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Monday, April 14, 2008

Market Uncertainties Make Embraer Delay Future Aircraft Decisions

Sao Jose dos Campos, BrazilEmbraer will be watching and learning over the next two years because it is entirely unclear what the market will require in terms of new technologies. In addition, the new technology proposed for the CSeries and Mitsubishi MRJ could be problematic, according to Embaer Executive Vice President Commercial Aircraft Mauro Kern, who briefed visiting press on the Embraer’s view of the coming market and the competition emerging from China, Russia and Japan.
Kern evaluated Embraer’s competition, including the newly launched MRJ, Sukhoi’s SSJ, AVIC I’s ARJ 21 and, of course its arch rival Bombardier’s CSeries, saying they are all problematic in the face of the ERJ 190. While its assessment that the ERJ 190 is better may not be news, it indicated that the three new Asian and Russian programs will have lively home markets but their prospects on the world market may be more challenging. As for the CSeries, Kern indicated that while it would provide challenging competition, the choice of Pratt & Whitney’s Geared TurboFan increases its risk.
“In terms of future technology for the next generation jets there are a number of uncertainties,” he said. “First is the engine technology. We are talking with Pratt & Whitney, Rolls Royce and GE and have found an interesting thing. Not only do they disagree on the next generation engine but they said that, while they don’t exactly know what the next generation technology will be, they do know it won’t be the geared turbofan. One of the big leaps in turbofans was the elimination of metal-to-metal friction and what does the geared turbo fan do but pass all the power through a gearbox which is metal-to-metal friction. There have been discussions of open rotor which could bring a further 10 percent improvement but there are shortfalls in terms of noise and complexity.”
Kern indicated that the ARJ 21 and the Sukhoi SSJ both face long delays which will harm their chances on the Western market. He noted that the ARJ 21 has largely sold in the Chinese market with 121 on order. “The toughest part is not in developing the aircraft so much as it is in the certification process of such a complex, new generation product with highly integrated systems,” he said. “They have their market assured in China but even so, when AVIC I discusses its production rates they will not fulfill the demand in China. So, we are talking to Chinese airlines about the 190.”
The Russian regional jet was scheduled to fly this year with service entry in 2009, according to Sukhoi. “But that is not going to happen,” said Kern. “It has the same challenges as the Chinese with certification. Even so, they have 88 orders, 78 in Russia and 10 with a start up in Italy. I doubt they will make it work. The SSJ comes in 78 and 95 seats competing with the 175 and 190. They will sell mostly in the CIS and Eastern Europe but they will not have worldwide acceptance.”
The MRJ 70- and 90-seat aircraft is scheduled to enter service in 2012 and 2013, respectively, but the actual official launch has yet to happen, said Kern, despite the recent announcement which included launch customer All Nippon Airlines. Related Story The Japanese aircraft will compete with the ERJ 170 and 175. “We see the penetration of the aircraft restricted to the Asian market and we understand exactly what happened with the ANA order and that is a fact of life,” he said. “We could have delivered aircraft when they needed it and if that had been an overriding factor that would have killed the MRJ. It is a huge development challenge.”
Kern noted that both the MRJ and CSeries are using a different technology engine with the geared turbofan. “They say it will bring a 15 percent advantage in specific fuel consumption and 20 percent better operating costs than current generation aircraft but when you look at the footnotes they are talking about the A318 and [other mainline aircraft]. If you compare the CSeries with the ERJ 195, the CSeries provides a very marginal gain if everything that has been published comes to pass and we feel we can overcome the differences.”
He indicated that while Bombardier was a traditional, accepted aircraft manufacturer unlike new entrants Sukhoi, AVIC I and Mitsubishi, the CSeries is optimally designed for the top end of the market at 130 seats. “On the lower side at 110 seats it does compete with the ERJ 195, but the 195 is more efficient than the CSeries because the smaller CSeries is oversized for the 110-seat mission,” he said. “With a 130 seater you begin to compete with Boeing and Airbus and that is very challenging for our Canadian friends. I wouldn’t like to be in their shoes in that competition. But, they are now looking for a launch customer and they have a very heavy campaign. But we are in there fighting and it is a nice competition with our favorite competitor. They are aggressive in the market and this will pose a challenge for us.”
Even so, Bombardier and AVIC I are working together on the both the ARJ 21 and the CSeries and they say the two will block competition from the ERJ 190. “But,” he said, “they don’t explain how they compete against us and each other at the same time.” He added Embraer will be watching the government investment in light of international regulations providing a level playing field. “What will Boeing an Airbus do for a replacement and what technology will they use. We don’t see the need to launch something to simply respond to CSeries. We have a good solid order book, our airplanes are young and of the latest technology. The technological requirements for the future are not clear. If we make a decision in 2009, we will be on the market about the same time as our competition. This will be challenging, changing environment for the next few years in terms of understanding and making a decision. We need to understand the market better before we launch something else.”
In the meantime, Embraer continues to develop its EJets offering such capabilities as Head Up Displays for low visibility operations and CAT III guidance system and autoland. It is also improving the envelopes with higher altitudes and extreme temperature performance into difficult airfields. Kern also pointed to the addition of special procedures as ETOPs and steep approaches for such airfields as London City and Aspen.
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