Flying Over Latin America and the Caribbean
Interview with CEO Embraer Commercial Aviation
April 12, 2023
Dear colleagues
Recovery in Latin America and the Caribbean was outstanding in 2022, remaining the region with the greatest recovery month after month and reaching pre-pandemic passenger traffic levels on two occasions.
2023 began with different economic and regulatory challenges that strongly affect the industry and users. In the first two months of the year, we saw a significant slowdown in the pace of recovery and, consequently, a drop compared to other regions, specifically Africa and the Middle East.
What does the region need to progress on the path to recovery? Definitely competitiveness. Efficient, smart and predictable regulations that generate more competitive environments to operate and offer more and better options to passengers. This is a joint task between industry and States that we constantly promote.
In this sense, the entire industry ecosystem continues to make impressive efforts to be more efficient to offer more and better options for users. Operators and suppliers working towards the same goal.
Today I am pleased to share a conversation with Arjan Meijer, CEO of Embraer Commercial Aviation, who shares his vision on the keys for aviation in the region to recover, the role of aircraft manufacturers and how the future will be sustainable.
Thanks, Arjan, for the interview and I wish everyone a good reading.
José Ricardo
1. What are Embraer's objectives in Latin America and the Caribbean (LAC) for the next decade?
Latin America and the Caribbean has always been an important region for Embraer. Currently, there are over 220 Embraer aircraft flying in the area. However, we believe the market has changed since the Pandemic. There is increasing demand for our segment, between 70 to 150 seats, as despite traffic recovery, connectivity in the region still requires improvement. This can only be achieved if new destinations are linked to the main hubs, which will demand the right aircraft size. Airlines also need to focus on efficiency and environmental aspects, and the E2 is the right choice to reduce operating costs and at the same time help airlines to achieve their environmental targets. In summary, we are confident about the growing demand for our products and Solutions in Latin America and the Caribbean.
2. How do you see the commercial aviation fleet evolution in the region in the upcoming years?
As airlines emerge from the biggest crisis in Aviation history, we see them pursuing greater flexibility and efficiency as the keys to success. Therefore, there is a trend to replace older Jets with more efficient new generation aircraft. The E195-E2, for instance delivers almost 30% fuel burn reduction in comparison with old generation narrow bodies, which will not only reduce an airline’s operating cost, but also drastically reduce their CO2 emissions.
There are over 250 Jets in our category older than 15 years old flying in the region ready for replacement. We believe the E2 is the most comfortable and efficient replacement for this ageing fleet.
The pandemic showed us the importance of flexibility. In Latin America and the Caribbean, over 80% of the single-aisle Jet fleet have more than 150 seats, which jeopardizes connectivity development.
Therefore, we see opportunity for airlines to introduce Jets below 150 seats to complement their NBs operation, which will enable them open new markets and to better match capacity to demand fluctuations.
3. How has the post-pandemic recovery been in LAC. How did Embraer close 2022 and what is expected for this year?
Latin American schedule aviation traffic has shown its resilience and importance in the region, presenting a consistent recovery. According to IATA, Latin America and Caribbean has been one of the fastest recovery regions. In 2022, total RPK in the region was just 14.2% below 2019, just behind North America.
If we consider only domestic traffic, Colombia and Mexico have already outpaced pre-pandemic figures. Brazil, the biggest domestic market, ended 2022 with 91% of 2019 RPK. So, we see a positive outlook for the region.
However, there are still opportunities to improve connectivity in the region. In the US, in 2022 1,050 cities were served by scheduled aviation, while in Brazil, only 120 cities have regular flights and in Mexico, 54 cities.
This connectivity is only possible with the development of regional aviation, which will increase demand for Jets between 70 and 150 seats in the region.
Embraer delivered 80 jets in the fourth quarter, of which 30 commercial aircraft and 50 executive jets, rounding off a strong year for Embraer. In 2022, a total of 159 jets were delivered of which 57 commercial aircraft and 102 executive jets. Embraer increased the number of aircraft delivered by 12.7% compared with 2021, even with significant supply chain constraints.
Firm order backlog ended 4Q22 at US$ 17.5 billion, US$ 500 million higher y-o-y. Revenues reached US$ 2.0 billion in the quarter (53% higher than 4Q21) and US$ 4.5 billion in 2022, in line with Company guidance.
In terms of guidance for 2023 - commercial jet deliveries of 65-70 aircraft, executive jet deliveries of 120-130 aircraft, revenues in a range of US$ 5.2 to US$ 5.7 billion, Adjusted EBIT margin of 6.4% to 7.4%, Adjusted EBITDA margin of 10.0% to 11.0%, and adjusted free cash flow of US$ 150 million or better for the year.
4. What space does LAC have for Embraer?
Latin America has always been an important region for Embraer, not only because of our heritage, as our headquarters is in Brazil, but because our aircraft meet the region’s requirements. The right seat capacity and lower operating costs help airlines to profitably develop their networks and support connectivity in the region.
Currently there are 231 Embraer aircraft, flying at 27 airlines from 17 countries in Latin America and Caribbean. This fleet represents around 10% of total Embraer in service aircraft and more than 20% of the E190/E195 fleet.
Azul is the biggest E195 operator and launch customer of the E195-E2 and we are confident of increasing demand in Latin America and Caribbean for both the E1 and E2.
5. Sustainability is a priority. What is Embraer's contribution to achieving the environmental objectives of the industry?
Embraer recognizes the urgency of the climate crisis and is committed to a sustainable future. We have already made good progress. Our latest E2 aircraft reduce fuel burn by 30% over previous generation NBs. We have been working with sustainable alternative fuels (SAF) for over 10 years and last year we conducted a test with engine partner Pratt and Whitney proving the E2 can fly on 100% SAF.
Looking to the future, the industry needs to develop new propulsion systems and fuels to tackle the climate crisis. As the global leader in regional aircraft, Embraer is ideally positioned to bring disruptive technologies to smaller aircraft first, as regional aircraft are going to be the first platforms on which new fuel and propulsion systems can be introduced effectively.
Embraer’s Energia project explores a range of sustainable concepts to carry up to 50 passengers. The project is considering a number of energy sources, propulsion and airframe architectures to reduce carbon emissions by 50% starting from 2030 – a key step in our goal to be net carbon neutral by 2050.
Embraer is also working closely with leading universities and academic institutions to overcome the challenges of energy harvesting, storage and thermal management, as well as exploring new ways to make commercial operations more efficient with global customers and governments.
6. How do you perceive the work with ALTA?
ALTA works closely with all stakeholders in the industry, from the airlines, airports, OEMS and regulators, pursuing the best practices and regulations to enable aviation to grow in the region. It listens to the needs of the aviation industry and its members. During the Pandemic it was an important voice advocating for Aviation. We, at Embraer value and support ALTA’s initiatives in Latin America and Caribbean, and we will continue to work closely to help aviation thrive in the region.