Brazil’s Embraer, the world’s largest maker of regional jets, is counting on a recovery in the United States to offset weaker demand from Europe, the company’s chief executive said on Tuesday.
Speaking at the Reuters Latin America Investment Summit, Frederico Curado said the US regional aviation market is poised for growth after years of stagnation, which should bolster the company’s order pipeline from a more than five-year low.
“Reliance on the North American market is growing,” Curado said. “Our expectation there is for growth this year, compensating the decline in Europe.”
That could reverse Embraer’s earlier efforts to diversify away from business in the United States, which made up just 20 percent of net revenue last year, down from 68 percent in 2005.
While Embraer is kicking off new sales campaigns in the United States, Curado said prospects in Europe are limited for now to smaller options from existing contracts. European business may continue slipping from a quarter of total revenue in 2011 and a third in the prior two years.
Steady growth in Latin America and Asia continues to support Embraer’s aim to expand revenue by 7 percent in 2012 from last year, even as a weak global economy reduces appetite for its commercial and executive jets.
Embraer’s order backlog slipped to USD$14.7 billion at the end of March, or less than three years worth of revenue. It was the first time since 2006 that the backlog fell below USD$15 billion.
Curado said the company aims to halt its backlog’s slide in 2012 and replace each regional jet delivery with a new order.
The recent sales slowdown is far less severe than the company saw after the 2008 financial crisis, he added, when credit for aircraft purchases dried up.
Airlines’ financing options are slimmer than before that crisis, Curado said, but a greater participation of state banks and leasing companies has ensured enough credit for new orders.
NEARING GREEN LIGHT IN CHINA
Embraer’s shrinking pipeline was due largely to cancelled orders for private jets, following a global slump in executive aviation. But Curado said he has seen recent signs of growing interest in business jets, indicating a recovery originally expected next year could come sooner than expected.
Asian executive jet sales in particular could see a boost when Embraer gets permission to build Legacy business jets in China, cutting down on the cost and inconvenience of selling planes that require import licenses.
“The local production of the Legacy is a pillar of Embraer’s executive aviation platform in China,” Curado said, adding that he expects final authorisation for the factory in June or July.
A recent agreement between Chinese state plane maker Comac and Embraer’s Canadian rival Bombardier to develop commercial aircraft raised no concerns for Curado, who said China has shown no signs of carving up its aviation market.
“It’s not just about the product. Having a local industrial operation is important, because there the government is everything: client, regulator and final authority,” he said.
Embraer expects Chinese demand for new regional jets to total 975 aircraft by 2030. The company sold 90 commercial jets in China from 2000 to September of last year, accounting for 70 percent of the Chinese market for aircraft smaller than 120 seats.
Curado also maintained his hopes for a growing fleet of Embraer’s regional E-Jets in Brazil after local airlines Azul and Trip announced a merger to form the country’s third-biggest carrier.
“It’s good news for competition,” Curado said. “I don’t think they will have any problem with regulatory approval.”
Analysts say the new company may present a more credible challenge to Brazil’s dominant airlines, TAM and Gol, which control about 80 percent of the domestic market.