Download - 2005 - Embraer Paris Air Show Presentation Commercial Aviation

Orlando José Ferreira NetoDirector of Market Intelligence

Airline Market Trends and Outlook24th - 25th February 2005

President Wilson Hotel, Geneva

Orlando José Ferreira NetoDirector of Market Intelligence

Airline Market Outlook Some Key Elements Shaping the New Industry

(30 to 120 seat segment)

EMBRAER Analysts& Investors Meeting

June 15th, 2005Paris, France

THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.

Contents

Key Global Market Trends

Regional Jets Sustained Operation

From Concept to Reality – the E-Jets Family

Embraer Market Forecast


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.



• Traffic Recovery

Source: US Bureau of Economics Analysis and DOT Form 41

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005F

Network Low Cost Regional

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005F

Network Low Cost Regional

Intra-Europe (RPK Billion) US Domestic (RPM Billion)

• Disconnection fromForecast Ground Rules

• Historically > 0.90% of GDP, PassengerRevenue is below 0.70%.

• RPM is becoming a more complex functionof GDP and Yield.



• Around 70% of all domestic passengers in North America and Europe have access to low cost carriers services.

• LCCs hold air fare pricing power.

• Passengers are more stringent on air travel value proposition.

• LCC Expansion

• Shift in Market Share

• US: LCCs and Regionals expanding.

• Intra-Europe: LCCs expanding and

Regionals concentrating on secondary/

/business markets development.

85%76%

64%

85%77%

68%

17%

3% 5% 9% 14% 16% 15%12%19%

27%1%

7%

0%

20%

40%

60%

80%

100%

1995 2000 2004 1995 2000 2004Network Low Cost Regional

US Domestic (% RPK) Intra-Europe

Source: Airlines, Embraer



-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Jan-

01

Apr

-01

Jul-0

1

Oct

-01

Jan-

02

Apr

-02

Jul-0

2

Oct

-02

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

% C

hang

e in

Pas

seng

er R

even

ues

per M

ile (Y

ield

) vs

2000

Source: ATA - Air Transport Association

• U.S. Pax Yields DownSharply from 2000

• No evidences or expectation of a sizable recuperation.

10

20

30

40

50

60

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Cru

de O

il (U

S$/B

arre

l)

0

50

100

150

200

Jet F

uel (

US¢

/Gal

lon)WTI

Jet Fuel• Several factors (cold weather, wars, higher import rates, refinery operations issues etc) led to higher crude oil/refined product prices.

• Projected oil prices indicate a shift from historical US$25-30/barrel level to US$ 45-50 short term and US$40-45 longer term.

• Crude Oil and Jet Fuel Prices


Key Global Market Trends60%of flights

4 8 13 13 8 7 5 2 220150

5

10

15

20

25

50 60 70 80 90 100 110 120 130 140 >150

%

Passengers per DepartureSource: US DOT/Embraer

• 60% of all US domestic flights depart with load factor more appropriate to 70-110 seat aircraft.

• 95% of all North American narrow-body flights are within 1,700nm range.

• 85% of city pairs exclusively served by narrow body jets have less than two daily frequencies.

• Fleet Right-Sizing

810 Aircraft olderthan 20 Years35% of total fleet in service

• Replacement Crisis – Ageing Fleets (61 to 120 seats)

451

320

492

233

361

212237

0-5 6-10 11-15 16-20 21-25 26-30 30Aircraft Age (Years)Source: DOT/Embraer - Fleet in service - Jan 2005

• 35% of total fleet is more than 20 years in service

and shall start to be replaced in the coming years.

• Old technology equipments, most of them no longer

in production.

• Inefficient and expensive aircraft to operate.


Not Another Cycle, but a Fundamental Change

New Passenger Profile Different Set of Values

Ultra Competitive Environment

Strong Focus on Cost Reduction, Reduced Investments Cash is King

Maximum Utilization of Assets (fleet optimization and flexibility)

Clash of 3 models (LCC x Network x Regional)It´s about cost and efficiencyIt´s about value proposition

Fast Scope Clauses Relaxation / / Closing the 70-110 Seat Gap

(Bottom-Up and Top-Down)

B75

7

B73

7

B73

7

B73

7

B75

7

A31

9

A32

0

B75

7

A32

0

MD

80B

737

A32

0

B73

7A

319

MD

80

B75

7

B73

7

Seat Capacity

25 50 75 100 125 150 175+

B75

7

B73

7

MD

80

B73

7

Source: US DOT/Embraer

B75

7

B73

7

A32

0

A31

970 to 110 Seats

70 to 110 Seats

Regional Jets Sustained Operation

(30-60 seat segment)


Regional Jet - A Dynamic Tool

When markets are strong…RJs expand the air transport system by enhancing catchment areas, adding more spokes to carrier hubs, opening new routes and increasing frequency.

RJs help to defend an airline’s overall market presence / network integrity by maintaining route-frequency, replacing unprofitable mainline jet services and rightsizing aircraft capacity to demand.

… and when markets are weak


ERJ 145 FamilyThe Evolution of Regionals

An Intrinsic Part of the Solution


ERJ 145 Family Orderbook

(as of March 31st., 2005)

82

47

20

15

FirmBacklog

8161,131233898Total

634892211681ERJ 145

741142094ERJ 140

1081252123ERJ 135

DeliveriesTotalOptionsFirm


Regional Jet Network - Europe

Jan 1995: 104 Routes

Jan 2005: 1143 Routes

Source: Back/OAG (Feb/05 - ERJ-145/140/135, CRJ-100/200/440, 328Jet routes)


ERJ 145 Family Network - Europe

Average Stage Length = 430 miles

TP TP ComplementComplement

13%

JetJet ReplacementReplacement

18%

JetJet ComplementComplement

17%

TP TP ReplacementReplacement

21%

NewNew RoutesRoutes

31%

0%

25%

50%

75%

100%

424 routesSource: BACK/OAG(Jan/05)


New Routes Development - London CityERJ 135: Steep Approach Capable (London City Airport)Still Air Range: 600 nm

ERJ 135

- Typical European airline OEW

- Full PAXPassengers at 90.7 kg (200 lb)

- Cruise at LRC

- Airport Temp. at 20.5ºC / ISA+5.5ºC (85% Summer)

- 85% Summer Winds

- JAR OPS Reserves100 nm alternate


ERJ 145 Average StageLength: 345 m

China EasternBacklog of 5 ERJ 145

Chengdu

Sichuan Airlines5 ERJ 145 Guangzhou

China Southern6 ERJ 145

Source: BACK/OAG(1Q05)

New Routes Development - China


ERJ – AeroLitoral

0%

25%

50%

75%

100%

17%

25%

41%

New New RoutesRoutes

TP TP ReplacementReplacementTP TP ComplementComplementJetJet ReplacementReplacement

17%

Source: BACK/OAG(Jan/05)

CENCENCENCENCENCENCENCENCEN

HMOHMOHMOHMOHMOHMOHMOHMOHMO

LMMLMMLMMLMMLMMLMMLMMLMMLMM

CULCULCULCULCULCULCULCULCUL

CJSCJSCJSCJSCJSCJSCJSCJSCJS

CUUCUUCUUCUUCUUCUUCUUCUUCUU

TIJTIJTIJTIJTIJTIJTIJTIJTIJ

MEXMEXMEXMEXMEXMEXMEXMEXMEXGDLGDLGDLGDLGDLGDLGDLGDLGDL

BJXBJXBJXBJXBJXBJXBJXBJXBJX

MTYMTYMTYMTYMTYMTYMTYMTYMTY

The ERJ 145, on average, attracts 10 more pax per flighton every route it replaces the Saab.

Since the incorporation of the ERJ 145s, AeroMexico’s market share, on disputed routes, has increased by 9 p.p.


Year 1995: 192 Routes

Year 2004: 2912 Routes

Regional Jet Network - USA

Source: Back/OAG (Mar/05; ERJ-145/140/135, CRJ-100/200/440, 328Jet routes)


TP Complement

6%

RJ Replacement

5%

RJ Complement

3%

Jet Complement

18%

TP Replacement

18%

Jet Replacement

22%

New Routes

28%

0%

25%

50%

75%

100%

1371 routes

Average Stage Length = 460 miles


ERJ 145 Family Network - USA


ERJ 145 Family Network

Source: BACK/OAG (Jan/05)

< 1 hour1 – 2 hours2 – 3 hours> 3 hours

179 (15%)41 (14%)< 1 hour

Number of Routes

380 (30%)87 (31%)2 - 3 hours

48 (4%)0> 3 hours

639 (51%)157 (55%)1 - 2 hours

Jan/2005Jan/2000


RJ Monopoly Routes: 848(29% of total RJ routes

without any direct competition)

Total RJ Routes: 2912

Year 2004

RJ Routes - Network Airlines

Source: Back/OAG (Yr 2004: ERJ-145/140/135, CRJ-100/200/440, 328Jet routes)


US Regional System Network

21%

44%

35%

27%

15% 15%

0%

10%

20%

30%

40%

50%

AA CO DL NW UA US

•• A A hhigh percentage of RJ service is on monopoly routes

Source: BACK/OAG (Jan/05; analysis by airport)


30-60 Seat RJs Monopoly Routes

0%

20%

40%

60%

80%

100%

AA CO DL NW UA US TotalSystem

0 - 2 2 - 5 5 - 7

• 75% of all RJs monopoly routes are operated with less than 2 daily frequencies

Source: OAG (2004)

From Concept to Reality –

E-stablishingthe 170/190 Family

(61-120 seat segment)


The Rule of 70 to 110 (www.ruleof70to110.com)

THE FIRST ISSUE: THE NEED FOR AIRLINES TO RIGHT-SIZE THEIR FLEETSThe Rule gives the airlines the tools to right-size their fleets thereby optimally matching capacity to demand.

THE SECOND ISSUE: AIRLINES USING AIRCRAFT WITH TOO MUCH CAPACITYThe Rule, by allowing the airline to efficiently right-size, creates increased frequency to capture market share and provides customers with more choice. The airlines can therefore focus their 120-plus seat aircraft on high-demand routes.

THE THIRD ISSUE: USE OF TODAY’S REGIONAL JETS IS NOT OPTIMIZEDThe Rule provides the right aircraft for the right market and allows the airlines to reposition their existing fleets to ensure that aircraft are neither overused or underused.

THE FOURTH ISSUE: AGEING FLEETSThe Rule, by introducing the right equipment for the right market, gives airlines the opportunity to develop the most optimum aircraft replacement strategy.


The E-Jets Family


The E- Jets Family Positioning

Natural evolution of 50 seat market

Tapping an existing gap

Enhancing services (frequency)

Low risk for demand stimulation

Improving network deployment (capacity & range)

New markets opportunities (long & thin routes)

Replacing old & inefficient narrow body jets

Blurring the line between regional and mainline operations


EMBRAER 170 EIS Statistics

Operating Summary

Operators 5

Aircraft in Service 62

Flight hours 102,829

Flight Cycles 70,820(as of May 31st., 2005)

PR 03/Jun/05


EMBRAER 170 Network


RightRight--sizingsizing

50%

Natural Natural GrowthGrowth

45%

NewNew RoutesRoutes

5%

0%

25%

50%

75%

100%


EMBRAER 170 - Republic

16 @ 34”

“The delivery of our first EMBRAER 170 ushers in a new period in the continued growth of our company and will allow us to support our growing United Express operation. The 170’s unique design allows us to offer United a true mainline product but at regional jet operating economics”.

Bryan Bedford, Chairman, President and CEOof Republic Airways Holdings (Sep/2004)

6 @ 36”70 seats:

Forward GalleyForward Lavatory

FA SeatWardrobeFA Seat

Aft GalleyAft Lavatory

48 @ 31” pitch


EMBRAER 170 Network


39%


59%

NewNew RoutesRoutes

2%

0%

25%

50%

75%

100%



EMBRAER 170 Main Missions

46%

48%

6%

0%

25%

50%

75%

100%

48%39%

68%

50%


45%59%

24%45%


7%2% 8% 5%

NewNew RoutesRoutes


Low Cost Carriers

Next Steps


LCC Next Step - Moving Downward in Capacity

Year 20041,304 markets

From these 1,304 markets, at least 646 are perfectly suited for a 70-110 seater LCC operation

500 PDEW = 160/170 seater x 100% LF x 3 frequenciesupper boundary for a B737, A319/320

315 PDEWlower boundary for a B737, A319/320

29%105 PDEW = 50 seater x 70% LF x 3 frequencieslower boundary for a 50 seater

50%

21%

150 PDEWupper boundary for a 50 seater

Source : US DOT OD1A


200 400


65%75%

Network Carriers

Opportunities


Opportunity for Right Size - Aircraft Capacity

3 4

8

1315

20

13

8 75

2 2

0

5

10

15

20

25

<50 50 60 70 80 90 100 110 120 130 140 ≥150Passengers per Departure

% o

f Flig

hts

35% of flights depart with loads

appropriate for 90-110 seat

aircraft

Source: Back (US DOT T100; 2003)

25% of flights depart with loads

appropriate for 70-80 seat aircraft

More than half of the US domestic flights in 2003 would be better suited to 70-110 seat aircraft.

Excess capacity translates to wasted seats, higher operating costs, and

greater potential for unprofitability

US Domestic Flights (Jets ≥ 100 seats)


Opportunity for Right Size - Aircraft Capacity

Source: US DOT (T100 - Segment)

US Domestic Flights (Jet aircraft ≥ 100 seats)

0

5

10

15

20

25

<50 50 60 70 80 90 100 110 120 130 140 ≥150Pax per Departure

% o

f Flig

hts

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


Opportunity for Right Size - Aircraft CapacityOptimizing Fleet CapacityOptimizing Fleet Capacity

Mainline United Airlines Domestic Network

Source: United Airlines (The-Mechanic.com)

<50<50 5050 6060 7070 8080 9090 100100 110110 120120 130130 140140 150150 >150>150

22

44

66

99

12121313 1313

101099

6655

33

88

In 19% of all UA flights the

actual load factors called for a 70-90 seater

Passengers per Departure

In 38% of all UA flights the actual load factor called

for a 90-110 seater

Per

cent

of F

light

s


0

200.000

400.000

600.000

800.000

1.000.000

Num

ber o

f Flig

hts

100 300 500 700 900 1100 1300 1500 1700 1900 2250 2750 >3000

Distance Sector (nm)

1995

2004

Total Market Served by 91-180 Seats Aircraft (US Airlines)

The Opportunity for Right Size - Range

95% of flights are within 1,700 nm range with no remarkable evolution since 1995

Source: Back/OAG


Opportunities for Enhancing Market Presence

Rightsizing and Frequency IncreaseAverage Daily Frequency by Route (USA and Europe - Yr 2004)Routes operated exclusively by Jet aircraft (from 91 – 180 seats ; routes up to 2000 nm)

Source: OAG (Jan/2005)

53%

28%

12%

5%2%

0 - 0,5 0,5 - <2 2 - <5 5 - <10 >=10

Average Daily Freqency

City

Pai

rs

5760 routes with less than 2 average daily frequency


EMBRAER 190 – Air Canada“The introduction of new generation small jet aircraft to our fleet is a key component of Air Canada’s restructuring business plan to implement high frequency, low-cost services on new and existing routes in Canada and the US.

Consistent with this strategy, the EMBRAER 190 will be deployed to pursue strategic market opportunities in North America while offering customers a

premium travel experience with enhanced space, comfort and convenience".

Robert Milton, Air Canada President and CEO (Sep/2004)


EMBRAER 170/190 Family Orderbook

(as of March 31st., 2005)

15-15-15EMBRAER 175

301

15

155

116

FirmBacklog

56744387357Total

-352015EMBRAER 195

-385230155EMBRAER 190

56309137172EMBRAER 170

DeliveriesTotalOptionsFirm


EMBRAER 170/175 - LOT

• four EMBRAER 170 options from their original contract converted into four firm orders for EMBRAER 175

“The EMBRAER 170s and EMBRAER 175s are pivotal elements in our businessplan to support our network expansion from the Warsaw hub. These aircraft give

us more seat capacity and range, which will enable us to access new markets”.Marek Grabarek, LOT CEO (May/2005)

Embraer

Market

Forecast


Embraer Market Forecast (2005-2024)

Worldwide Jet Deliveries by Capacity Segment

4,6004,600

1,7501,750

1,5501,5501,3001,300

2015 2015 –– 20242024

7,8007,800

3,0003,000

2,8502,8501,9501,950

2005 2005 -- 20242024

3,2003,200TOTALTOTAL

1,2501,25091 91 –– 120120

1,3001,30061 61 –– 909065065030 30 -- 6060

2005 2005 -- 20142014SegmentSegment

30 to 120-seat segment value = US$ 170 billion


Embraer Market Forecast (2005-2024)


Market Share (30-60 seat segment)

43%

32%

17%

7%

50%

46% 45% 44% 44%42%45%

50%49%

45%

51%54%52% 52%

67%

83%

93%

51%

1% 3%7% 5% 6% 4% 4% 4%4%

0%

20%

40%

60%

80%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOMBARDIER AVCRAFT

Source: Embraer



21%

28%33% 36%

38%

16% 19%

72%

53%

49%52%

87%

64%62%

100%

67%

13%

32% 30%28%

0%

20%

40%

60%

80%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOMBARDIER FAIRCHILD DORNIERSource: Embraer



25%

7%7%6%7%

33%32%

56%57%59%

100% 100% 100%

67%

62%67%

73%

16%

20%26%

32%

26%

11%11%

0%

20%

40%

60%

80%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOEING (737-500/600, 717) AIRBUSAs of 2nd

Quarter 2004Source: Embraer



Source: Embraer

20%

28%

41%40%38%

35%

40%37%

31%

8%

3%

45% 45% 45%45%

38%

44% 43%39%

43% 42%

8%

3%3%2%

3%2%

8% 8%10%

27%

36%

11%11%12%

9%10%

17%

54%54%

4%6%5%2%

3%2%0%

10%

20%

30%

40%

50%

60%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOMBARDIER F. DORNIER/AVCRAFT BOEING AIRBUS


Thank you !

Download - 2005 - Embraer Paris Air Show Presentation Commercial Aviation

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