Embraer Has Big Plans for Small Jets
It is common knowledge that the commercial aviation industry is dominated by aerospace giants Boeing and Airbus, who essentially control a duopoly on the market. Most major commercial airlines are operating either a Boeing or Airbus commercial airliner. Embraer and Bombardier, however, compete for third place, albeit a distant third, in the aviation market.
Bombardier is a multinational Canadian company with both an aerospace and transportation division. Embraer
is a Brazilian-owned company that supports commercial, military, and executive aircraft. These companies used to be in the running with Boeing and Airbus until Boeing acquired McDonnell Douglas and became a powerhouse in the industry. It is a lesser-known fact, however, that Embraer is actually one of the leaders and largest providers when it comes to business jets. Embraer’s biggest planes are comparable in size to the smallest jets manufactured by Boeing and Airbus. In a strategy coined “right-sizing” by CEO Frederico Fleury Curado, the company has been carrying out an aggressive marketing campaign targeted towards its newer and smaller E-Jets, a plane with less than 130 seats. The advantages of such an aircraft is that it is the optimal size for routes that don’t have dense traffic. Furthermore, it maximizes efficiency, as efficiency is lost on larger aircraft when all the seats aren’t filled. The E-Jet is perfect for filling the demand in feeder hubs or bypass hubs, where smaller planes are more cost-efficient. Theoretically speaking, the largest aircraft have the lowest cost per seat if filled completely, but this is not always the case when it comes to lesser traveled and shorter routes. This so-called “right-sizing” strategy is catching on in the US and Europe as well as in some Asian countries.
Embraer’s success is that it is tapping into the market of low-cost carriers as opposed to the high-density routes that are dominated with a huge concentration of Boeing and Airbus jetliners. Embraer took a step in the right direction recently, with a $2.4 billion sale to a US commuter carrier for its regional jets. The company has a current backlog of 150 E-Jets, which is significant considering that the price tag per jet is $48.3 million. In addition, Embraer has current outstanding orders of 50 E190-E2 and 50 E195-E2 aircraft. On the other hand, direct rival Bombardier is currently struggling to secure firm orders for their new CSeries jet. The CSeries experienced major delays due to engine fire issues and missed the industry’s biggest expo. Although tentative, Bombardier has reached a deal with China’s Zhejiang Loong Airlines Co. for 20 aircraft. The issue at hand here is that Embraer is tapping into the low-cost carrier market while Bombardier, with the larger CSeries, is in direct competition with traditional airliners that operate Boeing and Airbus. Embraer manufactures commercial, military, executive, and agricultural aircraft
in addition to other aeronautical services. As a member of the Air Transport Action Group (ATAG), Embraer received the Tony Jannus Award in 2012, which is an award given annual for acknowledge contributions to commercial aviation. The company generates an estimated $5.7 billion in rannuel revenue, with $329.1 million in net income. Keep an eye on Embraer as they seek to expand their market share and become an even larger player in the aerospace industry in the coming years.
Posted on November 20, 2014