What program should Embraer undertake next?

Hello All,

In a Flightglobal article, Embraer stated that it would be ready to launch a new business or commercial aircraft program in two years. Separately, it stated: “Also, we are working on alternatives to fund these new developments, so… we will be able to go for new programs without risking the company’s financial performance in the future.”

There are four theoretical possibilities for Embraer’s new program:

• A new turboprop program, similar to what was abandoned last year;
• A regional jet to replace the E175;
• A larger business aircraft than Embraer’s existing offering;
• A single-aisle aircraft larger than the current E-Jet 190 and 195 E2.

Any jet program would use conventional propulsion, i.e. JetFuel with SAF compatibility. Electric aircraft can’t work with current battery technologies and hydrogen is not cost-competitive without massive subsidies that only a select few countries (Scandinavia and perhaps New Zealand) would be willing to pay for in the current political environment. Leeham News’ Bjorn Fehrm has extensively written on the topic for those wishing to learn more.

One can (almost certainly) be immediately ruled out

Despite a relatively smooth development, the C-Series almost bankrupted Bombardier. The Canadian aircraft OEM did not have the financial firepower to withstand the losses associated with initial commercial aircraft production. Airbus is still losing money on the A220 despite more than 300 deliveries and six years after entry into service.

Embraer stated unequivocally that it would not risk the company’s financial future with any new program. Unless Embraer gets a very large outside investment (north of $15bn in this blog’s opinion), private or state, it rules out developing a new single-aisle program to compete with Airbus and Boeing.

Another consideration is that, by 2026, there will not be a new generation of engines (GTF 2.0, Ultrafan, or CFM’s RISE Open Rotor) mature enough to launch a program with a material fuel burn advantage.

Going into the business jet big league?

Embraer’s Commercial Aviation division has historically been more profitable than its Executive Jets one: operating margins of 17% vs. 9% in the 2000s and 9% vs. 2% in the 2010s on average. However, even excluding 2020, it has been the other way around in recent years: 1% for Commercial Aviation and 10% for Executive Jets over 2021-2023.

Embraer is nominally delivering more executive jets than commercial aircraft: 115 vs. 64 in 2023. Demand for executive jets has been robust in recent years and accelerated after the Covid-19 pandemic.

This blog acknowledges it is far less knowledgeable about the executive jet market. Does Embraer’s better recent executive jet profitability justify launching a larger executive jet? Embraer would face stiff competition from Bombardier, Dassault, and Gulfstream.

Re-giving a go at the aborted Turboprop

Embraer officially aborted its Turboprop because the engine manufacturers could not meet the desired fuel burn targets. This blog believes there is more at play than fuel burn.

A Turboprop would presumably replace smaller regional jets (seating up to 50 passengers) and existing larger turboprops (DHC-100 to DHC-400, ATR42 to ATR72). There are around 650 small regional jets and 1,850 currently in commercial passenger service, or 2,500 in total.

Among the 2,500, 500 are in the USA and Russia. United States airlines are unlikely to order large numbers of Turboprops, if any, because of passenger preferences for regional jets and flight crew costs. The Russian market is closed until further notice.

This leaves a current market of around 2,000 units. Embraer claimed there is a potential market for around 2,200 turboprops, which isn’t far off the existing in-service fleet. There are two major non-technical challenges for Embraer.

The first one is that airlines have been relentlessly up-gauging their operations to larger aircraft in recent years. Regional jets have become small single-aisle, and turboprops are up-gauging to regional jets (or larger). It means a potential market for 2,200 units might be too optimistic.

Were Embraer alone, it could probably recover the development costs over around 2,000 units. However, the Brazilian OEM would need to fight against the incumbent, ATR. The French-Italian turboprop OEM currently has the market to itself and would certainly launch a new program should Embraer decide to do so.

In this context Embraer can realistically hope for a 50% market share at best. This could leave fewer than 1,000 units to recover development costs, which is risky in this blog’s opinion.

Developing a USA-compatible E175-E2?

The E175-E2 currently has zero orders, and certification has been indefinitely delayed in practice. The major reason is US scope clauses that limit the MTOW of regional jets. With its extra row, heavier engines, and heavier wing, the E175-E2 does not have enough range to operate within US scope clauses limits.

The USA market is critical for medium-to-large regional jets: 62% (around 1,300 aircraft) of such jets operate there worldwide. The two other largest markets in the segment are China and Russia, closed to Embraer due to domestic programs (Comac’s ARJ21 and Irkut’s SSJ100).

There are fewer than 500 passenger regional jets in commercial service excluding China and Russia. If Embraer wants to launch a new large regional jet program, it must comply with US scope clauses, otherwise it cannot recover development costs.

Including the USA, the market for medium to large regional jets is probably in the 1,250 to 1,750 units range, depending on how much airlines in other countries up-gauge to small single-aisle operations.

After Bombardier’s exit and MHI’s Spacejet abandonment, Embraer does not currently have competition in the medium to large regional jet market. The challenge is whether it is possible to develop an E175 successor (call it E175-E2 2.0?) that is light enough to be economical within US scope clauses restrictions.

Would the fuel burn savings from newer engines be enough to compensate for the higher engine maintenance costs and recover development expenses, leading airlines to order it? This blog does not know the answer.

Conclusion

In this blog’s opinion, there are three realistic potential programs for Embraer: a new (and larger) executive jet, a turboprop, or an E175 successor. Which one will prevail? Time will tell.