Embraer deliveries fall in 3Q2010, but orders give some hope

The weak deliveries have been partially offset by better ordering in the quarter. At the Farnborough Air Show, held in July, TRIP ordered two E190s and flybe ordered 35 E175s. Air Lease Corporation also signed an MoU for 10 E190s and 10 options. The leasing company has since converted five options to firm orders, signing an firm order for 15 E190s and five options earlier this month.

Embraer's commercial aircraft order backlog, which had been steadily declining, rose marginally to USD15.3 billion in 3Q2010. Embraer's commercial aircraft backlog stands at 249 aircraft.

Bombardier commercial aircraft orders & backlog

Source: Embraer

Commercial aviation makes up 61% of Embraer's business, but it has been eagerly pursuing a diversification programme, offering new business aircraft - particularly very light jets - and developing a new military transport aircraft, the KC-390.

Embraer announced five major agreements covering the new military transport over the quarter, which could result in sales of at least 54 aircraft, a major step-up for the company. Apart from Brazil, customers in Colombia, Chile, Portugal and the Czech Republic have entered sales and industrial partnership negotiations.

Twenty of the 44 aircraft delivered in 3Q2010 were from Embraer's commercial aviation segment. These include one of the final four ERJ 145 regional jets in Embraer's order backlog. The ERJs are manufactured at the company's JV in Harbin. The last ERJ 145 is due to go to Hainan Airlines by Mar-2011, and the delivery is likely to spell the end of the project.

Embraer is outwardly confident that it can save the Harbin JV by switching it from producing the 50-seat ERJ 145 to the 90-120 seat ERJ 190 family. The E190/E195 family, and particularly the E190, have proved a success story for Embraer, but the company is now looking to a new model to compete with the next generation of jets that are coming on stream.

The problem for Embraer's Harbin plant is twofold: the sub-50-seat regional jet niche market is dying, supplanted due to high fuel costs and the better efficiency of larger regional jets and; China has its own regional jet that it is pushing. COMAC's ARJ-21 regional jet is China's first major foray into the commercial jet market. Its 80-105 seat capacity and 1,800nm range put it into direct competition with the E190. Whether China is willing to risk the presence of a direct, manufactured in China competitor for the ARJ 21 - essentially an aircraft targeted at the massive Chinese regional jet market - is yet to be seen.

Embraer is also faced with the decision of how to respond to a wave of new competition in the regional jet market. While Boeing, and to a lesser extent Airbus, are forecasting a dramatic decline in regional jet numbers over the next two decades, the market has never looked so competitive. Apart from the ARJ-21, Sukhoi has its soon-to-be-certified SuperJet 100, Bombardier is bring out the stretched CRJ 1000 and the all-new CSeries and Mitsubishi began cutting metal for its MRJ this month.

Embraer has already abandoned its stretched E-Jet concept, dubbed the 'E195X', primarily because the aircraft would have insufficient range. The company has also been cool on the prospect of re-engining. New aircraft with new engines offer, at Embraer's own estimates, an 8-12% improvement in costs. While new engines could match this, Embraer feels that simply matching its opposition by updating an older design is not enough.

Embraer has several options open to it. The manufacturer is looking at a wide range of options, including a new turboprop, a reworking of the E-Jet family or an all-new aircraft, possibly with more than 120 seats. Engine options are also up for consideration, reportedly including an open rotor concept.

A decision on the company's next aircraft is not due until the end of 2010 or early 2011, but Embraer is wisely in no rush to put a new aircraft into the market. With four new/redeveloped regional jets due to enter the market before 2014, and the prospect of a re-engined A320 looming ever closer, the company will