Embraer — the world’s third largest aircraft manufacturer — is not concerned for its future following Airbus’s takeover of its nearest rival Bombardier, according to its Clare-born chief executive John Slattery.
Responding to questions at the Airline Economics conference in Dublin earlier this week about Boeing’s potential move to buy Embraer’s commercial jet division, Mr Slattery said he welcomed Boeing’s interest but was not in a position to comment, beyond confirming that negotiations are ongoing.
The Airbus takeover of Bombardier‘s commercial aircraft division was a game-changer.
It not only underscored the new C Series aircraft’s future and the jobs in the Belfast plant, under threat since the Trump administration import tax imposition, but it also gave Bombardier the global reach to overtake its main competitor Embraer in the 100 seater market.
A close collaboration, if not a full takeover, of Embraer by Boeing could be a match made in heaven, giving both partners much needed competitive reach.
Boeing will not want to see its main global rival Airbus extend its aircraft offering unfettered down to the fast growing 100 seater sector and Embraer will need the former’s marketing muscle to stay ahead of the game.
Mr Slattery was very bullish about the growing demand for the mid-sized commercial aircraft, which Embraer excels in.
Pointing to the 7% year-on-year growth in the sector, driven by rapid demand for inter-city links with these 100 seater aircraft type, he said “market demand is not for longer single aisle aircraft”.
He went on to say that were was “a glut of available seats in the larger aircraft which had led to the collapse of Air Berlin, Monarch and Alitalia”.
Forecasting harder competition for many airlines in 2018 he said: “Ticket prices will continue to fall, fuel costs are on the way up and yields will fall.”
Mr Slattery said Brexit did not improve the outlook, saying that many airlines would be forced into bold moves into and out of the UK.
Nuanced competitive positioning was a clear message from the Clare man, who said: “It is now mainstream to be low cost, offering full service of checked bags and seat prioritisation at added cost.”
Southwest Airlines has resisted the temptation to go with either Embraer or Bombardier; staying with Boeing since their start in 1972.
At the conference, Southwest vice-president Chris Monroe was bullish about the future profitability of the airline, saying: “The new low US corporation tax is a big deal for us and will immediately give us a $1bn-$2bn profit write-back, as provisions originally were made for 35% corporation tax”.
He said Southwest would most likely pass back value to shareholders through share buybacks this year.
It became clear from the discussions with the panel of low cost airlines at the conference that Southwest, Spirit, Azul, Indigo, and Avianca were all facing challenges from their pilots over wage demands.
Ryanair, which was not at the conference, is clearly not the only low cost carrier that has had to face up to salary increases to keep an expanding fleet piloted.
Lessors and their banking partners were out in force at this annual global event for the aviation industry, which last year managed €140bn in funding for the sector.
Most were optimistic for a continued growth in global aviation, driven by good economic growth, particularly in India and China , low fuel prices and low interest rates.
JP Morgan managing director Mark Streeter said sovereign debt at very low rates was driving investors into aviation, where returns of 6%-7% was normal on leases.
Colm Barrington — the former Aer Lingus chairman and now chief executive of Irish-based lessor BBam and vice chairman of Finnair, CEO of BBam — summed up the bullish outlook for the industry.
“Despite the significant crewing problems and the negative media exposure that Ryanair experienced in the fourth quarter, it reported a 96% load factor in November.
“That is just remarkable for this time of year. At Finnair we are also experiencing very, very high load factors. High load factors mean demand for more aircraft. Demand for more aircraft is good for lessors,” he said.
John Whelan is a consultant on Irish and international trade
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