2005 - 5th Us Analyst Investors Meeting Commercial Airline Market

Airline Market

Outlook

Some Key Elements

Shaping the New

Industry(30 to 120 seat segment)

New York

Tuesday, March 29, 2005

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

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.

Forward Looking Statement


Q Key Global Market Trends

Q LCC’s Next Steps

Q Network Carriers Opportunities

Q Regional Carriers Capacity Increase

Q From Concept to Reality – the E-Jets Family

Contents


• Ultra competitive environment

• New passenger profile à different value proposition

• Strong focus on cost reduction, reduced investments

• Maximum utilization of assets (fleet optimization and flexibility)

• Scope clauses relaxation / closing the 70-110 seats gap

• Clash of 3 models - LCC x Network x Regional

• Globalization of supply chains

• Government subsidies increasingly challenged

Not just another cycle, but a fundamental change

Key Global Market Trends


0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005F

Network Low Cost Regional

Key Global Market Trends - Traffic Volume

(US Domestic RPMs - Billion)

Source: Airlines , Embraer


85%76%

64%

3% 5% 9%12%

19%

27%

0%

20%

40%

60%

80%

100%

1995 2000 2004


Key Global Market Trends - Traffic Share

(US Domestic RPMs)Source: Airlines


85%77%

68%

14% 16% 15%

1%7%

17%

0%

20%

40%

60%

80%

100%

1995 2000 2004


Key Global Market Trends - Traffic Share

(Intra-Europe RPKs)Source: Airlines


US Market

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

Jan/0

1Apr/

01Ju

l/01Oct/

01

Jan/0

2Apr/

02Ju

l/02Oct/

02

Jan/0

3Apr/

03Ju

l/03Oct/

03

Jan/0

4Apr/

04Ju

l/04Oct/

04

% C

han

ge

in P

asse

ng

er R

even

ues

per

Mil

e (Y

ield

) vs

200

0

Key Global Market Trends - Yields

Source: ATA - Air Transport Association


10

20

30

40

50

60

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

WT

I (U

S$/

Bar

rel)

0102030405060708090100110120130140150160170180

JetF

uel

(U

S¢/

Gal

lon

)

WTI (US$/Barrel) JetFuel (US¢/Gallon)

Source: NYMEX, EIA and Embraer estimates

Key Global Market Trends - Oil Prices


Key Global Market Trends - Operating Results

Source: US DOT Form 41, Airlines

(US$ millions)

-10000

-8000

-6000

-4000

-2000

0

2000

4000

6000

2000 2001 2002 2003 2004

Network Regional Low Cost


Limitations apply Restricted

44/4544/45 5050 7070SeatsSeats 5555 6060 75/7675/76

Unlimited(up to 110% of narrowbody fleet)

Limitations apply Restricted

Unlimited Restricted

Unlimited

Unlimited Restricted (36 Avro RJ exempt)

No Scope Clause

Limitations apply RestrictedLimitations

apply

No Scope Clause

No Scope Clause

Unlimited Restricted

Limitations apply Restr.

Key Global Market Trends - Scope Clauses

Limitations apply


Key Global Market Trends - Capacity Gap

Seat Capacity

25 50 75 100 125 150 175+

B75

7

B73

7

B73

7

B73

7

B75

7

A31

9

A32

0

B75

7

A32

0

MD

80B

737

A32

0

B73

7

A31

9

MD

80

B75

7

B73

7

A32

0

A31

9

B75

7

B73

7

B75

7

B73

7

MD

80

B73

7

70 to 110 Seats

70 to 110 Seats

Source: BACK/Fleet PC


Network Airlines

Regional Airlines

Low CostCarriers

RA

SK

/ M

Capacity

Clash of Three Models


Network Airlines

Regional Airlines

Low CostCarriers

RA

SK

/ M

Capacity

Clash of Three Models - LCC’s

• increasing capacity to match market growth• expanding services to secondary markets


Network Airlines

Regional Airlines

• right-sizing aircraft capacity / replacing old narrow body jets• enhancing frequency

Low CostCarriers

RA

SK

/ M

Capacity

Clash of Three Models - Network Airlines


Network Airlines

Low CostCarriers

RA

SK

/ M

Capacity

Clash of Three Models - Regional Airlines

• increasing aircraft capacity (natural growth from 50-seater RJ’s)

Regional Airlines


Network Airlines

Low CostCarriers

RA

SK

/ M

Capacity

Regional Airlines

Beyond the Current Model...

There is a need for a new TOOL

E-JetsE-Jets

Regional Jets

Sustained

Operation


When markets are strong…RJs expand catchment areas by adding more spokes to carrier hubsin addition to:

• supplementing mainline jet capacity

• increasing route frequency

• opening new “long & thin” routeswith small, low-risk capacity.

• introducing secondary-to-secondary market service

Regional Jets - A Dynamic Tool


• rightsizing aircraft capacity to match demand.

• maintaining high route-frequency

RJs help to defend an airline’s competitive market position by:

… and when markets are weak

• preserving network integrity and overall market presence

• replacing unprofitable mainline jet capacity service

Regional Jets - A Dynamic Tool


ERJ - American

TP TP ComplementComplement

5%

JetJet ComplementComplement

12%

TP TP ReplacementReplacement

24%

JetJet ReplacementReplacement

26%

NewNew RouteRoute

33%

0%

25%

50%

75%

100%

Source: BACK/OAG(Jan/05)


ERJ - Continental


19%

NewNew RouteRoute

35%


20%


26%

0%

25%

50%

75%

100%



< 2 hours2 - 3 hours> 3 hours

ERJ 145 Family Network (Jan/2005)

Source: BACK/OAG (ERJ 145 Family)

Number of Routes

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

48 (4%)0> 3 hours

818 (66%)198 (69%)< 2 hours

Jan/2005Jan/2000


ERJ - British Airways


7%


9%


23%


25%

NewNew RouteRoute

36%

0%

25%

50%

75%

100%



ERJ - Air France


15%


29%


14%


5%

NewNew RouteRoute

37%

0%

25%

50%

75%

100%



- 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 135

ERJ 135: Steep Approach Capable (London City Airport)

Still Air Range: 600 nm

Opportunity for New Routes Development


ERJ 145 Family Main Missions


26%

12%

24%

5%

33%

0%

25%

50%

75%

100%

26%

19%

20%

35%

25%

9%

23%

7%

36%

5%

15%

29%

14%

37%

23%

15%

23%

4%

35%





NewNew RouteRoute


ERJ 145 Family

The Evolution of Regionals

An Intrinsic Part of the Solution


ERJ 145 Family

Dec 1998Dec 1998

Dec 1999Dec 1999

Aug 2000Aug 2000

Mar 2001Mar 2001 Sep 2001Sep 2001 May 2003May 2003

Dec 1996Dec 1996

First DeliveryFirst Delivery

May 2002May 2002

February 2005February 2005

May 2004May 2004


ERJ 145 Family Orderbook

103

66

20

17

FirmBacklog

7981,237336901Total

618998314684ERJ 145

741142094ERJ 140

1061252123ERJ 135

DeliveriesTotalOptionsFirm(as of December 31st., 2004)

LCC’s

Next Steps


1,098 markets

105 PDEW

500 PDEWupper boundary for a B737 / A320

lower boundary for a 50 seater RJ

28%

530 markets are perfectlysuited for 70-110 seaters

48%

24%

315 PDEWlower boundary for a B737 / A320

150 PDEWupper boundary for a 50 seater RJ

Source : US DOT OD1A

LCC Next Step - Moving Downwards in Capacity


EMBRAER 190 - JetBlue

Network Carriers

Opportunities


Opportunity for Enhancing Market Presence

Rightsizing and Frequency IncreaseAverage Daily Frequency by Route (USA and Europe)Routes operated exclusively by Jet Aircraft (91 – 175 seats; routes up to 2000 nm)

Source: BACK/OAG (Jan/2005)

5500 routes with less than2 average daily frequency

57%

28%

11%

3% 1%

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

Average Daily Frequency

Ro

ute

s


0

200,000

400,000

600,000

800,000

1,000,000

Nu

mb

er o

f F

ligh

ts

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

Distance Sector (nm)

Source: Back/OAG

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


Optimizing fleet capacity

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

22

44

66

99

12121313 1313

1010

99

6655

33

88

}

19%

38%

}

Source: United Airlines (The-Mechanic.com)

Passengers per Departure

Per

cent

age

of F

light

s


EMBRAER 175 / 190 – Air Canada

“Together with the EMBRAER 190, the EMBRAER 175 will give Air

Canada a competitive edge in offering high frequency, low-cost

services on new and existing routes in Canada and the United

States.”

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


EMBRAER 170 - Finnair“We are continuing with our strategy by acquiring the best

possible fleet for our feeder traffic. Shifting to a single aircraft

type will bring significant savings in operating costs. At the

same time fuel consumption will be cut by a third and air traffic

charges will decrease”.

Keijo Suila, Finnair President (Jun/2004)


EMBRAER 190 - COPA“The EMBRAER 190 offered the best solution to the company’s future fleet requirements. The aircraft fits our diverse operating environment and allows us to right-size aircraft seat capacity, improve service to smaller but important cities in our network, and add incremental frequencies and destinations as demand grows.”

Pedro Heilbron, Copa Airlines CEO (Oct/2004)

From Concept

to Reality

E-Jets Family


The E- Jets Family

CertifiedCTA / FAA / EASA

CertificationMid 2005

CertificationMid 2006

CertifiedCTA / EASATC Mid 2005


EMBRAER 170 Network

RightRight--sizingsizing

39%

MarketMarket GrowthGrowth

59%

NewNew RoutesRoutes

2%

0%

25%

50%

75%

100%



EMBRAER 170 Network


48%


45%

NewNew RoutesRoutes

7%

0%

25%

50%

75%

100%



EMBRAER 170 Network


50%


45%

NewNew RoutesRoutes

5%

0%

25%

50%

75%

100%

Source: BACK/OAG (Jan/05)


EMBRAER 170 - Republic

“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)

16 @ 34” 6 @ 36”70 seats:

Forward Galley

Forward Lavatory

FA Seat

WardrobeFA Seat

Aft Galley

Aft Lavatory

48 @ 31” pitch


EMBRAER 170 Network


68%


24%

NewNew RoutesRoutes

8%

0%

25%

50%

75%

100%



EMBRAER 170 Main Missions


0%

25%

50%

75%

100%

48%39%

68%

50%

45%59%

24%

45% 46%

48%

6%7%2% 8% 5%

MarketMarket GrowthGrowthRightRight--sizingsizingNewNew RoutesRoutes


EMBRAER 170 EIS Statistics

Operators 5

Aircraft in Service 53

Flight hours 61,740

Flight Cycles 43,570

Operating Summary

(as of February 16th, 2005)


EMBRAER 170/190 Family Orderbook

15-15-15EMBRAER 175

297

15

155

112

FirmBacklog

46770427343Total

-352015EMBRAER 195

-385230155EMBRAER 190

46335177158EMBRAER 170

DeliveriesTotalOptionsFirm(as of December 31st., 2004)

EMBRAER 170 / 190 Family Orderbook


Thank you !

2005 - 5th Us Analyst Investors Meeting Commercial Airline Market

Documents

Transcript of 2005 - 5th Us Analyst Investors Meeting Commercial Airline Market