Embraer continues to be successful in selling the E-190 in China over the indigenous ARJ21 regional jet, but it continues to fail in repeated attempts to open a Chinese E-190 assembly line.
Brazil president Dilma Rousseff, who is in Beijing this week along with a delegation that includes Embraer chief executive Fred Curado, presided over the signing on 12-Apr-2011 of a deal for up to 35 new E-190s. China also has approved a project to begin assembling Embraer Legacy 600/650 business jets at the Harbin Embraer factory, but a proposal to assemble E-190s at Harbin has still not yet been accepted by the Chinese government.
While the Legacy provides an alternative for keeping open the Harbin Embraer factory, which has been assembling ERJ-145s since 2004, the E-190 provides a better business case. Embraer has not sold any business jets in China, although it is hopeful the market will gradually open up. Robust sales are needed to avoid the disappointment of the Harbin ERJ-145 line, which has only produced about 40 aircraft in seven years due do lacklustre sales.
Currently there are 44 ERJ-145s operating in China, including 39 Harbin-assembled aircraft and five Brazilian-assembled aircraft, according to Ascend data. Of the Harbin-assembled ERJ-145s, 23 are at Tianjin Airlines, ten are at China Eastern and six are at China Southern. Three Brazilian-assembled ERJ-145s are operated by Sichuan Airlines and two are operated by Hebei Airlines.
ERJ-145 aircraft in China
|Tianjin Airlines||ERJ-145 LI||23|
If Legacy 600/650 sales in China are not successful, Harbin could potentially assemble business jets for customers outside China. But so far Harbin Embraer has only produced aircraft for the local Chinese market, with ERJ-145s and business jet derivatives for all other non-Chinese customers always being produced at Embraer’s main factory at Sao Jose dos Campos in Brazil.
Embraer will begin assembling Legacy 600/650s, which are derivatives of the ERJ-135/145 family, in 18 to 24 months. The last Harbin Embraer ERJ-145 is to be produced in the next few months but it will take several months to prepare the facility for the new product. Details on the Legacy 600/650 plan for Harbin are to be finalised over the next next few weeks.
Before Rousseff’s visit, Embraer had sold 65 E-190s to Chinese carriers. This includes 38 aircraft already delivered and 27 on order. Of the delivered aircraft, 33 are now operated by Tianjin. The other five were delivered to Henan Airlines - one crashed in Aug-2010 and the other four have since been parked. Of 27 E-190s that were already order, 17 are for Tianjin and ten were ordered in Jan-2011 by China’s CDB Leasing and will be delivered to China Southern starting later this year.
The new order includes up to 20 additional E-190s for CDB/China Southern and up to 15 E-190s for Hebei. Deliveries will begin in 2012. Of the CDB/China Southern aircraft, ten consist of a firm order and the other ten are subject to a letter of intent. Of the 15 aircraft for new E-190 operator Hebei, ten are firm and five are options. As a result, the firm order tally for E-190s in China increases from 27 to 47 aircraft.
Embraer 190 aircraft in China
|Operator||In Service||In Storage||On Order|
Several Chinese carriers are interested in the E-190 as they allow them to down-gauge and better serve thin domestic routes, in particular to western China. These routes have historically been served with low frequencies using A320s and B737s.
While Embraer has had recent success at selling the E-190, it has not sold into China any smaller E-170s or E-175s. The E-170/175 has been less popular globally in recent years than the E-190/E-195 because of their higher per seat operating costs. But in China the E-170 and E-175 are uniquely uneconomical because a significantly higher tax rate applies to aircraft in their size category. The higher tax, designed to protect ARJ21 sales, does not apply to the E-190 or E-195 as they are slightly heavier than the threshold and are taxed at the same rate as A320s and B737s.
Embraer believes the E-190 shouldn’t be considered by the Chinese government as a competitor to the ARJ21 because the E-190 is bigger. The E-190 is also favoured by Chinese carriers given its strong track record of reliability and support.
However, it is believed the Chinese government continues to be reluctant to accept Embraer’s longstanding proposal to produce E-190s at Harbin to protect potential sales of the ARJ21. Embraer and the Brazilian government will likely continue to lobby for approval to assemble E-190s in China, with additional discussions taking place during Rousseff’s visit this week. Embraer could view assembling business jets in China as an interim solution for the Harbin factory as E-190s may be required to keep the plant open over the long-term.