AIRLINE MARKET OUTLOOK Frederico Fleury Curado Executive Vice-President, Airline Market
EMBRAER ANALYSTS & INVESTORS MEETING São José dos Campos - November 17th., 2006
Contents 4 Industry Review 4 ERJ 145 family – Retaining value for operators and investors 4 E-Jets – Breaking new grounds and achieving increasing endorsement from airlines worldwide 4 Embraer’s new 20-year market forecast
Industry Review
Passenger traffic back and growing
7000
80% RPK
ASK
Load Factor
78% 76%
5000
74%
4000
72%
3000
70% 68%
2000
66%
1000
64%
6.3% yoy
Source: ICAO - Contracting States - Scheduled Airlines
7.7% yoy
2007F
2006F
2005
2004
2003
2002
2001
2000
1999
1998
1996
1996
62% 1995
0
6.4% yoy
% (Load Factor)
Billion (RPK & ASK)
6000
LCC´s still in demand’s driver seat… USA Domestic RPM 5%
11%
Intra Europe RPK
14%
18%
19% 29%
17%
17%
11%
31%
30%
40%
8% 76%
71%
60%
53%
47%
2000
2005 Netw ork
LCC
Grey zone Source: Back Aviation and Embraer
2000
2010E
2005
Regional
43%
2010E
But the cost gap in closing
16 Network
15
LCC
CASM (¢/ASM)
14 13
Cost Convergence
12 11 10 9 8 7
1Q 06
3Q 05
1Q 05
3Q 04
1Q 04
3Q 03
1Q 03
3Q 02
1Q 02
3Q 01
1Q 01
3Q 00
1Q 00
6
• Network carriers taking a disciplined approach towards capacity and cost reduction • LCCs facing cost pressures and reconsidering growth plans • Industry increasingly profitability x market share conscious Source: BACK (Form 41)
Strong effort to reduce costs, but ... 14 12.78
12
CASM (¢/ASM)
10 Total Cost
8
Total Cost (Exc Fuel)
6
Labor Fuel
4
3.16 3.09
2
• 2000 - fuel costs = 14%; labor costs = 34% • 2005 - fuel costs = 23%; labor costs = 26% Source: ATA
3Q 05
1Q 05
3Q 04
1Q 04
3Q 03
1Q 03
3Q 02
1Q 02
3Q 01
1Q 01
3Q 00
1Q 00
0
Fuel prices are eating airlines’ lunch
Jet Fuel Price by Region
2,00
China
1,50 1,25 1,00
0,50 2004
Source: EIA - Energy Industry Administration (Sep/06)
2005
2006
2009F
2010F
1,00
0,50 2000
2003
2008F
1,25
0,75
2002
2007F
1,50
0,75
2001
2006F
1,75 1,65
1,75
1,65
Singapore
1,62
Rotterdam
2,10
New York
2,08
2,00
Jet Fuel Price Forecast (EIA) 2,25
Jet Fuel (US$ per Gallon)
Jet Fuel Price (US$ per Gallon)
2,25
Revenue environment is improving
105 100
Index (1994=100)
95 90 85 80 75 70
World Nominal Yield World Real Yield (adj. for US inflation)
65 1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Source: ICAO (Contracting States – Passenger, Scheduled Airlines), Global Insight and Embraer
2004
2005 2006F 2007F
Profitability a continual challenge
North America -10 -6.7 -4.5 0
Europe 1.1 1.6 1.8 1.5
World -5.6 -3.2 -1.7 1.9
2004 2005 2006F 2007F
Middle East 0.2 0.2 0.1 0.1 2004 2005 2006F 2007F
Latin America 0.1 -0.1 0.1 0.1
2004 2005 2006F 2007F
Africa
Asia Pacific 3.4 2.1 1.7 1.2
2004 2005 2006F 2007F
-0.3 -0.4 -0.8 -0.9
2004 2005 2006F 2007F 2004 2005 2006F 2007F
Source: IATA Economics Set/06 (ICAO 2004-2005 and IATA Forecast 2006-2007)
2004 2005 2006F 2007F
Values in US$ Billion
A quick look at w/w fleet profile Scheduled Airlines, All Passenger Configuration and Active in Service 16784 aircraft Age (years) > 30
4.500
4211
26-30
Number of Aircraft (Units)
4.000
21-25
3.500
16-20
3.000
11-15
2.500
6-10
2.000
2035
0-5
2016
1778
1621
1.500
1342 1051
1.000
935
798
603
394
500
Source: Back Aviation (Dec/05)
J > 400
J 301-400
J 211-300
J 181-210
J 151-180
J 121-150
J 91-120
J 61-90
J 30-60
TP 61-90
TP 30-60
0
Embraer’s unique competitive position 30Y
50Y
70Y
90Y
110Y
CRJ900X
ARJ21 SSJ
?
SSJ
ARJ21 SSJ
130Y
ERJ 145 family Retaining Value for Operators and Investors
USA Hub & Spoke System
1. RJs are responsible for 22% of all USA domestic passengers 2. RJs: 3 connecting passengers for each local passenger Source: Back Aviation (T100 and OD1A: RJ: ERJ 145 Family, CRJ 100/200/440 and 328JET).
2006 FAA Report (DOT Form 41 & Form 298C)
China – an unbalanced jet fleet 30-120 seat jets represent only 12% of China jet fleet (30-210 seats), while it is 43% in US and 35% in Europe
% of Jet Fleet (J30-210)
100%
4,829 aircraft
826
2,612
80% 58%
60%
40%
Seat Segment
65%
J121-210
89%
J61-120 15%
J30-60 20% 28%
24%
43% 4% 8%
0%
USA Source: BACK FleetPC (Jun/06 ; active in service ; scheduled airlines)
China
12%
11%
Europe
35%
China - ERJ 145 and 328Jet Routes
6 ERJ145
29 328Jet Backlog: 50 ERJ145
4 ERJ145 Backlog: 6
ERJ145 5 ERJ145
328Jet Source: CAAC (2005), Embraer
Mexico - ERJ 145 routes
05 05
2004: ERJ 2004: ERJ145 145 18 markets 18 markets Avg. Avg.Stage StageLength: Length:398 398nm nm(738 (738km) km)
Source: BACK OAG
18 18
2006: ERJ 2006: ERJ145 145 39 markets 39 markets Avg. Avg.Stage StageLength: Length:417 417nm nm(773 (773km) km)
RJ 50 Market Opportunities – Russia
30-60 Seat Segment
244 aircraft 33 years old (average)
Yak-40
An-24 Jet – 30 seats 122 aircraft Average Age: 31 yrs
Source: Back Aviation (Fleet PC Feb/06)
Turboprop - 50 seats 122 aircraft Average Age: 34 yrs
Parked Aircraft - World Jet Aircraft (Western Built) (as of Sep 05, 2006)
Seat Segment 600
30 - 60
61 - 90
Seg
91 - 120
91-120
400
61-90
300
30-60
200 100
Source: BACK (Operator Category: Scheduled Airline, Non Scheduled, Leasing and Financial Institution)
se t/0 6
20 05
20 04
20 03
20 02
20 01
20 00
19 99
19 98
19 97
19 96
0 19 95
Number of Aircraft
500
Number of Parked % Aircraft Boeing 149 53% Douglas 86 30% 29 10% Fokker BAe 19 7% Airbus 0 0% Embraer 0 0% Total 283 100% BAe 52 51% Fokker 45 45% Douglas 2 2% 2 2% Bombardier Embraer 0 0% Total 101 100% Bombardier 82 71% Fairchild 30 26% Embraer 4 3% Total 116 100% Manuf.
% of Fleet Parked 12% 28% 11% 15% 0% 0% 15% 25% 30% 8% 1% 0% 12% 8% 32% 0% 6%
ERJ 145 Product Improvements Design Weights
High Altitude Operation
Brake Hardware
Optional structural weights increase:
ERJ 145LR
ERJ 145ER/LR/XR Models
ERJ 135ER
13.500 ft (China)
Maintenance costs reduction Original 1000FC Guaranteed
ERJ 145LR/XR
New Design
Available mid 2006: MZFW = +250kg (550lb)
10.000 ft (North America, South America, Mexico, China)
ER/LR Model: 1750 FC XR Model: 1800 FC
ERJ 145LR
ERJ 145ER/MP
Since Dec2005: MZFW = +400kg (880 lb)
ERJ 145ER
Available mid 2006: MTOW = +600kg (1,320lb) MZFW = +500kg (1,100lb) MLW = +500kg (1,100lb)
8.500 ft (South America, Mexico, EASA)
RJ 50 Residual Value Evolution RV @ 12 Years 10,00 9,00 8,00 US$ Million
7,00 6,00 5,00 4,00 3,00 2,00
ERJ 145 CRJ-200
1,00
20 02 Q 4 20 03 Q 1 20 03 Q 2 20 03 Q 3 20 03 Q 4 20 04 Q 1 20 04 Q 2 20 04 Q 3 20 04 Q 4 20 05 Q 1 20 05 Q 2 20 05 Q 3 20 05 Q 4 20 06 Q 1 20 06 Q 2
0,00
ERJ 145s are sustaining Residual Values Source: MBA Avitas Airclaims, et al
RJ 50s market trends
• Market entered a mature phase in the US and Europe • RJ50s will remain the backbone of US hub feeding system • There is potential for increasing frequencies in the US and EU • New market opportunities (long and thin) in the US and EU • Potential in China, Mexico, Russia and other emerging markets • Secondary market developing
ERJ 145 Family Orderbook
Firm Orders
Options
Total
Deliveries
Firm Backlog
ERJ 135
108
1
109
108
-
ERJ 140
74
-
74
74
-
ERJ 145
732
132
864
677
55
Total
914
133
1,047
859
55
(as of September 30, 2006)
E-Jets Breaking New Grounds Achieving Increasing Endorsement from Airlines
Filling the Seat Capacity Gap – Remember?
Seat Capacity 160
Narrowbody Aircraft
120
Right-sizing
EMBRAER 170/190 80
Natural Growth 30-70 Seat T’ Props
40
37 -50 Seat ERJ 135/140/145
0 0
500
1,000
1,500
Stage Length (nm)
2,000
Beyond the current models – Remember?
RASK / M
There is a need for a new TOOL
Regional Airlines
Network Airlines
E-Jets
Low Cost Carriers Capacity
Regional
E-Jets Family – Efficiency to all Business Models
Low Cost
Network
Northwest E175’s
Virgin Blue E170’s + E190’s Source: Embraer (Sep/06)
US Domestic: Pax & Seats per Departure Jet aircraft (70-150 Seats) 35%
Pax/Dep 2000 Pax/Dep 2005
Seats/Dep 2000 Seats/Dep 2005
30%
2000
25%
% of Flights
Seats/dep
2000
20%
Pax/dep
15%
10%
2005
2005
5%
0% 30
200 100 0 0-5
6-10
11-15
16-20
21-25
Aircraft Age (Years)
31% of world fleet is more than 20 years old and will be replaced in the coming years. Source: Back Aviation (Dec/05)
E-Jets deployment – US and Canada Sep/06: Sep/06:126 126E-Jets E-Jets Avg. Avg.Stage StageLength: Length:548 548nm nm(1015 (1015km) km)
% of Routes (4Q05)
New Route Right-sizing Natural Growth 100% 14%
75% 41%
50%
25%
0% Source: BACK/OAG (1H06 routes ; Fleet Sep/06)
45%
E-Jets deployment – Europe % of Routes (4Q05)
New Route Right-sizing Natural Growth 100%
4%
75% 57%
50%
25%
Sep/06: Sep/06:31 31E-Jets E-Jets Source: BACK/OAG (1H06 routes ; Fleet Sep/06)
Avg. Avg.Stage StageLength: Length:445 445nm nm(824 (824km) km)
0%
39%
E-Jets deployment - Asia & Middle East
Sep/06: Sep/06:18 18E-Jets E-Jets Avg. Avg.Stage StageLength: Length:364 364nm nm(675 (675km) km)
4 E170
4 E170
10 E170
Avg. Stage Length: 377 nm (698 km)
Avg. Stage Length: 458 nm (848 km)
Avg. Stage Length: 303 nm (561 km)
Source: BACK/OAG (1H06 routes ; Fleet as of June 30, 2006)
E-Jets operational flexibility – as promised Longest Route 3,274 km (1,768 nm ; 2,033 sm) @ 5:10 hs
Shortest Route 137 km (74 nm ; 85 sm) @ 0:37 hs
Air Canada – E190
Saudi Arabian – E170
Calgary
Arar Jouf
New York
Equipment E170 E175 E190 E-Jets Source: BACK/OAG (2Q06)
Avg. Stage Length (km) 930 962 1,017 945
Avg. Elapsed Time (hours) 1:50 1:55 2:01 1:52
Longest Shortest Flight (km) Flight (km) 2,510 137 2,219 150 3,274 301 3,274 137
US Scope Clauses – Jun/2000 Seats
40
50
60
30 units 45-55 seats
Unlimited
70
Unlimited
90
Not Allowed (Grandfathered rights 36 Avro RJ85 up to 69 seats)
Unlimited
Unlimited
80
Not Allowed
Up to 67 units
Not Allowed
Up to 75 units
Up to 65 units
Up to 35 units 50 seats and 35 units 69 seats
Not Allowed
Not Allowed (Grandfathered rights 18 AirWis BAe 146)
Not Allowed
100
Labor Contract Amendable Year
2003
2003
2002
2000
2000
2003
US Scope Clauses – Jun/2006 Seats
40
50
60
80
Up to 90 units
Unlimited
Unlimited
90
100
Not Allowed
Not Allowed
“Unlimited” (Up to 110% AA narrow body)
Unlimited
70
Up to 50 units
Up to 200 units (30 units 71-76 seats + 3 units for each mainline aircraft increase)
“Unlimited” up to 70 seats
Unlimited up to 78 seats
Labor Contract Amendable Year
2012
2009
Not Allowed
Not Allowed
Not Allowed
Up to 93 units (86 seats)
Not Allowed
2008
2010
2010
2010
E-Jets Joint Certification means Flexibility Same Type Design for ANAC, FAA and EASA
FAA ANAC
EASA
FAA
EASA
EMBRAER 170
February, 2004
EMBRAER 175
December, 2004
August, 2006
January, 2005
• Remarketing flexibility
EMBRAER 190
August, 2005
September, 2005
June, 2006
• Higher residual values
EMBRAER 195
June, 2006
4th Quarter, 2006*
July, 2006
• Reduced cycle for aircraft configuration definition
February, 2004
E-Jets: Continuous Product Development Follow-on Certification items already achieved: Dual HUD HUD for Low Visibility Takeoff (E170) CAT III A (E170) IFE – Thales IFE – LiveTV PC Power Outlets Cabin Surveillance System (CSS) Vertical Navigation (VNAV) Lightning Sensor System (LSS) Autobrake Ditching (extended overwater ops) Quick Access Recorder (QAR)
E170/190
E-Jets : On-going New Developments Follow-on Certification E190 ETOPS
CAT IIIa Autoland
E170 LCY Steep Approach
Ready for customer operational approval:
E170 Æ C e r t i f i e d E175 Æ
4Q 2006
• Kit provides a fly-by-wire function to allow the use of multi-function spoilers as lift/drag devices.
ETOPS 75 minutes: Aug/06
E190 Æ
3Q 2007
• 650 nm range
ETOPS 120 minutes: by Aug/07
E195 Æ
4Q 2008
Certification: Dec/06
E-Jets Operational Statistics
E170/175 Operators Aircraft in Service Flight Hours Flight Cycles
E190/195 10 139 433,822 296,927
Operators Aircraft in Service Flight Hours Flight Cycles
5 40 52,506 32,512
E170/190 Family Operators* Aircraft in Service Flight Hours Flight Cycles
Source: Airlines (as of Oct 22nd, 2006)
13 179 486,328 329,439
(*) Air Canada operates E175 and E190 and Tame operates E170 and E190
E-Jets Family Orderbook
Firm Orders
Options
Total
Deliveries
Firm Backlog
EMBRAER 170
152
133
285
120
32
EMBRAER 175
52
-
52
22
30
EMBRAER 190
298
248
546
41
257
EMBRAER 195
41
40
81
1
40
Total
543
421
964
184
359
(as of September 30, 2006)
E-Jets market trends
• Traffic growth on 50-seater routes • Capacity increase at regional routes peak hours • Mainline service in regional routes • Market fragmentation – more point to point flying • Right sizing of non-optimized narrowbody lift • Replacement of older, less efficient aircraft • Less risky market developments with no compromise to mainline service
Market Forecast 2007 - 2026
Projected Traffic and Economic Growth Growth by Region (2007-2026) USA, Canada & Caribbean
RPK
Latin America
GDP
Europe CIS Africa Middle East Asia Pacific China World 0%
1%
2%
3%
4%
5%
6%
7%
Average Annual Growth (%)
Projected world GDP growth around 3% in the next twenty years will sustain nearly 5% annual increase in air transport demand. Source: Global Insight and Embraer (Oct/06)
8%
Embraer Market Forecast (2007-2026)
Worldwide Jet Deliveries Segment
2007 - 2016
2017 - 2026
2007 - 2026
30 - 60
300
1,100
1,400
61 - 90
1,100
1,500
2,600
91 - 120
1,650
1,850
3,500
TOTAL
3,050
4,450
7,500
Embraer Market Forecast Comparison World
Jets Segment
2007-2016
2006-2015
30-60
300
500
61-90
1.100
1.300
91-120
1.650
1.550
3.050
3.350
121-150
1.350
1.418
151-180
3.250
3.191
181-210
800
796
5.400
5.405
30-120
121-210
Embraer Market Forecast (2007-2026) Projected Deliveries (30-120 seats): 7,500 Jets
USA, Canada & Caribbean
3,850 51%
CIS Europe
1,290 17%
480 6%
7%
China
Middle East
Latin America
505
Africa 230 130 3% 2%
630 9%
Asia Pacific
385 5%
Thank you
70 airlines. 43 countries. 1 manufacturer. EMBRAER
