1. AIRLINE MARKET OUTLOOK
Frederico Fleury Curado
Executive Vice-President, Airline Market
Farnborough 2006
Investors Meeting
July 19th, 2006
2. Forward Looking Statement
This presentation includes forward-looking statements or statements about events or
circumstances which have not occurred. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends
affecting our business and our future financial performance. These forward-looking
statements are subject to risks, uncertainties and assumptions, including, among other
things: general economic, political and business conditions, both in Brazil and in our
market.
The words “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,” “intends,”
“expects” and similar words are intended to identify forward-looking statements. We
undertake no obligations to update publicly or revise any forward-looking statements
because of new information, future events or other factors. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this presentation
might not occur. Our actual results could differ substantially from those anticipated in our
forward-looking statements.
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
3. Contents
Q Airline Market Scenario and Trends
Q Important Issues in the 30-120 Seat Segment:
§ RJ 50: an intrinsic part of the air transportation system
§ E-Jets: matching aircraft capacity to market demand
Q Market Forecast
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
5. Positive World Economic Scenario
2006-2025 economic scenario is sustaining Air Travel Demand growth
Projected Traffic and Economic Growth by Region (Average Annual Growth)
World
USA, Canada & Caribbean
Latin America
Europe
RPK
Russia & CIS GDP
Africa
Middle East
Asia Pacific
China
0% 1% 2% 3% 4% 5% 6% 7% 8%
Source: Global Insight and Embraer
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
6. Increased Air Travel Demand
Traffic is recovering at strong growth rates but in another environment
7000 80%
RPK ASK Load Factor
78%
6000
76%
Billion (RPK & ASK)
5000
% (Load Factor)
74%
4000 72%
3000 70%
68%
2000
66%
1000
64%
0 62%
1995
1996
1996
1998
1999
2000
2001
2002
2003
2004
2005
2006F
2007F
6.3% yoy 7.7% yoy 6.4% yoy
Source: ICAO - Contracting States - Scheduled Airlines
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
7. Revenue Environment
World yields are improving, but trend in real terms remains low
105
100
95
Index (1994=100)
90
85
80
75
World Nominal Yield
70
World Real Yield (adj. for US inflation)
65
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F 2006F 2007F
World real yields in 2005 are 28% lower than 1994 values in an
environment where LCCs pricing power is the main driver.
Source: ICAO (Contracting States - Scheduled Airlines), Global Insight (USA CPI Inflation) and IATA Economics
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
8. Financial Net Results
Some improvement to profitability, projecting a healthier 2007
North America
Europe
-6.7 -5.2 0.0 World
1.6 1.3 1.4
-3.2 -3.0 3.3
2005 2006F 2007F
Middle East
2005 2006F 2007F 0.2 0.1 0.3
2005 2006F 2007F
2005 2006F 2007F Asia Pacific
Latin America 2.1 1.7 2.0
Africa
-0.1 0.1 0.2
-0.4 -0.9 -0.6
2005 2006F 2007F
2005 2006F 2007F
2005 2006F 2007F
Source: IATA (Jun/06) Values in US$ Billion
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
9. End of Cheap Jet Fuel
Lack of spare oil production capacity remains è high price trend
85 95
Capacity
90 Crude Oil
80 Demand
Jet Fuel
Millions of Barrel per Day
85
75
Price (US$/Barrel)
80
70 75
70
65
65
60 60
Current jet fuel
55
55 price 48% higher
50 than Jan/05
50 45
May05
May06
Jul05
Mar05
Mar06
Jan05
Jan06
Sep05
Nov05
1970
1975
1980
1985
1990
1995
2000
2005
For coming years oil barrel is expected to stay at
US$60-70 level and jet fuel at US$1.70-1.90/gallon
Source: EIA - Energy Industry Administration (Jun/06)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
10. Higher Competitive Environment
LCC will keep capturing market share from Network carriers
USA Domestic RPM Intra Europe RPK
5%
11% 12%
17% 16% 16%
19%
29% 11%
31% 19%
34%
76%
72%
60% 65%
57%
50%
2000 2005 2010E 2000 2005 2010E
Network LCC Regional
Source: Back Aviation and Embraer
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
11. LCC & Network Cost Convergence
1Q 2006 1Q 2005
Airlines Operating Operating Net Operating Operating
Net Result Net Result Net Margin
Result Margin Margin Result Margin
(MM) (MM) (%)
(MM) (%) (%) (MM) (%)
American $52 -$106 1,0% -2,0% -$44 -$171 -0,9% -3,6%
Continental $11 -$66 0,4% -2,2% -$173 -$186 -6,9% -7,4%
Network
Delta -$485 -$2.069 -13,0% -55,6% -$957 -$1.071 -25,8% -28,9%
Northwest -$15 -$1.104 -0,5% -38,2% -$301 -$529 -10,8% -18,9%
United * -$168 $22.411 -3,8% - -$239 -$1.012 -6,1% -25,8%
US Airways $125 $65 4,7% 2,5% $45 -$174 6,1% -23,7%
ExpressJet $37 $24 9,2% 5,9% $39 $23 10,3% 6,2%
Regional
Skywest $83 $35 11,2% 4,6% $34 $19 10,1% 5,5%
Pinnacle $22 $13 10,4% 6,4% $20 $23 10,3% 12,0%
Republic $48 $17 18,6% 6,6% $37 $15 17,4% 7,1%
Southwest $98 $61 4,9% 3,0% $81 $59 4,9% 3,5%
JetBlue -$25 -$32 -5,1% -6,5% $25 $6 6,7% 1,6%
LCC
Alaska Group -$125 -$79 -17,0% -10,8% $27 -$81 4,2% -12,5%
AirTran -$4 -$5 -1,1% -1,1% -$9 -$8 -3,2% -2,7%
* United: Net Result includes reorganization items (the discharge of claims and liabilities primarily relates to those unsecured claims arising during the
bankruptcy process. United recognized a non-cash reorganization gain of $24.4 billion in the 1Q06).
Source: Airlines (Total System: Domestic and International)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
12. Opportunities for Rightsizing
Additional opportunities are still in the marketplace
6,018
routes with less than two
average daily frequency
41% USA & Europe
Average Daily Frequency by Route
Routes operated exclusively by Jet Aircraft
34%
from 91 – 175 seats up to 2000 nm
% of Routes
17%
6%
2%
0 - 0,5 0,5 - <2 2 - <5 5 - <10 >=10
Source: Back Aviation (OAG 4Q05) Average Daily Frequency
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
14. Regional Airlines – Europe
TP 1995 TP 2005
3026 routes 2810 routes
723 aircraft 666 aircraft
Av. stage length: Av. stage length:
200 nm (370 km) 231nm (428 km)
Last 10 years: RJ fleet grew 700%
and TP shrank by 8%
RJ 1995 RJ 2005
273 routes 1722 routes
37 aircraft 294 aircraft
Av. stage length: Av. stage length:
414 nm (767 km) 387 nm (717 km)
Source: Back Aviation (OAG Jan/06; RJ: ERJ 145 Family, CRJ 100/200 and 328JET)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
15. Regional Airlines – USA
TP 1995
1908 routes TP 2005
1599 aircraft 902 routes
Av. stage length: 740 aircraft
179 nm (332 Km) Av. stage length:
159 nm (295Km)
Last 10 years: RJ fleet grew 3600%
and TP fleet shrank 54%
RJ 1995 RJ 2005
180 routes
2888 routes
36 aircraft
1358 aircraft
Av. stage length:
Av. stage length:
391 nm (724 Km)
395 nm (732 Km)
Source: Back Aviation (OAG Jan/06: RJ: ERJ 145 Family, CRJ 100/200/440 and 328JET)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
16. USA Hub & Spoke System
Hubs are largely dependent on RJs
1. RJs are responsible for 22% of all USA domestic passengers
2. RJs: 3 connecting passengers for each local passenger
Source: Back Aviation (T100 and OD1A: RJ: ERJ 145 Family, CRJ 100/200/440 and 328JET). 2006 FAA Report (DOT Form 41 & Form 298C)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
17. New Market Opportunities - USA
New market opportunities
Selection Criteria:
1. Market Demand: 25-75 PDEWs without
136 potential markets
direct flights
2. Distance Profile: 250 -- 1500 mi
without any direct service
3. Revenue Environment: Yield >= RJ Yield
Source: Back Aviation (OAG 2005) Note: RJ Yield Curve = 2005 Yields for ExpressJet and Pinnacle – 1 coupon)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
18. New Market Opportunities – EU
Point-to-Point – new routes to secondary cities/airports is increasing
1996-2000
2001-2005
0 40 80 120 160 200
Markets
Primary-Primary
Primary-Secondary
Secondary-Secondary
Source: Back Aviation (OAG) and Embraer
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
19. RJ 50 Market Opportunities – China
Most of the routes have low demand density and low frequencies.
59% of total
routes have less
than 1 daily
frequency and
less than
135 pax/day
Source: China Airline Traffic Statistics 2004. Only domestic routes less than1,500 nm
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
20. RJ 50 Market Opportunities – Russia
Old Fleet Replacement
30-60
Seat Segment
244 aircraft
33 years old
(average)
Yak-40 An-24
Jet – 30 seats Turboprop - 50 seats
122 aircraft 122 aircraft
Average Age: 31 yrs Average Age: 34 yrs
61-90 91-120
Seat Segment Seat Segment
Tu-134 Jet - 76 seats Yak-42 Jet - 120 seats
123 aircraft 54 aircraft
Average Age: 28 yrs Average Age: 17 yrs
Source: BACK (Fleet PC Feb06)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
21. RJ 50 Parked Aircraft
Parked
Region Aircraft Type
(as of Jul/06)
CRJ00/200/440 13
Europe
ERJ145 2
Latin America ERJ145 3
USA and Canada CRJ100/200/440 85
Parked % of Fleet
Region Aircraft Type Parked
(as of Jul/06)
CRJ100/200/440 98 9%
WORLD ERJ145 5 1%
Total 103 5%
Source: Back Aviation (Fleet PC 06/Jul/06)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
22. RJ 50 Residual Value (RV) Evolution
RV by Quarter at 12 Years Age
10.00
9.00
8.00
7.00
US$ Million
6.00
5.00
4.00
3.00
2.00 ERJ 145
1.00 CRJ-200
0.00
Q4
Q1
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q3
Q4
Q1
Q2
Q2
Q2
02
03
03
03
04
04
04
04
05
05
05
06
06
03
05
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
ERJ 145s are sustaining Residual Values
Source: MBA Avitas Airclaims, et al
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
23. ERJ 145 Family
The Evolution of Regionals
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
24. ERJ 145 Product Improvements
Design Weights High Altitude Operation Brake Hardware
Optional weight increase: ERJ 145LR ERJ 145ER/LR/XR Models
§ 13,500 ft § Maintenance costs reduction
ERJ 135ER (China) § Original 1000FC Guaranteed
§ Since Dec2005:
MZFW = +400kg (880 lb)
ERJ 145LR/XR New Design
ERJ 145ER § 10,000 ft § ER/LR Model: 1750 FC
§ To be available mid 2006: (North America, South America,
§ XR Model: 1800 FC
MZFW = +250kg (550lb) Mexico, China)
ERJ 145LR ERJ 145ER/MP
§ To be available mid 2006: § 8,500 ft
MTOW = +600kg (1,320lb) (South America, Mexico, EASA)
MZFW = +500kg (1,100lb)
MLW = +500kg (1,100lb)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
25. ERJ 145 Family Orderbook
Firm Firm
Options Total Deliveries Backlog
Orders
ERJ 135 108 2 110 108 -
ERJ 140 74 - 74 74 -
ERJ 145 682 157 839 676 6
Total 864 159 1,023 858 6
(as of June 30, 2006)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
27. USA Dom.: Further Capacity Adjustment Opportunities
Load Factor distribution for USA domestic jet flights
20-40% 41-60% 61-80% 81-95%
4000000
3000000
Number of Flights
2000000
1000000
0
2000 2005 2000 2005 2000 2005
RJ 50 70-110 Narrow-body (120-150)
There are further opportunities in the
capacity adjustment process
Source: Back Aviation (T100)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
28. E-Jets Family - USA & Canada
Jun/06: 114 E-Jets
Jun/06: 114 E-Jets
Avg. Stage Length: 548 nm (1015 km)
Avg. Stage Length: 548 nm (1015 km)
28 E170
Avg. Stage Length:
454 nm (841 km)
15 E175 11 E190 28 E170 17 E190 15 E170
Avg. Stage Length: Avg. Stage Length: Avg. Stage Length: Avg. Stage Length: Avg. Stage Length:
504 nm (933 km) 742 nm (1374 km) 531 nm (984 km) 501 nm (928 km) 1029 nm (1906 km)
Source: BACK/OAG (1H06 routes ; Fleet as of June 30, 2006)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
29. E-Jets Family - Europe
10 E170 + 4 E175 6 E170
Avg. Stage Length: Avg. Stage Length:
527 nm (975 km) 377 nm (699 km)
6 E170 2 E170
Avg. Stage Length: Avg. Stage Length:
423 nm (784 km) 224 nm (415 km)
Jun/06: 28 E-Jets
Jun/06: 28 E-Jets
Avg. Stage Length: 445 nm (824 km)
Avg. Stage Length: 445 nm (824 km)
Source: BACK/OAG (1H06 routes ; Fleet as of June 30, 2006)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
30. E-Jets Family - Asia & Middle East
Jun/06: 14 E-Jets
Jun/06: 14 E-Jets
Avg. Stage Length: 364 nm (675 km)
Avg. Stage Length: 364 nm (675 km)
2 E170 4 E170 8 E170
Avg. Stage Length: Avg. Stage Length: Avg. Stage Length:
377 nm (698 km) 458 nm (848 km) 303 nm (561 km)
Source: BACK/OAG (1H06 routes ; Fleet as of June 30, 2006)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
31. E-Jets Operation
Longest Route Shortest Route
3,274 km (1,768 nm ; 2,033 sm) @ 5:10 hs 137 km (74 nm ; 85 sm) @ 0:37 hs
Air Canada – E190 Saudi Arabian – E170
Calgary Arar
Jouf
New York
Avg. Stage Avg. Elapsed Longest Shortest
Equipment
Length (km) Time (hours) Flight (km) Flight (km)
E170 930 1:50 2,510 137
E175 962 1:55 2,219 150
E190 1,017 2:01 3,274 301
E-Jets 945 1:52 3,274 137
Source: BACK/OAG (2Q06)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
32. Beyond the Current Models...
There is a need for a new TOOL
Regional Airlines
RASK / M
Network Airlines
Low Cost
Carriers
E-Jets
Capacity
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
33. E-Jets Family – Efficiency to all Business Models
Regional Network Low Cost
Source: Embraer (Mar/06)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
34. EIS Statistics – E-Jets Family
E170/175 E190/195
Operators 10 Operators 3
Aircraft in Service 122 Aircraft in Service 23
Flight Hours 332,736 Flight Hours 21,375
Flight Cycles 226,429 Flight Cycles 13,666
E170/190 Family
Operators* 12
Aircraft in Service 145
Flight Hours 354,111
Flight Cycles 240,095
(*) Air Canada operates E175 and E190 Source: Airlines (as of Jun 23th 2006)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
35. The E-Jets Family
The 70 to 110-seat market evolution
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
36. E-Jets Program
Certification E170 E175 E190 E195
ANAC (CTA) Feb/04 Dec/04 Aug/05 Jun/06
EASA Feb/04 Jan/05 Jun/06 Jul/06
ANAC FAA
EASA FAA Feb/04 3Q06* Sep/05 4Q06*
(*) to be certified
Follow-on Certification
E190 ETOPS CAT IIIa Autoland E170 LCY Steep Approach
Ready for customer operational E170 à Certified • Kit provides a fly-by-wire function
approval: to allow the use of multi-function
E175 à 4Q06 spoilers as lift/drag devices.
ETOPS 75 minutes: end of 2006 E190 à 4Q07 • 650 nm range
ETOPS 120 minutes: end of 2007 E195 à 4Q08 Certification: Dec/06
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
37. E-Jets Family Orderbook
Firm Firm
Options Total Deliveries Backlog
Orders
EMBRAER 170 144 116 260 111 33
EMBRAER 175 22 - 22 19 3
EMBRAER 190 253 286 539 33 220
EMBRAER 195 36 40 76 - 36
Total 455 442 897 163 292
(as of June 30, 2006)
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
39. Embraer Market Forecast (2006-2025)
Worldwide Jet Deliveries by Capacity Segment
Segment 2006 - 2015 2016 - 2025 2006 - 2025 US$ Bi
30 - 60 500 1,050 1,550 27
61 - 90 1,300 1,650 2,950 65
91 - 120 1,550 1,900 3,450 88
30 - 120 3,350 4,600 7,950 180
121 - 180 5,405 4,780 10,185 610
30 - 180 8,755 9,380 18,135 790
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
40. Embraer Market Forecast (2006-2025)
Projected Deliveries: 18,135 jets (30-180 seats)
USA, Canada Russia
& Caribbean Europe
& CIS
3,825 960
7,735 21%
43% 5%
China
Middle East 1,785
392 10%
2%
Latin Asia
America Africa Pacific
1,320 253 1,865
7% 1% 11%
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
41. Thank you
70 airlines. 43 countries. 1 manufacturer. EMBRAER
THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
