100 of the orders and 100 of the options come from the USA’s SkyWest Airlines and 50+50 are from the USA’s Trans States Airlines. All Nippon Airlines orders 15 and Japan Air Lines ordered 32. Air Mandalay ordered six and the new Eastern Airlines, a start-up carrier, ordered 20.
And that’s it.
The MRJ is a 2×2 passenger cabin configuration with comfortable 18-inch wide seats. The passenger experience should be similar to the Embraer E-Jet that’s been in service since 2004 and better than the Bombardier CRJ Series, which is a cramped cabin.
The MRJ is two years late. The first flight is now scheduled for October and entry-into-service in 2017. But with the vast majority of the orders coming from US regional airlines that contract for US majors, there’s just one problem: the MRJ-90 exceeds the allowable airplane weight in the pilot contracts permitting regional flying on behalf of the majors. This is under what’s called the Scope Clause.
Embraer delays KC-390 one year in 2Q2015 earnings announcement
July 30, 2015: Embraer reset entry into service for its KC-390 tanker/transport will be in 2018 vs 2017 when it reported its 2Q2015 earnings today.
The press release is here.
The KC-390 is Embraer’s largest aircraft, with a fuselage the size of a Boeing 767 width and the length of a Boeing 737. The airplane is being developed with government backing, intended to serve the remote regions of Brazil. Embraer also plans to market the airplane for export. Government funding has been squeezed with Brazil’s latest economic decline. Embraer has $390m in accounts receivable from the government.
The financial numbers were somewhat mixed, with a decline in revenue forecast for its defense unit, lower EBIT margins but solid commercial aircraft backlogs.
Embraer’s revised guidance is here. EMB’s 2Q2015 earnings presentation is here: EMBRAER_2Q15_Results
Goldman Sachs has this initial reaction:
Pontifications: ExIm reform
By Scott Hamilton
July 6, 2015, © Leeham Co. The US ExIm Bank authorization expired last week. As readers know, I’m a strong advocate of renewal of the authorization. Boeing, and other companies, hope reauthorization can be achieved this month.
I won’t restate the reasons I think ExIm should be reauthorized, nor my utter disdain for the right-wing Republicans and Tea Party types who don’t get that the Bank helps Boeing sell airplanes and sustain or create jobs. I’ve written about this many times, and the competitive disadvantage Boeing will have vs Airbus, whose European Credit Agencies will take full advantage of this.
But there are some points on the “other side” to revisit.
Embraer CEO talks about risks
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Introduction
Embraer CEO Paulo Cesar Silva. Photo: AINOnline via Google Images.
June 22, 2015, Paris Air Show, © Leeham Co. Embraer has emerged as the#3 commercial aircraft producer over the years, behind Airbus and Boeing and overtaking Bombardier, by approaching risks carefully and conservatively. No other decision in recent years reflects this approach than what to do when events outside its control forced officials to decide what to do about the future of the E-Jet.
Bombardier launched the CSeries with a new design and a new engine. The larger of two models, the CS300, was a direct challenge to Airbus and Boeing and their smallest aircraft. Airbus responded with the New Engine Option family, forcing Boeing to react with the re-engined 737, the MAX.
With the smallest CSeries, the CS100, a competitor to the largest EJets, the E190 and E195, Embarer had to do something. The question was what.
Embraer could launch an entirely new, larger aircraft, following the Bombardier example. It could do a “simple” re-engine of the EJet. Or it could do something else.
Officials chose to stay away from confronting Airbus and Boeing with a CS-300-sized EJet. Instead, they drew the line at 133 seats in highest density, adding 12 seats to the E-195. The Pratt & Whitney GTF was chosen to power a fundamentally new airplane, one with new wings, new systems, aerodynamic upgrades and other improvements.
We met with CEO Paulo Cesar de Souza e Silva at the Paris Air Show to talk about EMB’s approach to global risk factors.
Summary
- Oil prices, over-ordering and over-expansion by airlines factor into Embraer’s market assessments.
- Airline focus on market share rather than profitability is bad decision-making.
- Asia is Embraer’s best opportunities today.