MRO Could Be Bright Point For Embraer
Although the recent breakup of the Embraer-Boeing commercial aviation JV was not a favorable outcome for the Brazilian manufacturer, prospects for the aftermarket piece could be strong.
Embraer CEO John Slattery said the consensus he’s seeing among senior air transport executives is that the airline business’s recovery will take 3-5 years, but it will be uneven. Smaller aircraft and shorter haul flying is likely to bounce back more quickly as airlines focus on trip costs over capacity.
Long-haul flying, particularly between countries, will likely take longer to recover, especially if the patchwork of responses for protecting passengers from COVID-19 does not become more streamlined, which would provide more comfort to would-be travelers.
"There will be a lot of anxiety around long-haul travel,” he said.
The combination means markets with significant domestic demand, led by China and the U.S., are best positioned to rebound quickly.
“It’s the basic law of economics—supply and demand. You want to be selling a fewer number of seats so that you can better manage the yield,” he said.
The trend means that aircraft in the 75-100-seat range, including Embraer’s E175 and E190-E2 series, are in advantageous spots and "will come back on the inside of the three-to-five year program.”
While Embraer has seen a decline in MRO demand since the pandemic outbreak, Slattery predicts a “strong rebound” for EJet services in 2021 as airlines return those aircraft to service sooner than larger aircraft. If airlines weigh trip costs over seat costs to manage yields for the next few years, “you’ll see EJet size aircraft coming into MROs a lot quicker,” he says.
He didn’t forecast the market demand because Embraer is not providing guidance this year.
Embraer carved out the commercial aviation business during 40 days from late December through January, so the organization, that was going to be named Boeing Brazil Commercial, is a stand-alone, autonomous business--includes everything from engineering to IT, operations and procurement. Slattery says the board is considering the path forward but it “is not the time for rash, knee-jerk reactions.”