Can Brazil’s aerospace champion Embraer conquer Asia? & More News Here

SAO JOSE DOS CAMPOS, Brazil — In the sprawling meeting plant of Brazilian jet maker Embraer, slightly Japanese signal is pinned on a whiteboard. “Kaizen,” it says, a Japanese phrase for steady enchancment.

“We do hundreds of kaizen projects every year to increase productivity in our production sites,” mentioned a manufacturing unit supervisor, looking to the place a 146-seater E195-E2 is awaiting its wings, engines and a paint job. “Last year, we were able to achieve a 17% reduction [in production lead time] despite all the difficulty we had in the supply chain,” he mentioned. The firm goals to attain a 40% discount by the tip of 2023.

Kaizen was made well-known in Japan by Toyota and others and the scrap of paper pinned up within the manufacturing unit is emblematic of a Brazilian nationwide champion more and more open to concepts from exterior. Francisco Gomes Neto, Embraer’s newish CEO, has come from the auto business. Embraer now has two U.S. residents sitting on its board. The broadening of perspective is essential: The battle for market share rages globally and, based on interviews with executives right here, will more and more be fought in Asia.

Embraer predicts its passenger jet manufacturing will enhance to 60-70 plane this yr, and finally again to its prior degree of 100-110, after two years dented by the pandemic. But attaining the aim will not be so easy. The firm now faces competitors from Airbus for bigger jets and state-owned Commercial Aircraft Corp. of China (COMAC) for smaller ones — whereas Japan’s Mitsubishi Heavy Industries, which acquired the regional jet enterprise of Canada’s Bombardier in 2020, is pushing its clients to make use of their present fleets for so long as doable as a substitute of shopping for from Embraer.

“The market is very competitive,” acknowledged Gomes Neto in an interview. He says Embraer is pursuing each cost-cutting and an growth into new markets for its business aviation division. “This segment is extremely important to us. Commercial aviation used to be, and will be, the biggest business in our organization. We believe we have a potential to double the size of the company in five years.”

(Source images by Mitsuru Obe) 

Small passenger jets are a distinct segment, distinct from the marketplace for giant jets that has lengthy been dominated by Boeing and Airbus. So-called regional jets, with 100 or fewer seats, are a distinct segment inside a distinct segment, utilized by airways to attach smaller cities with the big hub airports. It’s a small however steady enterprise that present gamers, comparable to Embraer and the previous Bombardier, now referred to as MHI RJ below Mitsubishi Heavy Industries, are attempting to maintain in opposition to new entrants like COMAC. Staying lean is essential.

“Pre-COVID, Embraer used to produce 100-110 commercial aircraft per year and they used to lose money,” mentioned Victor Mizusaki, analyst at Bradesco BBI, a Brazilian funding financial institution. “Now we talk about 45-50 aircraft per year and they are making money. They are much more efficient in terms of cost.”

Under Gomes Neto, CEO since 2019, Embraer decreased its workforce by nearly 3,000 to 18,320. It offered off factories in Portugal. In the U.S., it consolidated government jet manufacturing in Florida and restructured upkeep and help operations in Connecticut. “We want to be attractive for investors,” Gomes Neto mentioned. “We want to grow and to be very profitable.

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Gomes Neto also represents a growing diversity of management. In the past, Embraer executives were mostly from elite engineering school ITA, also located here, said Mizusaki. Today, non-engineers in the C-Suite include Chief Financial Officer Antonio Carlos Garcia, a former ThyssenKrupp executive. Board members are no longer just Brazilians with little global expertise in the aerospace industry, Mizusaki said. It has two Americans, from Boeing and GE Aviation, with an eye on markets such as Asia.

“Diversification is key,” said Gomes Neto. It “brings totally different data and totally different relationships to the corporate. More than 80% of revenues we make are exterior of Brazil.”

Asia figures prominently in Embraer’s push for new markets. It plans to develop a turboprop commuter aircraft in late 2020s for short-haul routes that it expects to be popular in the region. A turboprop can take off and land on shorter runways and is more fuel-efficient on short distances than jets. 

In India, Embraer is in talks to sell regional jets to low cost carrier IndiGo. IndiGo’s appointment of Pieter Elbers as CEO in May has prompted speculation that the Indian airline will become more open to using Embraer jets. Elbers was the former CEO of Dutch national carrier KLM, a big customer of Embraer.

“Of course I do know Pieter very properly. Of course we have now good relationships with Pieter as a result of he was our buyer,” said Arjan Meijer, Embraer’s commercial aviation chief, during a recent media event. “But we must discuss to IndiGo, not simply to Pieter, for his or her fleet improvement.” 

Another Indian airline, Star Air, has been a person of Embraer’s 50-seater ERJ-145 and is seen in want of an improve. “We are involved with potential clients in India. We have our plane working in India already,” said Gomes Neto. “India will be an vital marketplace for our turboprop in addition to for the E2,” he added, referring to the flagship family of passenger jets that can carry between 100 and 146 people.

In April, Embraer conducted a demonstration of its E190-E2 aircraft for Vietnam’s airlines, including Bamboo Airways, an up-and-running low cost carrier offering access to resorts and sightseeing spots within the long and narrow country. Bamboo currently has five Embraer aircraft of the previous generation.

Embraer, however, has had more difficulty expanding in China, where the government in Beijing wants to nurture a domestic aerospace industry as part of its “Made in China 2025” industrial policy, and is seen pushing Chinese airlines to buy from COMAC, not from foreign suppliers.

COMAC is expanding its family of aircraft. Already in operation are the ARJ21 regional jet with up to 90 seats and the larger C919 narrow-body jet seating up to 168. The C929 widebody jet for 280 passengers is under development. China aims to reduce its dependence on Airbus and Boeing for commercial aircraft supply by having its own aircraft maker. The country could even develop a network of sales and services facilities around the world in an export push. But without certification from Europe or the U.S., COMAC’s aircraft can only be used in China for now. 

Embraer used to produce 50-seater ERJ-145 in China from 2003 to 2016, but now faces challenges selling or producing jets there. 

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“In China, we’re nonetheless working to certify the E2,” Gomes Neto said. Without certification, an aircraft cannot be flown in the country. 

COMAC’s C919 narrow-body airliner on show through the 2021 China Aviation Industry Conference And Nanchang Air Show.

  © Getty Images

Japan’s Mitsubishi Heavy — the brand new proprietor of Bombardier’s regional jet program — is targeted on promoting in North America, and skeptical concerning the alternative in Asia, the place bigger narrow-body plane produced by Boeing and Airbus are extra well-liked amongst airways and leasing corporations. In half, it is because they will carry extra folks between Asia’s densely populated cities. They even have larger resale worth. 

“Are regional aircraft, below 100 seats or below 70 or 80 seats, really going to be as popular in Asia as in the U.S.? Maybe. Maybe not,” mentioned Hiroaki Yamamoto, CEO of MHI RJ Aviation Group. Since buying the CRJ within the carve up of Bombardier, MHI RJ has ended manufacturing, focusing as a substitute on offering help and providers for the plane in service.

The U.S. has been the most important marketplace for regional jets. It has many giant cities scattered throughout large distances and lacks railway infrastructure. The U.S. market has additionally been supported by a scope clause between main airways and their pilots unions, which restricted the dimensions of plane regional airways can function. “In the next three years, we don’t believe there is going to be a meaningful change” to the scope clause, mentioned Embraer’s Meijer.

Embraer’s E195-E2 jet being assembled in a hangar in Sao Jose dos Campos. (Photo by Mitsuru Obe) 

Mitsubishi is in no hurry to renew plane manufacturing, both of the previous CRJ or its personal SpaceJet, amid a extremely unsure enterprise surroundings together with the pandemic and the Russian invasion of Ukraine. “If the situation is like today, we really don’t know what is going to happen. And the cyclicality of this business has already been proven. Naturally, [airlines] are a little shy” to make large investments, Yamamoto mentioned. “The natural choice would be to stay with the existing product for as long as possible.”

Mitsubishi’s technique is to retain and construct on Bombardier’s buyer base and to pursue a partnership for the doable future launch of zero-emission plane, maybe working on hydrogen.

“I don’t give up anything,” Yamamoto mentioned about CRJ’s present market share. “I will do anything just to remain in the game, and even gain market share, either by way of new products or improvement of the aircraft… or better maintenance services,” he mentioned.

Embraer can be creating zero-emission planes of its personal, however it’s its international ambition that marks it out. While COMAC is proscribed to China for now, and Mitsubishi focuses primarily on North America, it’s trying to Asia and past. “We sell a lot of products in the U.S., commercial jets and executive jets,” mentioned Gomes Neto. “And we want to sell to China as well. Both are important aviation markets for Embraer.”

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