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News and Perspectives from Embraer Sales Finance & Leasing • ISSUE 3, 2012 • • EMBRAER IN THE MIDDLE EAST • E-JETS: THE WORD FROM APPRAISERS • AT HOME AND AROUND THE WORLD VALUES
News and Perspectives from Embraer Sales Finance & Leasing
• ISSUE 3, 2012 •
• EMBRAER IN THE MIDDLE EAST• E-JETS: THE WORD FROM APPRAISERS• AT HOME AND AROUND THE WORLD
VALUES
John SlatterySr. Vice PresidentHead of Sales Finance, Lessors and Asset Management
Oman Air’s E175 feature in-seat video entertainment.
Family Values
MORE MIDDLE EAST90 CITIES. AND GROWING.Despite the continued turmoil in the region, emerging markets continue to be a source of new business, which is influencing the demand for small-capacity aircraft. According to Embraer’s recently-released twenty-year market forecast for commercial aircraft, the Middle East is expected to register 7.0% annual growth in RPKs.
Since Saudi Arabian Airlines took delivery of its first E170 in 2005, there are now more than 50 E-Jets in service with 7 carriers flying to some 90 cities. Twenty percent of those aircraft are leased by GECAS, Aldus Aviation and Jetscape.
E-Jets are correcting a longstanding schedule deficiency in the region by providing much needed frequencies that are more market oriented.
In the past, passengers flew when it was operationally feasible for an airline. That often meant late at night or very early in the morning. Travelers on Royal Jordanian now have consistently-timed daily flights between Amman and cities in the Levant. Same-day round-trip flights let RJ business customers avoid
All eyes will be on the coveted US market later this year when carriers there are expected to go shopping for new airplanes. Ageing fleets, mergers that have duplicated routes and equipment, the high cost of jet fuel, and the current restructuring at American Airlines are accelerating a redefinition of pilot scope clauses and a review of aircraft types. The outcome will have enormous implications for the current caps on regional jet capacity and fleet size. Aircraft in the 75 to 90-seat segment will be well-positioned to capture the expected demand as carriers retire their 50-seat fleets and seek larger airplanes. The Embraer E175, of course, is smack in the middle of that segment.
Many of the world’s leading aircraft appraisers have published significant increases in their valuations of the E175. You need only look at the range of business applications of the E175 to understand why the numbers are strengthening. Airlines around the world have discovered the versatility of the airplane.
Low-cost, low-fare TRIP in Brazil and Flybe in the UK acquired the E175 to tap secondary markets with right-sized capacity. Alitalia, Air Canada and Oman Air operate their E175s on mainline routes and configure them with dual-class seating and in-flight entertainment systems. In Japan, Fuji Dream Airlines deploys its E175s on lower-density domestic routes. LOT Polish Airlines, however, has truly embraced the family commonality benefits with a fleet strategy that uses three of the four E-Jet models (all but the E190) for short and medium-haul regional flying at its Warsaw hub.
The 100-seat E190 has always been a strong performer and it’s good to see the E195 also holding its value in Ascend’s second quarter issue of V1 Market Commentary. Given the success of the E175 around the world, the little brother to the E190 and E195 may finally get some new visibility in aviation’s largest market.
costly and time-consuming overnight stays.
EgyptAir Express flies high-frequency E170s between Cairo and the resort city of Sharm el Sheikh, a route that was previously flown by larger jets that are now more profitably deployed elsewhere in the EgyptAir network.
Gulf Air embarked on an aggressive expansion initiative to add frequencies and cities when it acquired its first E-Jets. The carrier added E-Jet flights to more than 20 destinations from Bahrain. Oman Air filled in the gaps in its regional schedule with E175 flights to supplement existing nonstop services. Its E-Jets are equipped with premium cabins and in-seat video monitors to ensure a consistent on-board product across the fleet.
E-Jets are truly changing the way people fly in the Middle East.
Values is produced by Embraer’s Finance team in São José dos Campos.
We welcome your comments and contributions. Please contact:
Vagner Proenca Ricardo
Lessors Market Strategy Manager
TEL +55 (12) 3927 7744
Flybe operates both the E175 and E195.
EgyptAir Express has eleven daily E170 flights every day between Sharm el Sheikh and Cairo.
Lufthansa and its partner carriers operate the largest fleet of E-Jets in Europe.
The appeal of Embraer E-Jets is being recognized by a growing number of aircraft appraisers as the 900th delivery milestone is reached next month. Appraisers are an important independent voice in establishing fair value and liquidity of aircraft since they are expensive, long-term assets. Their valuations are used not only by airlines themselves but also by banks and leasing companies.
So what exactly is the appraiser community noticing about E-Jets? For one thing, their versatility. The airplanes are at home in a variety of applications including regional, mainline and low-fare, low-cost business models. JetBlue Airways in the USA was the first low-cost carrier to challenge the single aircraft type philosophy when it acquired E190s to supplement its A320 fleet. Air Canada flies its E175s and E190s in parallel with its larger narrow body jets, offering premium cabin seating, in-seat entertainment and power ports on its E-Jets.
Appraisers have also seen the power of E-Jets to replace older aircraft and simplify fleets. Ascend cites the benefits of family commonality and superior cabin comfort compared to the CRJ. The 22 E-Jets at LOT Polish Airlines exemplify the commonality benefits of operating three of the four E-Jet types. The carrier adopted a right-sized, two-type aircraft strategy – B737s and E-Jets – for its European operations. Ascend also notes that the acquisition of E-Jets by more lessors will further expand the portfolio of 61 airlines from 41 countries that have selected the family of aircraft.
IBA refers to the E190 & E195 as “recession busters” because of their lower fuel consumption and operating costs compared to older jets, such as the B737 classic. On the iconic New York-Washington-Boston
shuttle, Delta Connection is realizing substantial cost savings with the deployment of E-Jets on the triangle. Its E175s are so successful flying in those markets that it estimates a USD13 million annual improvement on the New York-Washington route compared to the MD88s that were previously scheduled on that city pair. The results are even more dramatic on the Boston-New York sector where earnings are forecast to increase by USD20 million as E-Jets replace incumbent A319 capacity.
AVITAS also recognizes the global success of the E-Jets family and how the broad range of operators contributes to asset liquidity. The strong customer base has helped make E-Jets the market share leader with 43% in the 61 to 120-seat jet category.
Appraisers have noted that, with 500 firm orders, the 100-seat E190 continues to be Embraer’s most popular E-Jet followed by the 78-seat E175 with nearly 200. Together, the E170 and E175 account for some 375 orders from 27 airlines. The airplanes are replacing older-generation 70-seaters such as the AVRO RJ70 and Fokker 70 and reducing fuel consumption by 40% over those models.
Prospects for new E-Jets sales are favourable. There are indications that the limits on regional jet seat capacity and the number of aircraft will be
E-JETS THE WORD FROM APPRAISERS
relaxed to reflect the new economic environment in the American airline industry. That liberalization suggests that U.S. carriers are ready to go shopping for hundreds of new airplanes. And the sweet spot will likely be for 75 to 90-seat equipment.
The E175 is ideally positioned to satisfy the demand for larger jets and can accommodate from 78 to 88 seats depending on pitch and dual or single-class arrangement. Given the current deployment profile of jets of this size in the USA, the E175’s nominal 2,000 nm range (3,706 km) lets operators seize new opportunities by replacing their smaller aircraft that cannot fly as far.
More than 800 aircraft from the E145 family have been delivered to some 50 airlines around the world. The high price of fuel and low fare levels have diminished the economic viability of large fleets of regional jets in North America and Europe but there is a bright spot amid the decline.
In the last decade, around 100 ERJs from those continents have been sold and have found new homes in Africa, the CIS and Latin America. In the Ukraine, Dniproavia started replacing its Yakolev 40s and 42s in 2007 with E145s and now has a fleet in excess of 20 ERJs. In South Africa, SA Airlink serves secondary markets with its eight E135s.
Embraer’s ERJs are still going strong in Mexico, too. Every day, 70 nonstop flights operated by United Express, American Eagle and AeroMexico Connect link hub cities in Texas with secondary points in Mexico. The transborder frequencies join 27 Mexican communities with the vast domestic and international networks of the U.S. carriers at Dallas and Houston. And the aircraft that fly those routes are the E135, E140 and E145. United Express serves 19 cities in Mexico from Houston while American Eagle has scheduled flights to nine destinations. Collectively, the ERJs of the three airlines carry nearly 900,000 passengers between the two countries every year. The proximity of Dallas and Houston to Mexico means that the average flight time for most transborder nonstops averages about two hours. Even to cities in the very south, like Huatulco, the ERJs are flying 2.5 hours. The combination of capacity and range make the airplanes the ideal equipment type for low-density markets. Although the majority of the United Express flights are once daily, half of American Eagle’s ERJ nonstops are double and even triple daily. That high frequency ensures passengers are not only able to conduct same-day business in Texas or Mexico without overnight hotel expenses, they can also connect to several AA flight departure banks at DFW.
An ocean away on the other side of the world, Air Namibia’s three E135s are flying to twelve cities in five countries, 127 times per week, with scheduling precision and utilization that are the hallmarks of a well-run regional jet operation. The airline replaced its fleet of six 19-seat B1900 turboprops in March 2011 with 37-seat ERJs that were previously flown by Air France partner Régional Airlines.
AT HOMEAROUNDTHEWORLD
The aircraft are deployed on an impressive and tightly-run schedule on a network that spans the southern part of the continent. From the first departure at 0700 to the last arrival at 2040, the E135s fly an average of 8.6 block hours per day with 30-minute turnaround times on flights that are as short as 40 minutes and as long as two and half hours. Each aircraft flies a unique rotation pattern and remains overnight at a different station.
The transition from B1900 turboprop was more than just a change in aircraft type. Combing the doubling of the static seat count of the retired aircraft with the faster speed of a jet produced a big increase in the number of ASKs. The new capacity brought new opportunities to improve network connectivity and introduce a more business-oriented schedule. Analysis of traffic data already shows that the jets are making a profound change for the airline. On the main Eros-Ondangwa domestic route, year over year passenger volume nearly tripled in the seven months ended September 2011. Load factor on the city pair increased 16 points to 65% during the same period. Air Namibia’s ERJs are in good company in Africa. Not only do they supplement the airline’s larger-capacity A319 frequencies on some routes, they are part of a fleet of fifteen ERJs in service with seven other carriers on the continent. SA Airlink, Dexim Express and Air26 of Angola, ALS in Kenya, Swaziland Airlink, EquaFlight and Fly6ix of Sierra Leone all fly E135s and E145s.
As US carriers upguage their regional fleets, surplus E145s may find new homes, not only south of the border, but continents away. The principles that saw 50-seat jets thrive in North America more than a decade ago are alive and well in emerging markets of the world. High utilization, jet speed and the operating costs of used aircraft combine to make an attractive business case for the E145 in emerging markets.
Air Namibia showcases the viability of E135s in emerging markets.
Nearly 900,000 passengers fly on E145s annually between Mexico & Texas.
