Phenoms Debut at NBAA

With its full complement of business jets now launched, if not about to be certificated, Embraer can rightly crow about its progress in the executive jet market. Only three years after its decision to enter the market as its commercial jet business matured, it now has six products in various stages of development, certification or service and debuted its new Phenom 100 and 300 very light and light jets for the first time at last week’s National Business Aircraft Association convention.

Luis Carlos Affonso, executive vice president executive jets, predicted the financial crisis will result in deceleration of corporate performance, which, he said, could go negative in 2009/10 compared to the seven percent annual growth in corporate profits since 1940. After the rupture in 2001, the industry has had blue skies with corporate profits rising 20 to 30 percent, he said. He believes the U.S. is so important to the world economy, there will be serious repercussions in all markets except those less dependent on U.S. Brazil has trade streams with Middle East, Africa and Asia, he noted, which are all less dependant on the U.S. and Western Europe and are, therefore, more resilient.

What won’t change is the hassle factor of commercial aviation despite the capacity cuts and those expected to come. “It won’t come at the airport, but in the aircraft as airlines cut fleets in favor of high load factors,” he said, pointing to a Columbus-Tulsa flight on a commercial flight taking seven hours to the two hours and 40 minutes in a business jet. High Net Worth Individuals (HNWI) will continue to come from emerging nations and business jets will continue to be a productivity tool.

Affonso noted that, in 2005, Embraer had only the Legacy 600 on offer and three in development – the Lineage and the Phenoms. Earlier this year, the company added two more products to its executive jet family with the Legacy 450 and 500. It has invested between $1 billion and $1.5 billion in the executive jet market ‘05.
“We have launched five new planes since 2005,” he said, adding that it now has a business jet in every segment from the Very Light Jets to the Lineage, based on its ERJ 190 commercial program. “With the entry of the Phenoms we will have four planes in production. It feels good to have only two in development instead of five.”

With certification expected at the end of the month or the beginning of next, the Phenom 100 has 1200 flight test hours and 400 maturity flight hours. The weight is frozen and the performance is confirmed. The static tests are finished as is the RVSM test. It is nearing the end of the flight into known/forecast icing tests although the artificial ice shape tests are still ongoing as well as the function and reliability campaign. The company expects deliver 10-15 Phenom 100s this year all to the U.S. and 120-150 Phenoms next year. With the Phenom 300, the company has 800 on the order book sold in 44 countries. The 300 is scheduled to enter service in the second half of ‘09.

With the next availability for a Phenom in 2012, it paused to add three percent -- $200,000 – to the price of a Phenom 300 bringing the price from $6.65 million to $6.85 million. Those wishing to lock in the lower price have until October 31 to sign a contract before the new price becomes effective on November 1.

Despite the emergence of new air taxi/charter business models, Affonso expects most of his customers such as JetBird in the UK and JetSuite in the US, will have more traditional business models – branded charters – shielding them from the higher risks of the newer business models.
Affonso said that the majority of Phenom customers will be the owner/operators, not air taxis which constituted 20 percent of sales in 2008. He pointed to JetSuite in the U.S. and JetBird in the U.K. as examples noting they had a more traditional, branded charter models rather than the new models represented by Day Jet.

While not changing the market forecast released earlier this year, Embraer did say the market is slowing. Now at a book-to-build ratio of more than one, Affonso expects the ratio to slip below one in the 2009/2010 period. Its forecast is conservative compared to the just released Honeywell forecast of 17,000 business jets over the next decade. In Embraer’s forecast – 13,000 executive jets worth $200 billion over the next decade – light jets will be 22 percent of the units but only nine percent of the value. The entry level, including the very light jets, will be 26 percent of the market but four percent of the value. BRIC – Brazil, Russia, India and China – is expected to contribute 30 percent to worldwide GDP growth with China being the biggest contributor.

The large industry backlogs across all business aircraft sectors will carry manufacturers across the slump that had been expected in 2010 through 2011 but is now expected to be bookended by 2009 and 2012. Deliveries will go up this year and next and then down for two to four years during the recovery, said Affonso.

He noted that technological advances have enabled a great deal of product development. “We have never seen so many new products before in such a short time,” he said. “Between 1970 and 1995 there were only 15 business jet models introduced but between 1995 and 2008 that jumped to between 40 and 55 models driven by demand,” he said, noting the emergence of fractional companies during the latter time period.

Its progress on product introduction in the business jet arena and leading sales in the commercial market, has resulted in revenue growth of 44 percent between 2005 and 2007 on sales that have increased 77 percent. The executive jet back log is bigger than $6 billion and is one third of the total company back log. It is looking forward to a new assembly line in Melbourne, Fla. to serve the U.S. market. He said production at its plant in Botucatu, Brazil would be unaffected since the Melbourne facility will be for final assembly, not total production.