Bloomberg News

Embraer Gets Regional-Jet Boost on 50-Plane India Order

February 13, 2014

Embraer E2

Models of the Embraer SA E2 are displayed at the Paris Air Show at Le Bourget airport in Paris. Photographer: Eric Piermont/AFP/Getty Images

Embraer SA (EMBR3), buoyed by U.S. airlines’ regional-jet purchases last year, got a boost from Asia as Indian startup carrier Air Costa placed a $2.9 billion order for 50 planes.

The aircraft are from Embraer’s upgraded E2 lineup, with 25 of the E190 model and 25 of the E195, and Air Costa has options for 50 more jets, company executives said today at the Singapore Airshow. With the options, the deal’s value may be about $5.88 billion at list prices. Airlines typically get discounts.

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Embraer is investing about $1.7 billion to refresh the E-Jet family and compete against Mitsubishi Aircraft Corp., Sukhoi Co. and Bombardier Inc. (BBD/B) The first E2 model is on schedule toward delivery in 2018. The Sao Jose dos Campos, Brazil-based company has firm orders for 200 of the jets in seven months, said John Slattery, the chief of sales.

Landing the first E2 customer in India expands Embraer’s geographic reach after a regional-jet haul concentrated in the U.S. in 2013. Embraer sold planes to United Continental Holdings Inc., SkyWest Inc. and Republic Airways Holdings Inc. along with jet lessor International Lease Finance Corp.

Embraer rose 2.4 percent to 20.12 reais, the highest since Jan. 16, at the close in Sao Paulo. That was the biggest advance on Brazil’s Ibovespa index and pushed the shares’ gain this year to 6.5 percent, beating the 7.2 percent decline for the benchmark gauge of 73 stocks.

Strategic Win

The planemaker’s strategy of updating its jets rather than building an all-new lineup is paying off as U.S. airlines move toward buying larger, more-efficient planes to replace 600 to 800 50-seat jets, Chief Executive Officer Frederico Curado has said. He said today that Embraer is targeting 100 airline operators in 50 countries by the fourth quarter of 2017.

Embraer delivered 90 commercial jets and 119 executive jets last year.

Air Costa, based in the southern Indian state of Andhra Pradesh, is the country’s newest carrier and has services to cities including Bangalore, Chennai and Hyderabad.

“Our strategy is to go to second- and third-tier cities,” said Vivek Choudhary, vice president for corporate finance at the airline’s parent company, LEPL, and the carrier’s chief commercial officer. The airline has been operating only for three months, with four Embraer planes, and is already filling 74 percent of its capacity.

Boeing Co. (BA:US) and Airbus Group NV have said this week they are raising their forecast for India’s plane demand for the next two decades as travel demand booms.

Airlines in the Asia-Pacific region, including China, will take delivery of 1,500 new jets worth $70 billion in the 70- to 130-seat category over the next two decades, accounting for about a fifth of the global demand, Embraer has forecast.

Air transport demand in the region will increase 6 percent annually by 2032, led mainly by China and India, the company said in a statement yesterday.

To contact the reporters on this story: Andrea Rothman in Singapore at aerothman@bloomberg.net; Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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