The document provides an overview of the airline market from the perspective of aircraft in the 30-120 seat segment. It discusses trends in the industry including increased low-cost carrier competition, higher fuel prices, and efforts by airlines to reduce costs. Opportunities for regional jets include replacing aging fleets in China, Russia, and other growing markets. The E-Jets family from Embraer is positioned as helping airlines improve efficiency through right-sizing aircraft on routes.
1. 7th Annual U.S. Analyst
and Investor Meeting
April 11th, 2007
Airline Market Overview
A perspective from
the 30 to 120-seat segment
Frederico Fleury Curado - Embraer
Executive Vice-President, Airline Market
2. Contents
Air Transport Industry Review
50-seat Regional Jet Market
E-Jets: The 70 to 120-seat Market Evolution
Embraer Market Forecast
4. LCC’s still in demand’s driver seat
2Q 2000 LCC’s US Domestic Network 2Q 2006
LCC’s Market Share
(Domestic RPM)
2000 19%
2006 34%
2010F 39%
• LCCs with increased market share and pricing power.
• Network Carriers focused more on international markets and
using Regional partners to improve domestic network efficiency.
Source: BACK and Embraer
6. Fuel Price
Lack of spare oil production capacity remains high price trend
Jet Fuel Price by Region Jet Fuel Price Forecast (EIA)
2.25 2.25
New York
2.00 Rotterdam 2.00
Jet Fuel Price (US$ per Gallon)
1.99
1.94
Singapore
1.93
Jet Fuel (US$ per Gallon)
1.75 China 1.75
1.67
1.64
1.50 1.50
1.25 1.25
1.00 1.00
0.75 0.75
0.50 0.50
2000 2001 2002 2003 2004 2005 2006 2007 2006 2007 2008 2009 2010
For coming years oil barrel is expected to stay at
US$52-62 level and jet fuel at US$1.64-1.94/gallon.
Source: EIA - Energy Industry Administration (Feb/07)
7. Revenue environment is improving
World nominal yields improved in the last 5 years
9.25
Nominal
9.00
Real (Y2001; adj. for US inflation)
8.75
World Yield (US Cents)
8.50
8.25
8.00
7.75
7.50
7.25
2001 2002 2003 2004 2005 2006 2007F 2008F
Nominal yields: 10% increase in the last five years
Real yields: 3% lower than 2001 values
Source: ICAO (Contracting States – Passenger, Scheduled Airlines), Global Insight and Embraer
8. Profitability ahead
Positive results projected for 2007
North America
-10 -6.7 -3.7 0.2
Europe
1.1 1.6 1.8 1.5 World
-5.6 -3.2 -0.5 2.5
2004 2005 2006F 2007F
Middle East
0.2 0.2 0.1 0.1
2004 2005 2006F 2007F
2004 2005 2006F 2007F
Asia Pacific
2004 2005 2006F 2007F
Latin America 3.4 2.1 1.7 1.2
Africa
0.1 -0.1 0.1 0.1
-0.3 -0.4 -0.5 -0.5
2004 2005 2006F 2007F
2004 2005 2006F 2007F
2004 2005 2006F 2007F
Values in US$ Billion
Source: IATA Economics Dec/06 (ICAO 2004-2005 and IATA Forecast 2006-2007) US net losses includes $6.1bn restructuring costs in 2006
9. Air transport industry major drivers
Increased Competition Weak Revenue Environment
Need for differentiation in services Improved productivity and efficiency
New Passenger Profile Liberalization
Different Set of Values
Opportunities for new entrants
(pricing, comfort, more direct flights)
Air Transport
Industry
Old & Inefficient Aircraft Emissions Regulations
Pressure on Fuel & Maintenance Costs May anticipate A/C Replacement
Demand/Capacity Match
Better match to avoid empty seats
10. A quick look at the W/W fleet profile
Scheduled Airlines, All Pax Configuration and Active in Service
18,204 aircraft Age (years)
> 30
4,000
26-30
3,500 3395
3306
21-25
Number of Aircraft (Units)
3,000 16-20
2,500 11-15
2027 6-10
2,000
1741 0-5
1548
1,500 1378
1067
968 862 973
1,000
414 525
500
0
TP < 30
TP 30-60
TP 61-90
Jet 30-60
Jet 61-90
Jet 91-120
Jet 121-145
Jet 146-175
Jet 176-210
Jet 211-300
Jet 301-400
Jet >400
Source: BACK (Dec/06)
13. ERJ 145 Family Orderbook
Firm Firm
Options Deliveries Backlog
Orders
ERJ 135 108 1 108 -
ERJ 140 74 - 74 -
ERJ 145 732 132 679 53
Total 914 133 861 53
(as of December 31st, 2006)
14. RJ´s importance to US hub-and-spoke system
Hub system extremely dependent of RJs
% of RJ50 passengers through Connections
100%
80%
60%
40%
20%
0%
R
H
IAD
W
D
L
A
N
G
A
W
P
L
C
PIT
E
L
M
T
PH
EW
IA
AT
OR
ST
LG
CL
CL
DE
DC
MS
SL
CV
DF
DT
ME
RJ50: 3 connecting passengers for each local passenger
Source: Back (T100 and OD1A, RJ50: ERJ Family, CRJ-100/200 and 328Jet)
15. 50-seat Regional Jet Operation - 2006
Single provider routes can benefit from higher yields
USA Europe
Total RJ: 2,856 Routes Total RJ: 1,386 Routes
RJ as a Single Service Provider: RJ as a Single Service Provider:
1,114 Routes 436 Routes
(39% of total RJ routes) (31% of total RJ routes)
Source: Back (Jan/07: ERJ135/140/145, CRJ100/200/440, 328Jet ; more than one flight per week)
16. Fleet Age Profile (30-60 seats)
2,018 Jets (average age: 7 years)
1,400
Number Average
Region of % Age
1,200 Aircraft (years)
USA & Canada 1,421 70% 4
1,000
Number of Aircraft
Latin America 13 1% 3
800 Europe 297 15% 6
Russia & CIS 187 9% 31
600
Africa & Middle East 15 1% 12
400 Asia Pacific 21 1% 5
China 64 3% 4
200
World 2,018 7
0
0-5 6-10 11-15 16-20 21-25 26-30 31-35 >35
Age (Years)
Source: Back (Oct/06)
17. RJ 50 Market Opportunities - China
Most of the routes have low demand density and low frequencies.
500 383 markets 152 (20%) 68 (9%)
400
51% of
total markets
Daily Passenger Traffic
have less than
300 one daily
frequency and
less than 135
200 pax/day
100
Number of domestic markets: 755
0
0 1 2 3 4 5
Daily Frequency
Source: China Airline Traffic Statistics 2005 (Markets with at least one weekly frequency)
18. China - an unbalanced jet fleet
30-120 seat jets represent only 12% of China jet fleet (30-210 seats), while
it is 43% in US and 35% in Europe
4,829 aircraft 826 2,612
100%
80%
% of Jet Fleet (J30-210)
58% Seat Segment
65%
60% J121-210
89%
J61-120
40%
15%
J30-60
24%
20% 43% 35%
28%
4%
8%
12% 11%
0%
USA China Europe
Source: BACK FleetPC (Jun/06 ; active in service ; scheduled airlines)
20. RJ 50 Market Opportunities - Russia/CIS
Old fleet replacement need: 521 aircraft Improved fuel consumption
Lower Operating Costs
Increased Productivity
200
Number of Aircraft
150 50 seats 30 seats
Avg. Age Avg. Age 76 seats
35 years 32 years Avg. Age
100 29 years
186 189
An-24 Yak-40 146
50 Tu-134
0
Turboprop Jet 30-60 Jet 61-90
Source: BACK (Oct/06)
21. RJ 50s Future Market
• Market entered a mature phase in the US and Europe
• RJ50s will remain the backbone of US hub feeding system
• New market opportunities (long and thin) in the US and EU
• Potential in China, Russia and other markets
• Secondary market developing
23. E-Jets Family
EMBRAER 170/175
EMBRAER 170
• 70 to 80 seats
• 2,000 nm Range
• Certification: February 2004
EMBRAER 175
• 78 to 88 seats
• 1,900 nm Range
• Certification: December 2004
EMBRAER 190/195
EMBRAER 190
• 98 to 114 seats
• 2,300 nm Range
• Certification: August 2005
EMBRAER 195
• 108 to 122 seats
• 2,100 nm Range
• Certification: June 2006
24. The E-Jets Family - Main Applications
Natural evolution for existing 50-seat markets
Right-sizing of low load-factor narrow-body flights
Capacity, range & seamless service
Enhancing services by increasing frequencies
New market opportunities – low risk development
Medium density and long/thin markets
Replacement of old & inefficient jets
25. Market Opportunities – Right-sizing
US Domestic (100-160 seat Jet - 12 months ending Sep/2006)
r
600,000 c to 100%
d Fa r
oa ate te r
.L e ea try
Avg 7 6-s 00
-s Indus
480,000 1 80%
Average Load Factor
Annual Flights
360,000 60%
240,000 40%
120,000 20%
0 0%
0
0
0
0
50
60
70
80
90
2
<5
10
11
>1
Pax per Departure
• 851 thousand flights (40% of total) carried less than 100 passengers onboard
Source: BACK
29. US Scope Clauses - Jun/2000
Labor
Seats 40 50 60 70 80 90 100
Contract
Amendable
Year
30 units Not Allowed
Unlimited 45-55 seats (Grandfathered rights 36 Avro RJ85 up to 69 seats) 2003
Unlimited Not Allowed 2003
Unlimited Up to 67 units Not Allowed 2002
Unlimited Up to 75 units Not Allowed 2000
Not Allowed
Up to 65 units 2000
(Grandfathered rights 18 AirWis BAe 146)
Up to 35 units 50 seats and
35 units 69 seats Not Allowed 2003
30. US Scope Clauses - Jun/2006
Labor
Seats 40 50 60 70 80 90 100
Contract
Amendable
Year
Unlimited Up to 90 units Not Allowed
2012
Unlimited Not Allowed 2009
“Unlimited”
(Up to 110% AA Up to 50 units Not Allowed 2008
narrow body)
Up to 200 units
Unlimited (30 units 71-76 seats + 3 units for each Not Allowed 2010
mainline aircraft increase)
“Unlimited” up to 70 seats Not Allowed 2010
Up to 93 units
Unlimited up to 78 seats (86 seats)
Not Allowed 2010
31. Market Opportunities - Replacement
World Fleet Age Profile (61-120 seats): 2,454 jets with 15 years average age
800
Avg.
30% of 61-120 fleet Region # Acft.
700 Age
(735 acft) with more USA, Canada &
600 846 10
Caribbean
Number of Aircraft
than 20 years
500 Latin America 285 23
400
Europe 617 11
Russia & CIS 231 23
300
Africa 148 22
200 Middle East 48 16
100 Asia Pacific 241 19
China 38 8
0
0-5 6-10 11-15 16-20 21-25 26-30 31-35 >35 World 2,454 15
Age (Years)
Source: BACK (Oct/06)
32. Maximizing the Revenue in the Profit Equation
Revenue strengths of smaller airplanes Revenues
Yields /
Fares
better market share
More flights . . . with business passengers
market stimulation
More direct
better fares and yields
flights
New markets better yields / more revenue
Capacity
better yields
Management
33. E-Jets Joint Certification means Flexibility
• Same Type Design for ANAC, FAA and EASA
FAA EASA
ANAC FAA EASA
EMBRAER 170 February 2004 February 2004
EMBRAER 175 December 2004 August 2006 January 2005
EMBRAER 190 August 2005 September, 2005 June 2006
EMBRAER 195 June 2006 2nd Quarter 2007 July 2006
• Market swap flexibility
• Increased residual value
34. E-Jets Commonality
Training 70% of the potential Spare Parts 30% of the potential
benefits benefits
same cockpit, common systems and fly- E170
by-wire technology mean maximum
training commonality within the family 100%
EMBRA E175
170 175 190 195
ER
170 ------- A/A/A A/A/A A/A/A 86%
175 A/A/A ------- A/A/A A/A/A
E190
190 A/A/A A/A/A ------- A/A/A
100%
195 A/A/A A/A/A A/A/A -------
E195
Training Qualification Differences : According to FAA AC 120- 53, grades
Based on the aircraft RSPL (Recommended Spare Parts List)
range from A (best) to E (worst) in 3 categories: Training Differences, Check
Note: Airframe and Ground Servicing Equipment only (Engines are not included).
Differences and Recurrent Training
• E-Jets have the maximum training commonality (A/A/A)
• E-Jets offer an outstanding parts commonality (86% to 100%)
35. The Comfort Factor
E-Jets: Narrowbody airplane comfort in convenient sizes
CRJ700/900 EMBRAER 170/190 A318/320
17.3” 18.25” 18.0”
16” 19.75” 19”
E170/190 advantages:
0.95” (2.4cm) wider seats Widest seats 0.25” (0.6 cm) wider seats
3.75” (9.5cm) wider aisle (+23%) Widest aisles 0.75” (1.9 cm) wider aisle
16% more volume per seat No middle seats Equal volume per seat
“Passengers love this aircraft for its spacious interior design and in particular the
absence of a middle seat” Bryan Bedford, CEO Republic Airways (Jul/06)
“The comfort of the E175 aircraft is important to our customers and the economics of
the aircraft make good business sense.”
Scott Kirby, US Airways EVP Sales and Marketing (Jul/06)
36. The Trip Cost Factor
E-Jets: Lower trip costs than comparable airplanes
8000 7563
- 20%
- 32%
7000
6310
6058
6000 US Domestic
5368
5135
Network Airline -
US$ per Trip
5000
800 sm trip
4000
3000 Airplane Variable
plus Ownership
2000 Costs per Trip
1000
0
E170 E175 E190 E195 A319 /
B737-700
2-class seating: 70 78 94 104 124
Costs exclude: revenue related costs and system (overhead) costs
Costs include: variable: fuel, crew, maintenance, landing fees, handling fees ; ownership: lease cost, hull insurance, spares inventory costs
37. Air Canada - Changing the Game Presentation (Dec/2006)
Y
COP
40. E-Jets Worldwide Distribution
Customers Asia Pacific /
Firm Orders
China
14% Middle East / 13%
24% Africa 5%
21% Europe
60% 16%
17%
24% 6%
Latin America
North America
• growing and diversified customer-base across five continents
• increased presence in emerging markets with established carriers
41. E-Jets Family - Efficiency to all Business Models
Regional Network Low Cost
Charter
Source: Embraer (Jan/07 ; Sirte Oil and GECAS not presented)
42. E-Jets Deployment - USA and Canada
Dec/06 Deliveries Backlog
15 E175
27 E190
18 E190
23 E190 78 E190
36 E175
2 E190 55 E190
16 E170
4 E170 *
Natural Growth Right-sizing New Routes
28 E170
40% 42% 18%
0% 20% 40% 60% 80% 100% 28 E170 30 E175
% of Routes (4Q06) E-Jets 134 226
Source: BACK (4Q06), Embraer * to be operated in Mar/07
44. E-Jets Deployment - USA and Canada
Efficiency and flexibility for long and short haul markets
Airline Longest Route Shortest Route
Montreal-Calgary Ottawa-Toronto
1,866 sm - 4:18 (2 Daily) 225 sm - 1:00 (2 Daily)
Dallas-New York Atlanta-Charlotte
1,377 sm - 3:46 (1 Daily) 227 sm - 1:14 (1 Daily)
Austin-New York Boston-New York
1,515 sm - 3:30 (1 Daily) 187 sm - 1:16 (7 Daily)
Denver-Toronto Washington-Norfork
1,310 sm - 3:16 (1 Daily) 175 sm - 1:00 (2 Daily)
Houston-Philadelphia KeyWest-Ft.Lauderdale
1,323 sm - 3:06 (1 Daily) 145 sm - 0:49 (1 Daily)
Source: BACK (4Q06)
45. E175/190 at Air Canada
LaGuardia – Montreal Chicago – Toronto
2005 2007 2005 2007
Seats* 870 508 480 485
6:00 E175
A319 E175
8:00 A319
A319 E175 E175
10:00 A319
E175
A319
12:00
CRJ E175
14:00
A319 E175 E175
16:00 A319
A319 E175
18:00 A319 E175
20:00 A319 E190 A319
22:00
E-Jets Right-sizing at Air Canada:
• 76% of total E175/190 routes
• 5 routes complementing A319 and 7 routes complementing A320
• 11 routes replacing A319 and 2 routes replacing A320
Source: BACK (4Q06) *4th Wednesday of January
46. E170 at US Airways
Philadelphia – Charleston Washington – Portland ME
2005 2007 2005 2007
Seats* 100 190 150 260
6:00
8:00 CRJ
E170 CRJ
10:00 E170
12:00
CRJ
14:00 CRJ
CRJ E170
16:00
18:00 ERJ
20:00 E170
CRJ E170
22:00
E-Jets Natural Growth at US Airways:
• 56% of E170 routes
• 17 routes complementing CRJ-100/200 and 4 routes complementing ERJ 145
• 5 routes replacing CRJ-100/200 and 1 route replacing ERJ 145
Source: BACK (4Q06) *4th Wednesday of January
52. E-Jets Family - EIS Statistics
E170/175 E190/195
Operators 13 Operators 10
Aircraft in Service 156 Aircraft in Service 67
Flight Hours 582,594 Flight Hours 94,725
Flight Cycles 403,422 Flight Cycles 58,740
Fleet Leaders Fleet Leaders
Flight Ho urs (Republic S/N 16) 7,624 Flight Ho urs (JetB lue S/N 8) 3,072
Flight Cycles (Republic S/N 13) 5,243 Flight Cycles (JetB lue S/N 8) 2,164
E170/190 Family
Operators* 21
Aircraft in Service 223
Flight Hours 677,319
Flight Cycles 462,162
Source: Airlines (as of Mar 26th, 2007) (*) Air Canada operates E175 and E190 and Tame operates E170 and E190
53. E170/190 at Virgin Blue
6 Embraer 170
14 Embraer 190
“People refer to it as a regional jet, but it is not a regional jet, it is the
first airliner that has bridged that gap between NBs and RJs ...
It’s a wonderful aeroplane for being able to pick up some markets we fly
today that we’re not doing particularly well on.”
“It has the mission capabilities to be able to fly the length and breadth
of our country, it has the capabilities to fly into the Pacific to where we
fly today with our 737s. But we’re able to do it at a lower trip cost.”
Brett Godfrey, Virgin Blue CEO Australian Aviation, Jan/Feb 2007
54. E190 at Hainan
50 ERJ 145 plus 50 EMBRAER 190 order
“The acquisition of ERJ-145s and EMBRAER 190s represents an
important validation of our strategy of providing more flexible flights
to match the rapidly increasing demand of the domestic market in
China” Chen Feng – Chairman Hainan Airlines ATI News Aug/06
55. E190 at Flybaboo
Embraer 190: 5 firm + 5 options
“Comfort is one of our constant concerns and I’m truly convinced that,
with the EMBRAER 190, we will be offering the highest quality of comfort
and service to our clients.”
“We selected the E190 for its comfort and its performance. It has four-hour
flight endurance, enabling it to reach destinations with a range of more
than 3,000 km, along with capability to take-off and land at small airports.”
Julian Cook, Flybaboo Founder and Managing Director Source: ATI News, Embraer, Feb 2007
56. 2007-2026 Embraer Market Outlook
4th. Edition
A LONG-TERM VIEW
OF THE 30 TO 120-SEAT
COMMERCIAL JET MARKET
57. Projected Traffic and Economic Growth
Growth by Region (2007-2026)
USA, Canada & Caribbean
RPK
Latin America GDP
Europe
CIS
Africa
Middle East
Asia Pacific
China
World
0% 1% 2% 3% 4% 5% 6% 7% 8%
Average Annual Growth (%)
Projected world GDP growth around 3% in the next twenty years
will sustain nearly 5% annual increase in air transport demand.
Source: Global Insight and Embraer (Oct/06)
58. Regional Trends
Europe Russia & CIS
• Recovering Economy and Yield
• Environment rules may impact air
Environment
transport growth
• Tax Barriers to Western Aircraft
• Increased Competition (LCC Expansion)
USA, Canada & Caribbean • High Speed Train Competition
• Ageing Fleet
• Right-Sizing and Direct Replacement
• Airline Consolidation
Opportunities
• Increased Competition (LCC Expansion)
• Scope Clause Relaxation
• Right-Sizing Opportunities China
Middle East • New Policies for Regional Aviation
• Increased Competition (Start-ups)
• Regional Network Under Development
• Pilot Shortage
• Slow Liberalization Trend
• Concentration on Large Aircraft
• High Comfort Standards
• Right-sizing opportunities
• Travel Demand Growing Above World
Level
Latin America
• Increased Competition (LCC Expansion)
• Ageing Fleet Asia Pacific
• Right-Sizing and Direct Replacement • Trends Towards Liberalization
Africa
Opportunities • Increased Competition (Start-ups)
• Trend Towards Liberalization • Government Owned Flag Carriers • Concentration on Large Aircraft
• Ageing Fleets (Used Aircraft) • Infrastructure Constraints to
• Very Fragmented Market growth
• Liberalization on some countries / • Pilot Shortage
regions
60. Embraer Market Forecast (2007-2026)
Projected Deliveries (30-120 seats): 7,500 Jets
Russia & CIS
USA, Canada 505
& Caribbean Europe 7%
3,850 1,290
51% 17% China
Middle 630
East 9%
Africa 230
Latin 130 3%
America 2% Asia
480 Pacific
6%
385
5%