Embraer Sees Lifeline Beyond U.S. as New Small Jet Is Completed

(Bloomberg) -- As Embraer SA prepares to complete the first assembly of its revised regional jet on Friday, the plane will enter the market with a disadvantage: It’s too heavy to be flown under the terms of U.S. pilot contracts.

But the Brazilian manufacturer still expects to find eager buyers for its new E175-E2 elsewhere in the Americas, Southeast Asia and Europe.

“My sales and marketing team are spending a lot of time on active campaigns on this aircraft outside the U.S.,” John Slattery, the planemaker’s head of commercial aircraft said in an interview as the company celebrated the first delivery of another new plane. “I believe that Embraer will secure a launch operator for the E175-E2 in the Americas in the coming months.”

Seating 76 to 88 people and weighing a maximum 89,000 pounds, the original E175 has been a mainstay at North American regional airlines. Along with Bombardier Inc.’s CRJ jet, the Brazilian plane was small enough to comply with “scope clause” language in U.S. pilot contracts, which limits the size of planes that regional carriers can fly for large airlines.

The new E175, which is heavier but more fuel-efficient and less noisy than its predecessor, will fulfill fleet renewal needs for the 76-seat market in fast-growing regions like Asia even while it’s ineligible in the U.S., Slattery said. Almost 600 of the older models have been sold to North American carriers since January 2013, and about half of the 20 airlines with E175 aircraft are located outside the continent.

Embraer will continue assembling the older version of the E175 even after the newer model debuts, allowing the company to continue catering to U.S. customers. Development of the E2 version was put on hold but Embraer restarted the program and expects to release the plane in 2021, Slattery said in the interview.

‘Hybrid Production’

“We have developed a unique hybrid production line that will remain in place for as long as we want to produce the E175-E1,” he said. Embraer engineers on Friday will complete assembly of the first E2, hanging Pratt & Whitney engines on its wings, he said.

That will come a day after the first delivery of another new plane: the E195-E2. The revamped jet, the largest in Embraer’s commercial lineup, was delivered in time and below budget.

“We want to be boringly consistent here at Embraer,” Slattery said at a ceremony Thursday in Sao Jose dos Campos, Brazil, for the E195-E2 delivery to Azul SA. He has been tapped to serve as chief executive officer of Boeing Brasil-Commercial, the coming joint venture between the Brazilian planemaker and Boeing Co.

Mitsubishi Aircraft Corp., which is buying Bombardier’s CRJ program, is a potential competitor for Embraer in the U.S. regional jet market. While production of the CRJ is expected to cease toward the end of next year, Mitsubishi is using the maintenance, support, marketing and sales operations that it bought from the Canadian company to help develop a new 76-seater, the SpaceJet M100.

U.S. regional carrier Mesa Air Group Inc. -- an Embraer customer -- recently signed a memorandum of understanding with the Japanese company for as many as 100 planes. If the deal is finalized, deliveries would start in five years.

“By 2024, yes, I think Mitsubishi will be” in the U.S. regional market, said Bloomberg Intelligence analyst George Ferguson. “Embraer should think about the future, but Boeing will be there to help them think about it.”

To contact the reporter on this story: Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson, John Bowker

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