Brazilian plane maker
entered the executive jet market in 2000, and the business has
become its second highest revenue contributor, behind commercial
aviation. The company specializes in making small and midsize
executive jets, and plans to extend its offering as the executive
aviation market shows signs of recovery. The aircraft maker has
delivered more than 750 business jets across the globe and is
preparing to further solidify its position in the market.
Phenom 300, Source: Embraer Executive Jets
Business jets are regaining the lost momentum
The business aviation market was in full bloom when the financial
crisis reared its ugly head in 2008. By 2012, industrywide orders
were cut by almost half to 672 from 1,313 in 2008. But
things have started to look up since 2013, the first time in five
years that annual shipments rose.
Corporate profits are the closest reflection to measure how
the executive aviation market is shaping up since rosy numbers
give companies the leeway to invest in private air travel and
save precious time. It's been observed for several years that
healthy financial numbers have a positive impact on the demand
for executive jets. And the fact that corporate profits are in
fine fettle in the U.S. is welcome news as the country is the
biggest business jet market, operating around 60% of the world's
total business jets. The S&P 500 companies are seeing
best-ever margins of 9.8% on an average with solid cash
Embraer forecasts that the North American market could become
even bigger with the U.S. gobbling executive jets in greater
numbers over the next 10 years. Though the company marginally
trimmed 2015-2024 global sales estimate from 9,250 jets to 9,235,
it raised the outlook for North America from 4,530 to 4,620 jets
-- $120 billion worth of business.
thinks that over the long run, greater wealth creation, greater
progress in world economy, globalization of business, and the
need to replace old planes should drive the demand for business
jets. As trade increases in the emerging markets of Asia and the
Middle East, it could mean more business traveling -- supporting
the corporate jet market. Rolland Vincent, president
of aviation consulting firm Rolland Vincent Associates, says
China's constructing 70 airports and with increasing commerce is
poised to become a big importer of business jets. Dubai's
business traffic is also gearing up with flourishing trade and
The Latin America and Caribbean (LAC) region, which currently
operates more than 5,000 executive aircraft, according to data
from JetNet, also has strong prospects for business jets. The
fleet growth rate in the region has been more impressive than in
North America. The reason behind this is the increasing number of
high-net-worth individuals (HNIs). LAC is home to around 542,000
HNIs with about 76% living in Brazil, Mexico, and Argentina.
Around four to five per 1,000 HNIs own a business jet compared
with 2.87 in North America.
Embraer seizing the opportunity
Embraer is positioning itself to emerge as a stronger player in
the $21 billion market with its Legacy, Lineage, and Phenom
families. The three brands offer aircraft in the light to
ultralarge range, with Phenom 100E and Phenom 300 part of the
light jet segment and Lineage 1000E, ultralarge.
Vincent estimates that 39% of the deliveries in the next
decade would be for ultralong-range jets, 18% would be for large
long-range jets, and large jets would take up 10% of the
deliveries. The super-midsized, midsize, and light jets would
make up 13%, 8% and 4.5% of the total deliveries,
Though Embraer lacks an ultralong-range offering, it's taking
cues from the trends -- the ultralarge Lineage 1000E is the
upgraded version of Lineage 1000 and has been given a new cabin,
functionalities, and an extended flight range. The company is
considering building larger intercontinental-range jets with
bigger cabins to take on the likes of
and Bombardier and capitalize on the demand for bigger
jets. Till then, its present stable is holding the fort
nicely. In 2013, Phenom 300 was the most delivered business jet
with 60 aircraft. In June, Embraer delivered the
500th Phenom, which had entered service five and half years
back. Phenom 100 has been upgraded to Phenom 100E.
Embraer considers its Legacy 500, which can seat 12
passengers, "a game changer" and claims that it possesses the
"technology of a $50-million jet." The jet has received
certification from Brazil's aviation regulator and is scheduled
to debut this year. The Legacy 450 is slated for its first flight
in 2015. Richard Aboulafia of Teal Group feels the two jets could
help Embraer widen its market share.
Legacy 500, Source: Embraer Executive Jets
Embraer has started to threaten
seasoned players like
. And "more of that is coming," Vincent believes, since the
Brazilian plane maker has a loyal customer base in the LAC region
that helped it grab 7% market share by the middle of 2014.
Embraer has grown its global fleet at a CAGR of 16.5% since 2008.
Its growth trajectory in the global business jet market has risen
from 3% in 2008 to 18% in 2013. For 2014, the company is looking
to deliver 25-30 large business jets and 80-90 light ones. In
2013, it delivered 119 business aircraft, and in the first half
of the year, Embraer delivered 49 (39 light and 10 large).
Embraer has evolved nicely in the business jet space in spite of
being a late entrant. The improving corporate jet market augurs
well for the company. It's upgrading its popular models to make
them more attractive, and even testing new territory to keep up
with the changing times. Opportunities abound, and Embraer is
positioning itself well to be a part of the revival.
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originally appeared on Fool.com.
and Eshna Basu have no position in any stocks
mentioned. The Motley Fool recommends Embraer-Empresa Brasileira.
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