Company Profile: Embraer
Embraer is the third largest manufacturer of commercial aircraft in the world. It has competed with Canada’s Bombardier for this position for many years, but currently this Brazilian company maintains the third position with some ease. Embraer operates in the fields of commercial, business, defence, and agriculture aviation. In the field of commercial aviation, Embraer has a well-defined market niche and manufactures planes with up to 150 seats. Thus, Embraer does not compete directly with the aviation giants Boeing and Airbus, and as such leads the regional aircraft market. Embraer has over 18,000 employees, with its main headquarters in Brazil, but also maintains a global presence in different parts of the world. Up to date, Embraer has delivered more than 8000 aircraft.
Since its privatization in the 1990s, Embraer has been growing in markets where it operates with some stability, affected only by global crises, and has otherwise remained sustainable and healthy as a company ever since.
Before the pandemic, Embraer’s commercial aircraft division was supposed to be acquired by Boeing with Boeing poised to enter the regional aircraft market. This move is similar to what Airbus did when it acquired Bombardier’s C Series program. However, due to the internal problems that Boeing faced and coupled with the pandemic, this acquisition was never finalized and Embraer continues to operate as per usual.
The graph below shows the main aircraft manufacturers and their deliveries up to 2019. In the last two years, Embraer has maintained a certain stability in deliveries, having a slight reduction in the number of commercial aircraft delivered and has remaining as the main supplier of regional aircraft in the last 15 years. However, it experienced a drop in aircraft delivered in 2019, driven by the drop in Boeing deliveries.
Figure 1 – Aircraft Manufacturers Deliveries up to 2019
The small drop in Embraer deliveries during 2018 and 2019 was driven mainly by the drop in demand for one of its jets, E1, and also caused by the entry into service, the new E2 jet that had a slightly lower demand than its predecessor. It has to be noted that the Embraer still maintains production of both the E1 and E2 jets. The development of the new E2 aircraft as well as the lower profit margins in the business aviation segment pulled the financial results of Embraer down. However, the delivery backlog ended 2019 on a positive note.
Figure 2 – Embraer Financial Year – 2019
During the Pandemic
Like the vast majority of the aviation sector, Embraer also suffered a significant impact to its operations due to the pandemic. It had fewer aircraft delivered and consequently reduced its number of staff. With few orders in 2020, the company saw a significant reduction to its delivery backlog as well as considerable losses in the same year. Concurrently, Embraer also experienced a considerable loss in its operations. On top of that 2020 was also marked by the cancellation of the partnership with Boeing.
Figure 3 – Embraer Backlog – 2020
In the table below, we see that the delivery of new planes dropped by half in 2020.
Figure 4 – Embraer Deliveries – 2020
During the pandemic, although Embraer saw its deliveries reduced, experienced cuts and unconfirmed orders, it also saw that a good part of its fleet continued to operate even during the pandemic. This indicates that the size and profile of its planes fit perfectly to the new demand that emerged during the pandemic.
In 2021, things already seems to be a better for Embraer. Embraer managed to see positive numbers in its financial results in the first half of 2021, and as a result is more optimistic about the future. This is the first positive result for Embraer since 2018. The company consolidated new results orders and has seen a significant increase in its backlog. Also, it clearly sees a significant improvement in its operations.
Figure 5 – Embraer Backlog – 2nd Quarter 2021
As seen in the graphic below, in terms of aircraft deliveries, Embraer is already seeing better numbers in 2021 compared to 2020.
Figure 6 – Embraer Deliveries – 2nd Quarter 2021
In the diagrams below, we also see that as expected, Embraer’s revenues follow the same trend with the better numbers of aircraft deliveries in 2021.
Figure 7 – Embraer Revenues – 2nd Quarter 2021
Embraer in Asia
Embraer has a long history with Asia, especially with China where it had a factory in Harbin since the early 2000s. This factory was where Embraer manufactured dozens of units of the Embraer ERJ145 and its executive version, Legacy. However, due to the low demand for this model, this factory was closed around 2016. Still, Embraer has a relevant presence in Asia and has several of its planes operating in this region. Embraer’s main office and warehouse in Asia is located in Singapore and it is responsible for meeting all the demands of Asia and the Pacific.
Embraer still believes that its newest model, the E2 may have a promising future in the Asian region. This is because the E2 strength of connecting domestic routes, should allow the E2 to perform well in the Asian region. On top of that, with the slower recovery of the aviation industry, airlines could opt for smaller planes and with that Embraer could see an increase in orders.
Despite already having Clients in Asia and the neighbouring region, Embraer can still explore developing further. Thus, it has reason to believe that it will achieve good results in this region.
Figure 8 – Embraer Customers around the world
Embraer´s perspectives for the future
With the Boeing negotiations scuttled and the impact of the pandemic past, as well as the positive numbers during the first half of 2021, Embraer believes that the worst is over. The company sees a promising future for itself as many airlines are choosing to increase their share in domestic markets in order to recover quicker from the pandemic. Consequently, these airlines would have to acquire smaller aircraft and Embraer has a range of aircraft that perfectly meets this new demand created by the pandemic. Embraer however is still keeping in mind that even the vast majority of passengers will prioritize internal and faster flights, whether for local tourism trips, or for visiting relatives who were unable to visit during isolation and restrictions.
Thus, Embraer is optimistic but at the same time keeping its feet on the ground. By saying that it aims to double its sales by 2025, it is actually wanting to receive new orders to ensure greater vitality as a company. The company is also betting on the flying car market and already has products in advanced development and numerous partnerships already established in this field. In addition, recently Embraer announced the development of a new plane, a turbo proper, which it believes will make up an important share in its new sales.
After some turbulent years, the good news that Embraer is seeing provides an indication that the company seems is on the right path and may return to seeing sustainable growth.