Flying over Latin America and the Caribbean: interview with Embraer Commercial Aviation CEO

Latin America and the Caribbean in 2022 remained the region with the greatest recovery month after month, 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 promote progress on the path to recovery? Definitely competitive. Efficient, intelligent 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 same sense, the entire industry ecosystem continues to make impressive efforts and work aligned towards the same goal. Operators and providers working together.

ALTA spoke with Arjan Meijer, CEO of Embraer Commercial Aviation, who shared his vision on how aviation in the region can achieve recovery, the role of aircraft manufacturers and how it will achieve it in a sustainable manner.

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 more than 220 Embraer aircraft flying in the area. However, we believe that the market has changed since the pandemic. There is a growing demand for our segment, between 70 and 150 seats, since, despite the recovery in traffic, connectivity in the region still requires improvements. This can only be achieved by connecting new destinations to major hubs, which will require the right aircraft size. Airlines must also focus on efficiency and environmental aspects, and the E2 is the right choice to reduce operating costs while helping airlines achieve their environmental goals. So that,

How do you see the evolution of the commercial aviation fleet in the region in the coming years?

As airlines emerge from the biggest crisis in aviation history, we see them looking for greater flexibility and efficiency as keys to success. Therefore, there is a trend to replace the older Jets with more efficient new generation aircraft. The E195-E2, for example, offers a fuel consumption reduction of almost 30% compared to the old generation narrowbody, which will not only reduce airlines' operating costs, but also drastically reduce their emissions. CO2.

There are more than 250 Jets of our category with more than 15 years of experience flying in the region, ready to be replaced. We believe the E2 is the most comfortable and efficient replacement for the aging fleet.

The pandemic showed us the importance of flexibility. In Latin America and the Caribbean, more than 80% of the single-aisle Jet fleet has more than 150 seats, which jeopardizes the development of connectivity. Therefore, we see an opportunity for airlines to introduce Jets with fewer than 150 seats to complement their NBs operation, which will allow them to open up new markets and make capacity better adapted to fluctuations in demand.

How has the recovery been after the pandemic in LAC? How did Embraer close the year 2022 and what is expected for the current year?

Latin American scheduled air traffic has shown its ability to recover and its importance in the region, presenting a consistent recovery. According to IATA, Latin America and the Caribbean has been one of the regions with the fastest recovery. In 2022, total RPK in the region was just 14.2% lower than it was in 2019, just behind North America.

If we consider only domestic traffic, Colombia and Mexico have already exceeded the pre-pandemic figures. Brazil, the largest domestic market, closed 2022 with 91% of the 2019 RPK. Therefore, 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 regular aviation, while in Brazil, only 120 cities have regular flights and in Mexico, 54.

This connectivity is only possible with the development of regional aviation, which will increase the demand for Jets of between 70 and 150 seats in the region.

Embraer delivered 80 jets in the fourth quarter, of which 30 are commercial and 50 executive, completing a strong year for Embraer. In 2022, a total of 159 jets were delivered, of which 57 are commercial and 102 are executive. Embraer saw the number of aircraft delivered increase by 12.7% compared to 2021, even with significant limitations in the supply chain.

The firm order book closed the fourth quarter of 2022 at 17.5 billion dollars, 500 million more than the previous year. Revenue reached $2 billion in the quarter (53% more than in the fourth quarter of 2021) and $4.5 billion in 2022, according to company estimates.

Regarding the expected for 2023, the deliveries of 65-70 commercial jets, 120-130 executive jets, revenues of between 5,200 and 5,700 million dollars, an adjusted EBIT margin of between 6.4% and 7.4 %, an adjusted EBITDA margin of between 10.0% and 11.0%, and adjusted free cash flow of $150 million or more for the year.

What place does LAC have for Embraer?             

Latin America has always been an important region for Embraer, not only because of our heritage, as we are headquartered in Brazil, but also because our aircraft respond to the needs of the region. Adequate seat capacity and lower operating costs help airlines to profitably develop their networks and support connectivity in the region.

There are currently 231 Embraer aircraft, flying with 27 airlines from 17 countries in Latin America and the Caribbean. This fleet represents about 10% of the total Embraer aircraft in service and more than 20% of the E190/E195 fleet.

Azul is the largest E195 operator and launch customer for the E195-E2 and we are confident that demand in Latin America and the Caribbean will increase for both the E1 and E2.

Sustainability is a priority. What is Embraer's contribution to achieving the industry's environmental goals?

Embraer recognizes the urgency of the climate crisis and is committed to a sustainable future. We have already made great strides. Our latest E2 aircraft reduce fuel consumption by 30% over previous aircraft. We have been working on Sustainable Fuels (SAF) for over 10 years and last year we conducted a test with Pratt and Whitney, our engine partner, which showed that the E2 can fly on 100% SAF.

Looking ahead, the industry needs to develop new propulsion systems and fuels to deal with the climate crisis. As the world leader in regional jets, Embraer is ideally positioned to bring disruptive technologies to smaller aircraft first, as regional jets will be the first platforms on which new fuel and propulsion systems can be effectively introduced. .

The Embraer Energy project explores a series of sustainable concepts to transport up to 50 passengers. The project is considering a number of power sources, propulsion and airframe architectures to reduce carbon emissions by 50% from 2030, a key step in our goal of being net carbon neutral by 2050.

Embraer is also collaborating 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 streamline business operations with global customers and governments.

How do you perceive working with ALTA?

ALTA works closely with all industry stakeholders, from airlines, airports, original equipment manufacturers and regulators, seeking best practices and regulations to enable aviation growth in the region. Listen to the needs of the airline industry and its members. During the pandemic he was an important voice in defense of aviation. At Embraer we value and support ALTA's initiatives in Latin America and the Caribbean, and we will continue to work closely to help aviation prosper in the region.