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Embraer to extend regional jet reach over Bombardier?

Aug. 26, 2013, Montreal - Brazil's Embraer is positioned to extend its leadership in regional jet sales over Canada's Bombardier in the coming years, according to transportation analyst Derek Spronck of RBC Capital Markets.


August 26, 2013
By The Canadian Press

"Whether by thoughtful decision-making or by second-mover advantage, Embraer has effectively positioned its product lineup against a competitive, landscape,'' he wrote in a report issued Monday.

Spronck anticipates that Embraer's market share between 2013 and 2015 will increase to 63 per cent from the aggregate 54 per cent it achieved between 2001 and 2012. He said Embraer benefits from an installed base of 1,800 planes over 60 customers and its recent
announcement to revamp its line of products.

Embraer's backlog now is at a point where he anticipates a 17 per cent ramp up in deliveries in 2014, adding US$425 million in extra revenue.

Montreal-based Bombardier used to dominate the regional jet market but has seen its leadership dwindle since Embraer introduced its E-Jet family in 2003. Embraer, the world's
fourth-largest aircraft manufacturer behind Bombardier, delivered 76 per cent of the world's regional jets last year, up from 29 per cent in 2003.

While the two rivals have historically accounted for about 95 per cent of the regional jet market, they are expected to face competition in the coming years from new arrivals, including Mitsubishi, Russia's Sukhoi and Comac of China. All have faced development challenges and delays.

Spronck said Bombardier's deliveries of planes in the 30- to 120-seat segment should fall to 31 per cent share of the market over the next three years from 45 per cent achieved over the past 12 years.

Embraer has won US$4.9 billion worth of orders from U.S. carriers since late 2012 compared with just US$1.9 billion for Bombardier. Additional wins should lead to increased E-Jet production rates next year as it builds firm orders for 117 E175 planes for American
carriers by 2015, he added.

He anticipates another round of U.S. orders and option conversions in the next 12 to 24 months, plus a slow and steady growth from emerging markets, particularly China and the Middle East.

Bombardier's CRJ jets are lighter and have a few more seats than the E-Jets, but have a shorter range, less efficient aerodynamics and a smaller cabin.

Embraer's new E2 jets are undergoing a US$1.7-billion facelift that will improve operating efficiency, in part by adding the Pratt & Whitney geared turbofan engine that will power Bombardier's CSeries.

Its largest aircraft, E195 will add 12 seats and be able to fly 132 passengers (118 in a dual-class configuration) that will challenge the smaller CSeries aircraft, which is $16 million more expensive at US$62 million but has a much longer range.

Bombardier has said its CRJ family of planes are competitive, but Spronck said Embraer is improving the "value proposition'' against its rival's current line-up of aircraft.

"We believe Bombardier will need either to launch a clean-sheet regional jet offering in the coming years or (and more likely) concede market share in the regional jet market,'' Spronck wrote in a report launching coverage of Embraer.

Commercial aviation accounted for 61 per cent of Embraer's revenues last year, followed by 21 per cent for business aircraft and 17 per cent for defence products.

Bombardier is the world's largest business jet manufacturer but has felt growing pressure from Gulfstream. Spronck expects Embraer's deliveries will remain steady at about 15 per cent of the market.