Embraer is partnering with L3Harris Technologies to market its C-390 to the U.S. Air Force as an “agile tanker” well suited to operations in the Asia-Pacific region.
During a visit to Embraer’s OGMA heavy maintenance facility outside Lisbon, Portugal, Embraer President and CEO Francisco Gomes Neto sat down for a wide-ranging interview with Aviation Week
Executive Editor for Commercial Aviation Jens Flottau and Editor-in-Chief Joe Anselmo.
Francisco Gomes Neto. Credit: Embraer
AW&ST: When you were hired as CEO four years ago, your mandate was to carve out Embraer’s commercial aircraft business and hand it over to Boeing. Then COVID-19 hit and the Boeing deal fell apart. Your job today is not the one you signed up for. I was hired to manage the new Embraer without commercial aviation, and in April 2020 that changed. But it was good because commercial was part of the essence of the company, and many people here were very happy. It was difficult, but also a big opportunity. I had worked on a plan for the future. Then Boeing pulled the plug and we had to reintegrate commercial aviation and adjust the workforce during the pandemic. We had duplicated a lot of systems and assets during the carve-out. 2020 was tough. In 2021, we did much better; 2022 was better than 2021, and I hope that in 2023 we will do even better. We still have a lot of challenges ahead—the sales of the E-Jets, the supply chain constraints—but we have a really robust plan and a great team. Our plan is to reach $8 billion [in revenues] by 2027. Commercial aircraft will go back to 100 deliveries, executive jets to 150, and services will almost double.
The E-Jets are not selling in large numbers even though there is a lot of demand for Airbus and Boeing aircraft. Why is that, and do you see that changing? We would have more opportunities if there weren’t a pilot shortage in the U.S.—I have never seen as many sales campaigns for E-Jets as we have today. We are now discussing more than 200 aircraft. We will not win all of them, but we have good opportunities. We’ve announced deals this year with Royal Jordanian, Scoot and SKS [Airways], and we are working on many other campaigns. I think now is the time for E2 sales to gain traction.
- No plans now to challenge Airbus or Boeing
- Embraer is open to “local production” in China and India
- OEM’s Portuguese maintenance facility is set to quadruple revenues by 2030
You need a lot more production to make the E2 profitable. Last year we delivered 57 commercial aircraft and reached 1% [earnings before interest and taxes (EBIT)] without services. If we included services, EBIT would be 4-5%. This year we plan 65-70 deliveries. If we get back to 100, the level we delivered in 2017, commercial would be profitable, and including services, it would probably be at 8% EBIT.
Can commercial aviation inside Embraer be sustained without a partner? Could you even settle your dispute with Boeing and give it another try? We can survive without a partnership. We are at the break-even point in commercial without services. Executive aviation is doing very well, with 102 deliveries last year and 12.5% EBIT. This year we are planning 120-130 deliveries. We just announced a deal with NetJets for [up to 250] Praetor 500s. Production is growing and with it, revenues and profits. If we are able to get back to 90-100 commercial jet deliveries, the division will be profitable. I’m not looking for the same model that we had with Boeing, but maybe there is a partnership to assemble aircraft in China or India. That would help us to achieve that target of 100 aircraft per year or even more and expand sales of the E2. We are very happy that operationally we have one company. Imagine how difficult it would be to have two companies: different leadership, two different approaches and cultures. I don’t think that model is a good one.
Embraer has been trying to succeed in China for a long time. But your ERJ145 line in Harbin did not work out, and Chinese airlines are mainly operating larger aircraft. What makes you think you can be successful there now? Comac has two products: the ARJ-21 [with] up to 80 seats and the C919 over 160 seats. Our aircraft fits exactly in the middle. It could be a great opportunity to improve the efficiency of air traffic in China. They don’t have the optimal aircraft for many routes—they’re either too big or too small. The E190-E2 is certified in China and the E195-E2 will be. But to sell more aircraft in China, we will need local production and a special partnership.
How many aircraft would you have to sell to China for a final assembly line to make sense? Surely more than 50. Brazil’s president, Luiz Inacio Lula da Silva, recently went there, and we took the opportunity to go with him. The bilateral agreement between Lula and Chinese President Xi Jinping included a partnership in the aviation market and explicitly mentioned Embraer and the Chinese airlines. Politically, the doors are open. Now it is up to us to work on the other levels to make it happen.
Many companies are evaluating whether they should put more investment into China or go to India. Is China even the right call for Embraer? We are looking at both. In India, you can include military aircraft. India recently issued a request for information on multimission aircraft the size of our C-390 for 40-80 units. That would be a great opportunity for a partnership. In commercial, we are working with some of the airlines and waiting for them to go for regional jets. Maybe we can, in the future, combine both into one big partnership there.
Airbus and Boeing have no near-term plans for new commercial aircraft. Does that open the door for a new entrant? Is that what the industry needs, and are you considering in any way a larger airplane? We are not considering starting a huge new program costing billions right now. We’re focused on recovering past investments to develop the E2 family and the Praetors. But we also are investing in innovative products. Eve [the independent air mobility company started by Embraer that went public last year] has enough money to certify the aircraft and is forecasting $4 billion in revenues in 2030. With another $8-9 billion from Embraer, the company can more than double in size compared to today. We are also working on new technologies such as the Energia family—hybrid-electric, hydrogen-electric and up to 50 seats. It is not as big as a narrowbody, but new technologies can be used in different markets and increase revenues and profits. These new products are not as sexy as developing a new narrowbody but can be launched with less risk and without compromising the financial recovery of the company.
Senior Vice President Luis Carlos Affonso, who leads engineering and technology development at Embraer, has said that in a few years he will need more work for his engineers. Our engineers are busy with all the improvements of existing products—the E-Jets, the executive jets, the NATO version of the C-390, the [electric vertical-takeoff-and-landing (eVTOL)] vehicle and the Energia family. We have a very good-size engineering team for a company our size. It’s 3,500 people, and they are busy.
Other companies have tried to compete with Airbus and Boeing and failed. Is that a consideration, too? A big airplane could change the size of the company, but it could also put the company at a big risk. We don’t believe we have to do this. We have a good strategy; Embraer is growing. We hope to remunerate our investors soon through dividends and an increased stock price. We have been pragmatic but without forgetting innovation. We can be faster than big companies. We want to launch a fully electric eVTOL by 2026. For the Energia family, we want to fly the first hydrogen prototype by 2025. We flew an electric demonstrator in 2021. Those products we can do ourselves.
The aftermarket is certainly a bright spot for Embraer. Last year it grew 12% and accounted for 28% of your sales. Look here at OGMA. We are planning $250 million in revenues this year, $500 million in 2025, $600 million two years later and $1 billion in 2030 after we start work on the Pratt & Whitney geared turbofan engine. The services business is going to grow a lot, and it’s very profitable. We can reach 16-17% EBIT.
Embraer has put plans to develop an advanced turboprop aircraft on hold until at least the early 2030s. Where does that project stand? We have not given up. We believe that a turboprop with an E2 fuselage and engines in the back is a great idea, but we need an engine that is different. The suppliers are focusing on their own financial recovery. Rolls-Royce said that they want to turn the company around first before developing a new engine. They put us in this situation.
You sold your Evora site in Portugal here last year, where you built composite and metallic components. How difficult was that decision, given that it was an important part of your industrial footprint in Europe? It was not difficult. We want to maximize the use of assets in the company to improve the return on invested capital. Our team looked at Evora, and for the next 15 years the utilization was not even getting to 70%. In some areas it was as low as 50%. The supplier we sold it to is a better owner because it can bring other products to that plant. We kept our products there—the wings of the E2 and the C-390, for example—and they are selling more products to other OEMs and hiring more people. They’re happy, and we’re happy.
You teamed with L3Harris Technologies to market the C-390 to the U.S. Air Force. But on the trip with President Lula to China, he blamed the U.S. for prolonging the war in Ukraine. Is there any chance the U.S. would buy the C-390 after he said that? I would not mix these two things. During his visit to Portugal, he had a different approach about that. I think Brazil wants to be neutral. Remember, President Lula’s second trip abroad was to the U.S., after Argentina. The U.S. is a very important partner for Brazil; he knows that. I think the situation was fixed, and in his latest interview, Lula gave a more neutral view.
So why would the C-390 be such a great product for the U.S. Air Force? If you look at the technical analysis that the Netherlands made in comparing the C-390 with the Lockheed Martin C-130, you clearly see the difference. But Lockheed is very strong in the U.S. Partnering with L3 will help us market the aircraft as an agile tanker, especially for use in the Asia-Pacific, where there are a lot of small islands and the runways are not long. The aircraft would fit perfectly in the tanker renewal program.
Do you feel Embraer’s Executive Jets business could be threatened as environmental policy pressures mount in some parts of the world? We don’t believe it is going to be a big issue for us. This is more about perception than emissions. Executive aviation is responsible for 0.04% of carbon emissions. We are working toward solutions such as the use of sustainable aviation fuel. We are already operating at 50% in some cases and are working on disruptive alternatives for the future.
Boeing is raiding engineers in Brazil. Is that putting your company at any risk? It does not put the company at risk, but of course we don’t like it. They’re taking good engineers. We have launched initiatives to retain talent, and we have a lot of projects. Engineers love projects. We’ve lost less than 100 engineers. Some companies much smaller than Embraer are suffering more. In some cases, they lost half of their engineers.
In hindsight, are you happy that Embraer stayed one company? Of course I am. I worked very hard to make that deal [with Boeing] happen, but after they took that decision, if I look backward, yes, I’m happy. It’s much more fun to manage this company with commercial aviation than without it.
