Raul Villaron, Vice President, Asia Pacific, Embraer Commercial Aviation

SP’s Aviation (SP’s): How does Embraer Commercial perceive the impact and after-effects of COVID-19?

Raul Villaron (Raul): The ongoing COVID-19 crisis has definitely shaken the aviation industry, be it airlines, airports or even aircraft manufacturers. Air traffic will not come back up again until the virus can finally be contained. Some in the industry estimate that while domestic market will recover first, international traffic will be seen back only in the next three to five years. Asia will be the first region where we will see a recovery in domestic travel, but things will not be the same as pre-COVID. There will be important learning and changes along the way.

Travellers need to be constantly assured about the health and safety aspects of air travel. All in the aviation industry have a part to play in continued awareness-building about the meticulous safety measures in place at every touch point of the passenger journey - contactless procedures at airports, frequent deepcleaning processes especially for high-contact surfaces, clean cabin air that is refreshed every two to three minutes, hospital grade HEPA filters in the aircraft that effectively trap 99.97 per cent of contaminants as small as 0.3 microns, top to bottom air circulation and minimised contact between crew and passengers.

Traveller behaviour is changing – the higher prevalence of digital communications will alter business travel trends, and leisure travellers in Asia will prefer to avoid large, congested hubs in exchange for more point to point travel. Connectivity to smaller cities will still be served by the region’s airlines but are likely downsized to smaller gauge equipment like our E2 to match the changing demand.

The disruption to global supply chains across all industries has driven companies to re-evaluate their strategy, gravitating more towards near-shore rather than off-shore. This will see a shift to more domestic or regional travel.

All this points to a need for airlines and the aviation industry as a whole to evolve to this new norm.

Airlines are accelerating the retirement of older aircraft - permanently parking both narrow bodies and wide bodies, even eliminating entire fleet types in favour of lower gauge, more efficient aircraft.

A change is coming and we believe the segment of up to 150 seats, in which Embraer is a market leader, is gaining greater prominence. Data shows that the E-Jets have been deployed on more routes as airlines cautiously re-grow their network while maintain a close eye on costs. As of November, over 90 per cent of the E-Jet fleet is back in service in the Asia Pacific region.

SP’s: Can you elaborate on any specific silver-lining emerging out of the pandemic?

Raul: Airlines are in survival mode, and this has prompted changes to their strategies for the better.

Pre-COVID, airlines in India, and even Southeast Asia, were engaged in an unsustainable, vicious cycle of lowering fares in order to capture a larger market share. Asia was a market of rapid growth but meagre profits over the past few years. Profitability was already on a downward trend before COVID.

For years, airlines exalted cost per seat as their fundamental guiding metric and main indicator of efficiency. And, in relentless pursuit of the lowest seat cost, airlines increased capacity, which then had to be sold at a lower price to stimulate demand. As competition and market share battles ensued, pressure to reduce unit costs led to a further increase in capacity which dipped airfares to low, unsustainable levels.

“In these last six months alone, the number of E-Jet operators in Asia Pacific outside of China increased by 60 per cent”

Now, cash preservation is king, and we see airlines focusing more on their bottom-line rather than aggressive capacity expansion. The cost per seat mantra can no longer be the key governing factor upholding business efficiency.

Airlines are now seeking to streamline their operations and to optimise their fleet in order to have the versatility to serve different market profiles and to ride the ups and downs of business cycles. As the headwinds ease, airlines with right-sized fleet will recover faster and stronger.

Large single-aisle aircraft account for over 80 per cent of current fleet in service in India, which limits airlines’ ability to adjust the capacity offered to the oscillations in market demand, especially during this critical time.

The time to right-size has never been more appropriate.

The E-Jets E2, especially the E190-E2 and E195-E2 offers a 25 per cent lower trip cost when compared to a 180 seat aircraft. A 100 to 150 seat aircraft, like our E190-E2 and E195-E2 offer airlines the benefit of matching capacity to demand and scaling frequency up or down depending on the need. It also offers over 25 per cent lower trip cost when compared to a 180-seat aircraft.

Airlines probably never had such high leverage as they have now. Now is the time to negotiate and resize the business. It is a matter of survival for everyone.

In these last six months alone, the number of E-Jet operators in Asia Pacific outside of China increased by 60 per cent. We have new operators in Australia, Vietnam and Myanmar and are optimistic that there will be more to come.

SP’s: What are the current initiatives of Embraer on commercial airliners’ front?

Raul: Embraer’s corporate strategy 2021 to 2025 focuses on 1) Improving synergies, 2) Growth of Sales and 3) Diversification, Innovation and Partnerships. To grow sales in a post-COVID world on Commercial Aviation products and services, Embraer strongly believes the E-Jets E2 offers the ideal capacity at the right cost balance between trip and seat costs.

The E195-E2 will help airlines manage their risks as the aircraft is as efficient as any 180-seat aircraft on a per seat basis, while offering around 25 per cent lower trip cost. The combination of right capacity and low cost is a compelling case. Embraer is also recently adding several new customers to its customer base due to the recent placement of used E-Jets with new operators, a sign that the market is increasingly appreciating the benefits of the segment. This is a great development for our after-market activities.

SP’s: What are the latest technological advancements E-Jets are currently offering and will be offering in coming times? Can you please elaborate on the same?

Raul: The E190-E2 and E195-E2 are the world’s most efficient single-aisle jet. All E-Jets and the newer E2, being recently certified in 2018, are a step forward in time, in terms of technology, passenger comfort, environmental impact and operational flexibility compared to what is currently being flown in most of the APAC region, older generation jets and turboprops.

There are important enhancements like Pratt & Whitney’s GTF engines, along with a closed loop Fly by Wire that together deliver fuel savings between 18 per cent to 24 per cent more than what was possible just 10 years ago.

The cabin interior offers HEPA filters, segmented air circulation, Wi-Fi, touchless operation inside lavatories, and no middle seats. Personal space on the E-Jets is maximised and given the wider seats, wider aisle and individual PSUs. When comparing to older aircraft with narrow seats and the dreaded middle seat, narrow seats, the E-Jets’ attention to passenger comfort is a welcomed paradigm shift for passengers.

E-Jets maintenance and flight operations are massively simplified and provide airlines with an unprecedented level of reliability and dispatch ability. Thanks to big advancements in built in test equipment, data analysis, and real time in-flight health monitoring of all systems, airlines can fly more hours with the E-Jets, increase its daily utilisation, offering more flights to more destinations, while reducing downtime and maintenance troubleshooting.

In addition, the E-Jets were designed to have quick ground operations and reduced turnaround time, saving money for the airlines. The E-Jets are easy for passengers to board and disembark given its two by two seating. This too contributes to further reduced time on ground and improve economics, both an important aspect in today’s reality.

SP’s: What are the expectations from Asia Pacific region in coming years in terms of your business goals? Can you please give some sense of possibilities?

Raul: We see Embraer expanding its E-Jet operator base both in terms of countries and the number of airlines. We believe the dynamics of the market are changing – the COVID-19 crisis is a watershed moment that will force airlines to think differently. Single fleet and big wide bodies will make way for a more diverse fleet enabling an airline to scale up and down their capacity depends on the market situation.

Airlines will need new, efficient and reliable airplanes that offer low operating costs in terms of fuel and maintenance. The E-Jets and E-Jets E2 tick all these boxes.

“The E190-E2 and E195-E2 are the world’s most efficient single-aisle jet. All E-Jets and the newer E2, being recently certified in 2018, are a step forward in time, in terms of technology, passenger comfort, environmental impact and operational flexibility.”

As I cited in my earlier response, despite the market challenges, the last six months has seen the number of E-Jet operators in Asia Pacific outside of China increased by 60 per cent. We have new operators in Australia, Vietnam and Myanmar and are optimistic that there will be more to come.

We have solutions in the short term and long term for airlines. If airlines cannot afford buying new aircraft now, bear in mind that there are pre-owned E-Jets in the market at attractive rates. Airlines can also count on Embraer support for entry into service and operation. The initial cash required is minimum and the cost savings is immediate.

SP’s: Embraer, as has been reported recently, plans to restart the turboprops line of aircraft as well. Would you like to give us some details on the same?

Raul: As the market leader in the up to 150-seat segment, the turboprop sector is a natural target for Embraer.

As I indicated earlier, one of our pillars in the commercial aviation sector is to keep this leadership, so we have been evaluating a potential new development. Embraer foresees a future market demand of over 2,000 turboprops. The turboprop we design will feature the latest and most efficient technologies, and is expected to better higher fuel efficiency, reduced noise levels, improved reliability and improved passenger experience over existing market offerings.

Embraer is always open to strategic partnerships and we are looking for a partner that can play a major role in the turboprop programme. This turboprop could enter into service as early as 2027.

SP’s: Would you like to elaborate on any greener sky initiatives Embraer is pursuing?

Raul: Amidst this health crisis, we remain cognizant of our responsibility to the global environmental challenge. Eliminating excess capacity and introducing smaller new technology aircraft is not only essential to adjust to weaker passenger demand but also favorable for environmental reasons. Airlines, that retain or introduce more efficient, greener aircraft, like our E2s, will be better positioned to comply with future noise and emission standards. In the long-term, which is a view airlines tend to take for new aircraft investments, the environment challenge will become an even more important factor than it was before the COVID-19 crisis.

Both the E190-E2 and the E195-E2 are the world’s most efficient single-aisle commercial jets. These two aircraft types also become the most environmentally friendly aircraft in the segment, with the lowest level of external noise and emissions. The cumulative margin to ICAO Stage IV noise limit increases from 17 to 20 EPNdB, which results in 2 EPNdB better than its direct competitor.

On the defence front, Embraer is working with the Brazilian Air Force to develop a light military transport aircraft with hybrid electric propulsion.