Embraer Wins 150 Orders as ILFC, SkyWest Buy Newest Jets
Stock Chart for Embraer SA (EMBR3)
Embraer SA (EMBR3) won orders for 100 upgraded regional jets from SkyWest Inc. (SKYW) and 50 from American International Group Inc. (AIG)’s leasing unit, a boost for the planemaker’s strategy of refreshing its lineup instead of building an all-new aircraft.
The SkyWest purchase includes options for 100 more E175-E2 planes, which could bring the total to $9.36 billion. AIG’s International Lease Finance Corp. took 50 options. The orders were announced today at the Paris Air Show, along with an agreement from five undisclosed airlines for 65 Embraer planes.
Embraer is overhauling its E-Jet series, including improved engines and a new wing, for a commercial debut in 2018. The Sao Jose dos Campos, Brazil-based planemaker’s approach contrasts with that of Bombardier Inc. (BBD/B), which is developing the all-new CSeries single-aisle airliner.
- SLIDESHOW: 2013 Paris Air Show
Purchases from lessors such as ILFC are important because those companies place aircraft with more than one airline. St. George, Utah-based SkyWest is a commuter partner for carriers that include Delta Air Lines Inc. (DAL)
The SkyWest order is “a quality launch when you’ve got the largest regional airline in the world signing for a firm order,” Pete Skibitski, an analyst at Drexel Hamilton LLC, said today in an interview. “That’s a great cemented position to have if you’re Embraer.”
Embraer rose 5.9 percent to 19.85 reais at 4:31 p.m. in Sao Paulo trading. Embraer, which will invest $1.7 billion in its new jets, received board approval for the planes on June 13.
“We are not just re-engining the E-Jets, we are investing heavily,” Paulo Cesar de Souza e Silva, Embraer’s president for commercial airplanes, said today after the announcement. The combination of new engine, wing and other features -- such as a new landing gear -- will deliver performance equivalent to an all-new plane, he said.
Embraer’s updated E-Jets will heighten competition among planemakers angling for a greater share of the “sweet spot” of the short-haul market -- jets that seat between 70 and 130 people, Robert Mann, an aviation consultant at R.W. Mann & Co., said in a phone interview.
Mitsubishi Aircraft Corp. and Sukhoi Co. are offering their own regional-jet models, which are expected to enter into operation in 2015.
In addition, the new generation should “drastically” improve operating costs that skyrocketed on the original E-190 launch customer, JetBlue Airways Corp., Drexel Hamilton’s Skibitski said. The costs were associated with the General Electric Co. engines. In January, Embraer announced its new generation would use turbofan engines made by United Technologies Corp.’s Pratt & Whitney.
Embraer’s 76-seater jets are benefiting from new pilot contracts at airlines including at United Continental Holdings Inc., which have recently been approved allowing their commuter partners to fly larger planes. Airlines pay commuter pilots less than mainline pilots.
The largest of the updated Embraer jets, the E195-E2, which seats as many as 132 passengers in a standard configuration and 144 in a high density configuration, aims for the same market share as Bombardier’s CSeries jet.
“It will make them more competitive, and help them stay caught up with the industry, but it’s really a regional jet they’re stretching,” Bombardier Chief Executive Officer Pierre Beaudoin said in an interview. “In mainline service, I don’t really see them coming up against the CSeries.”
While the CSeries has an advantage in terms of range and a more comfortable and practical cabin configuration, the new planes are a “strong” competitor to the CRJ line and CSeries, Cameron Doerksen, a Montreal-based analyst at National Bank of Canada (NA) Financial Inc., wrote in a note today.
“Embraer has a significant installed base of its existing E-Jets, with which the new versions will offer significant commonality,” he wrote.
The first planes of SkyWest’s orders “don’t have homes yet” for the bigger airlines that they will be flown for, Michael Kraupp, chief financial officer at SkyWest, said in a telephone interview. The delivery dates are “so far out” that SkyWest hasn’t yet placed them with customers.
Last year, SkyWest which in May bought 40 current generation E-175 planes, also agreed to buy 100 Mitsubishi regional jets with up to 90 seats, a deal worth $4.2 billion at list price.
The carrier has likely built terms into its Embraer and Mitsubishi agreements so that it can offer either aircraft, with different economics, to its larger airline partners and can adjust orders up or down, said Savanthi Syth, an analyst with Raymond James Financial Inc. who is based in St. Petersburg, Florida.
“They can go to each partner and see which aircraft the majors want to go with and they would already have the slots for manufacturing and can get the aircraft,” she said. “It gives them flexibility without the commitment of having to take all the aircraft if there isn’t demand for them.”
The E190-E2 is due to be available in 2018, followed by the E195-E2 in 2019 and the smaller E175-E2 in 2020, according to a statement.