Boeing Frontiers
October 2003
Volume 02, Issue 06
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Industry Wrap

Brazilian airplane maker benefiting from growth in U.S. regional jet use

Above: Brazil-based Embraer's rapid growth is expected to make it the world's No. 3 plane maker soon. US Airways announced earlier this year that it would purchase 85 Embraer 170 airplanes (one pictured above), each of which seats between 70 and 76 passengers.
Continental Express, American Eagle, JetBlue and US Airways all are buying new regional jets from Brazil's Embraer, whose rapid growth is expected soon to make it the world's third-biggest plane maker, after Boeing and Airbus.

According to a story in the Kansas City (Mo.) Star, experts say the company's booming business comes from Embraer's dead-on prediction in the late 1990s that there would be huge growth in the United States among regional and low-cost air carriers.

The growth happened: U.S. regional airlines have more than doubled their passenger counts since 1991, according to an industry consortium. But many lost money flying larger planes with 150 or more seats on routes that produced only 70 to 110 passengers. Embraer's smaller planes are eating up that market.

Low-cost carrier JetBlue announced plans in June to buy 100 Embraer 190s, part of Embraer's new family of midsize aircraft carrying 70 to 110 passengers, depending on the configuration. The deal was worth U.S. $3 billion and could bring in another $3 billion if JetBlue exercises options to buy another 100 planes.

A month earlier, US Airways, emerging from bankruptcy, announced that it would purchase 85 Embraer 170 airliners that seat 70 to 76. The carrier has an option for another 50 Embraer 170s and 140 Embraer 50-seat aircraft. The deal has a firm value of $2.1 billion, plus options worth $6.2 billion.

The Embraer sales argument, which it said is based on U.S. Department of Transportation statistics, is that six out of 10 U.S. passengers would have been delivered at lower cost to the airlines by planes in its 70-to-110-seat range.

Bill Oliver, an analyst with airline consultant The Boyd Group in Evergreen, Colo., said he thinks Embraer is well positioned.

"Over the past 10 years or so we have seen the average size of the aircraft—the number of seats on board—shrink. It's gone from 180 seats on average to most likely heading toward 120 seats over the coming years," he said in the newspaper's report. "The airlines are looking for small, more efficient aircraft. It gives them much more flexibility, and the economics are better."

U.S. carriers are expected to buy about half the planes sold worldwide in the next decade, added Carlos Albano, an aviation analyst in Sao Paulo for Unibanco, Brazil's third-largest retail and investment bank. And most of the growth is expected to be in the Embraer size range.

Among other airplane makers, Boeing and Airbus also make jets in the same general seat range, but their focus is on bigger planes. Canada's Bombardier competes only with a longer, 76-seat version of its narrow-bodied 50-seater, and Fairchild Dornier remains in bankruptcy.

Exports by Embraer account for about 10 percent of Brazil's foreign trade, and the company employs more than 12,000 people, according to the article. Both figures are expected to increase along with sales of the new family of jets.



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