If the 1990s were when a struggling Embraer secured its future with the ERJ family of regional jets, and the 2000s all about E-Jets and the breakthrough into business aviation, this decade is likely to be characterised by Embraer's development of an industrial footprint beyond Brazil and a third significant arm of its business - military aviation. The moves should help the airframer hedge against fluctuations in the Brazilian currency, by moving costs into the dollar and euro zones, and develop a third, government revenue stream.
Although there have been wobbles since its foundation in 1969 - including bouts of hyper-inflation and a financial crisis in the early 1990s - Embraer's history has generally been one of making the right investment decisions at the right time. In the 1990s, it brought its ERJ-135 and ERJ-145 to market just as US airlines were developing a taste for jet commuter services. In the 2000s, the manufacturer helped create the large regional jet segment with the E-Jets family, and - using a variant of the ERJ-135 as its start point - broke into the business jet market just as it was expanding outside the North American heartland dominated by its established competitor brands.
The turn of the decade saw two major new departures. Backed by a launch order from the Brazilian government, Embraer launched its most ambitious military programme, the KC-390 jet tanker/transport. The company believes defence sales, including from the Super Tucano military turboprop trainer, will make up a quarter of its revenues by 2020 (see box). At the same time, Embraer opened a factory in Melbourne, Florida to assemble Phenom 100 and 300 light jets, and earlier this year announced it would be adding an engineering and technology centre this year, creating a further 200 jobs. A business jet completion capability is likely to be next.
Around the same time as the Melbourne plant was being built, Embraer also announced it was establishing a production plant in Portugal to build composite structures, initially for the new Legacy 450 and 500 business jets. It is Embraer's first overseas subassembly facility, although it has a majority ownership of Portuguese maintenance house and aerostructures manufacturer OGMA. A joint venture in Harbin, China - which carried out final assembly of now out-of-production ERJ-145s - may switch to assembling its cousin, the Legacy 600 and 650, although a deal still has to be concluded.
With Embraer's four-variant E-Jet family now mature, the company's medium-term strategic focus in its commercial aviation business is on new product development. It appears to have settled on a re-engining, and a possible further stretch, of its E-Jet range, with a service entry of 2016-2108, rather than developing a clean-sheet, five-abreast airliner to compete with Bombardier's CSeries. Its thinking appears to be that in trying to keep up with its Canadian rival, Embraer would be walking straight into a four-way fight with two much bigger competitors, Airbus and Boeing, who still want to compete in the 130-seat segment.
Embraer could have developed a technologically superior and more efficient jet in the small narrowbody category, benefiting from new engines and a fresh design, says commercial aviation president Paolo Cesar de Souza e Silva. But the investment needed would not have justified the risk. "It is a market three times as big as the one we currently compete in, but there are already two big manufacturers and to convince an airline to switch from one fleet to another would be challenging, especially when [Airbus and Boeing] have the advantage of being able to cross sell other types," he says.
Clean-sheet design: Legacy 500 takes shape
Likewise, Embraer appears to be going cool on a return to the turboprop market, with a 90-seat competitor to the Bombardier Q400 or ATR 72. While soaring fuel prices have rekindled a turboprop segment that appeared to have burned out a decade ago, the market is still limited, says Cesar. "There are two established manufacturers in that sector selling 120-130 unit a year. That does not seem big enough," he says. However, new propulsion technology could change things. "If the right engine came along, that could give us a new opportunity," he says.
The E-Jet family is developing into a healthy cash cow for Embraer. Originally developed to take on the Fairchild Dornier 728Jet, sales got off to a slow start but the family now has around 1,100 orders. Cesar sees the main opportunity for the family now not so much in the traditional regional feeder sector, but in airlines "right-sizing" routes - complementing narrowbodies with E-Jets at certain times of day, for instance. In fact, fewer than four in 10 E-Jets in service are used for traditional regional or feeder routes. Almost three in 10 are with low-cost airlines and the rest are used for point-to-point services by full-service airlines, he says.
Emerging markets generally are also a big focus. "Five years ago, there were no E-Jets in Latin America," says Cesar. "Now we have eight customers." The Chinese market too is showing "good demand" and Indonesia with its 240 million population and 17,000 islands is an "amazing country for aviation". Even the beleaguered US market shows promise, with the oldest fleets 15.5 years old and the reorganisation of many of the airlines driving through further efficiencies.
The commercial aviation business held its own in 2011, with 124 E-Jet sales, up by 28% on 2010, and 105 deliveries, compared with 100 the previous year. The backlog for the family stands at 249 units. Commercial jets remain Embraer's bread and butter - representing 64% of revenues in 2011 - but it is in its other divisions, particularly executive aviation, where most new product development has been taking place of late.
Embraer's shift into business aviation to become one of the six mainstream manufacturers has been rapid and bold. From a single product - the ERJ-135-derived Legacy 600 a decade ago - Embraer now has a line-up of seven types: the entry level and light jet Phenom 100 and 300, the under-development, clean-sheet Legacy 450 and 500 in the medium-cabin segment, the 600 and its 650 variant, and the large-cabin Lineage 1000, which is a derivative of its E-190 twinjet. The division now accounts for almost a fifth of Embraer's revenues.
However, the peak of that new product development has coincided with the sector's worst slump - four of its new models entered service between 2008 and 2010 - and Embraer has not escaped the effects. Deliveries last year slumped to double figures - 99 - compared with 144 in 2010, with the Phenoms worst hit, down from 126 to 83 last year. Like most industry observers, Embraer does not expect sales across the industry to return to the highs of 2008 until the end of this decade.
However, Embraer is determined to ramp up its market share. It has relocated its divisional head office to Florida to bring it closer to its North American customer base, a move that could also help it swing future lucrative US military contracts.
And with new products on the way - the midsize Legacy 500 is due to fly for the first time in the third quarter, with its mid-light Legacy 450 stablemate following in the second half of 2013 - Marco Tulio Pellegrini, chief operating officer for Embraer Executive Jets, says Embraer has built a strong portfolio and powerful market position. "We have 500 jets in service. For a business that started in 2002, that is a good result so far," he says.
Clean-sheet design: Legacy 500 takes shape
For more information and to read Mike Gerzanics' flight test of Embraer's Phenom 100, go to flightglobal.com/phenom100