Artigo da Embraer na imprensa do Canadá - PArte II
Enviado: Qua Mar 30, 2005 22:17
FINANCIAL POST
Embraer pulls off mission impossible
Brazilian jetmaker uses unorthodox methods to get noticed
Sean Silcoff
Financial Post
Monday, March 28, 2005
Bombardier Inc. may be one of the biggest, best-known and most controversial companies in Canada, but the world's third-largest maker of airplanes has been upstaged recently by rival Embraer. The Brazilian firm has been flying high thanks to the success of a new family of commercial jets, translating into a flurry of orders and worries for its Canadian rival. How did a Third World country like Brazil come to host one of the top aerospace firms in the world? Montreal bureau chief Sean Silcoff travelled to Embraer's headquarters in Brazil this month for an in-depth look at the company. His report, which began on Saturday, continues today.
- - -
SAO JOSE DOS CAMPOS, Brazil - If you had asked Embraer executives four years ago who was the last person they expected to buy their jets, the answer would have been unanimous: Air Canada chief executive Robert Milton.
The Brazilian aircraft maker was in the midst of developing a family of 70- to 110-seat planes that looked like nothing it had sold before. The new jets were comfortable and spacious, more like Airbuses than the cramped 50-seat regional jets (RJs) it had been selling briskly since the mid-1990s to airlines keen to expand into smaller markets.
The challenge was getting airline CEOs to see the jets for themselves. For the previous two years, Embraer had invited North American airline bosses to give their input on the planes. It didn't matter that the meetings were held in Brazil, Paris and Florida: Few came. And many, including Air Canada, were loyal customers of rival Bombardier.
"We decided if the mountain will not come to Mohammed, Mohammed will go to the mountain," says Orlando Jose Ferreira Neto, Embraer's director of market intelligence.
The firm built a cross section of its jet with enough seats to give observers a sense of the interior. It loaded the tube onto a truck and sent it to the backyards of the North American CEOs it was trying to court. But first, Embraer had to get their attention.
Mr. Milton was in his office one day in spring 2001 when a package arrived. There was a personal DVD player inside and a note asking him to turn it on.
There on the screen was Embraer CEO Mauricio Botelho with a message. "Hello, Robert," he began, in a thick Portuguese accent.
A cutaway of Embraer's new jet was heading to Dorval International Airport, Mr. Botelho said on screen. Would Mr. Milton kindly visit when it arrived?
If this sounds like a scene from Mission Impossible, consider the situation. Air Canada already had 25 RJs made by Bombardier, its corporate neighbour in Montreal. Canada and Brazil were in a trade war over their jetmakers. "I'm willing to bet those guys never believed in a million years Air Canada would buy a ton of Embraers," Mr. Milton says.
But he loved the marketing gimmick. "I thought it was really clever stuff: How to get somebody to go look, where there is probably not a chance in the world [he'll] look at this airplane or ever buy [it] because he's running Air Canada," Mr. Milton says. He toured the visiting cross-section, and even got to keep the DVD player. Two and a half years later, Air Canada bought 45 Embraer jets.
"Who would have said Air Canada would acquire our aircraft?" a grinning Mr. Botelho says in his Sao Paulo office. "I have a special place in my heart for that."
Furthermore, Mr. Milton became a champion of Embraer's jets. "It's a game changer," he says. "We're just licking our chops at getting these airplanes."
Ten years after escaping financial ruin, Embraer is the toast of the airline world with its family of "E-jets," ranging from the 70-seat Embraer 170 to the 108-seat Embraer 195. Mainline, regional and even discount airlines -- which typically fly planes suited to 150 passengers -- are eyeing Embraer jets. U.S. discounter JetBlue Airways has ordered 100 of them. Even longtime Bombardier customer Comair, a Delta Air Lines' feeder service, is looking.
"The 170 owns the market right now," says Canaccord Capital analyst Bob Fay. "It will attract passengers, even away from other narrow-bodied jets. They've hit the sweet spot and have a five-year head start."
How Embraer found itself in this spot is the result of years of research, millions of hours of engineering, slick marketing and lots of money. But there's something else: a series of unforeseen events that turned the airline world on its head and thrust Embraer into the spotlight. Winning over Mr. Milton was just a start. "We didn't predict Sept. 11, the downturn, turmoil in the airline industry or US$50 oil," Mr. Neto says. "But we started to surf a very interesting wave."
- - -
By 1997, Embraer's 50-seat ERJ was starting to take off as a replacement for noisy and slow turbopropeller planes and a way for airlines to open new routes beyond the range of the older craft. As they expanded their service, however, airlines saw a need for RJs with 70 or more seats.
In early 1997, Bombardier said it would "stretch" its 50-seat CRJ model into a 70-seater. The CRJ was based on the 1970s-era Challenger private jet, with four seats abreast. Stretching it would cost less and take less time to get to market than designing a new jet. Bombardier could also sell airlines on the cost savings of having a common family of RJs.
That "pushed us into thinking more deeply and seriously" about larger RJs, says Satoshi Yokota, Embraer executive vice-president of development and industry.
Embraer couldn't stretch its 50-seat ERJ. It was already a reworked Brasilia turboprop, with three seats across. Stretching it to 70 seats would make the jet too long to perform well. That meant Embraer would have to start over, handing Bombardier a four-year lead.
Jetmaker Fairchild Dornier was also developing a 70-seater, the five-abreast 728. If Bombardier had the most cost-effective 70-seater, the 728 looked to be the roomiest. Then Bombardier said it would make a 100-seater. Embraer faced a crowding field.
Starting from scratch gave Embraer one important advantage: It could design a jet tailored to its intended size, rather than working to the constraints of a plane originally designed for another use. After a six-month study, it made its case to the board in late 1997 and the program launched in early 1999.
The first question was how big the jets should be. Seventy seats was the starting point for a family of products. The bigger the jets got, though, the more perilous the competition. Airbus and Boeing made jets with as few as 106 seats. "The first issue was, did we want to get close to Airbus and Boeing? We didn't have enough resources to face a war," Mr. Yokota says. Embraer decided for the time being to top out at 90 seats.
Next, it turned to passengers. RJs were cramped and got low marks for comfort.
"We knew we had to make something as comfortable as the Airbus A320 (which was known for its spacious cabin) or better," Mr. Yokota says. Embraer planners decided the aisle would have to be wide enough for roll-on suitcases and the overhead bins big enough to store them -- unlike 50-seaters. To get a wide cabin, Embraer copied the larger aircraft makers by making a "double-bubble" fuselage. It was a design trick that made the jets feel larger: If you were looking at a cross-section of the body of the plane, you would see a large circle squashing down into a smaller one, like an upside-down egg. This produced a cabin interior with tall aisles and walls that didn't curve in on window passengers, and a taller cargo hold.
The seats would be 18.5 inches wide with a 32-inch distance between seatbacks. That was one inch more than the Bombardier 70-seater on both counts.
Embraer surveyed 45 airlines to ask if its jets should have four- or five-seat rows. With five, one side of an aisle would have three seats. "Sixty percent of the airlines said passengers hated the middle seat," Mr. Neto says. "Do you like the middle seat? If I even tell you the middle seat is wider than the other seats, do you keep hating it? Or do you then start to fall in love with it? You're stuck in the middle. So we decided to make the best four-abreast ever produced."
A four-seat design would make the plane smaller and lighter, improving its economics. The engines would go under the wings, as opposed to being mounted on the back (like Bombardier's 70-seater). That made for a smooth ride and lighter body. But it also meant more spindly and expensive landing gear and more maintenance for the engines, which were closer to the ground and would ingest more debris. It also made the plane shorter. The designers ensured it wasn't so short that service trucks for fuel, food and toilet cleaning would crowd together between flights and risk hitting the wing, Mr. Yokota says.
The airlines also wanted jets to fly farther than the 1,400 nautical-mile range of 50-seaters. Embraer's big RJs would go 64% farther, enough to fly New York to Los Angeles.
By the end of 1999, "it was very clear to us we were on the right track in terms of cabin comfort and efficiency of the aircraft, and the economics were starting to take place for it to be a very competitive product," Mr. Neto says.
To finance the US$1-billion development cost, Embraer used a strategy it had pioneered with its 50-seater. Suppliers paid a fee to Embraer and developed components at their own cost. In return, they became exclusive suppliers. In the past, jetmakers had paid suppliers to develop components for them. "We said 'we can't afford it,' " Mr. Neto recalls. "If you want to get on board, you develop at your own risk. If I sell the product and we deliver, you get paid."
Embraer signed up GE for engines and Honeywell for in-flight systems, among others. The suppliers put up two-thirds of the cost. For its share, Embraer did an equity offering in 2000 on the New York Stock Exchange. "We funded this program totally on market conditions," Mr. Botelho says. "Our suppliers invested in it, and we have our cash at risk. This is our shareholders' money."
The last piece of the puzzle was a launch customer. A new airliner needed to kick off with a big order to prove its viability and start production. In August, 1998, Mr. Botelho met Moritz Suter, chairman of European regional airline Crossair, at a restaurant on the Rhine River in Germany. Crossair was leaning toward Fairchild 728s, but Mr. Botelho made his case. Ten months later, as Mr. Botelho crossed immigration at Charles de Gaulle International Airport in Paris, his cellphone rang. It was Mr. Suter. Crossair's board had agreed to be Embraer's first customer.
"I yelled out, 'Ooh-wow! I got it!' " Mr. Botelho says in a booming voice. Crossair wanted bigger jets, so Embraer stretched its design to 110 seats. The airline ordered 60 of Embraer's 70-seaters, 60 of the 110-seaters and 15 ERJs.
On Feb. 19, 2002, at 8:37 a.m., Embraer's 170 flew for the first time from Sao Jose dos Campos's airport. It was 21C and overcast. Mr. Neto was in tears. "It was like a dream come true," he says. "When I saw the bird fly, it was fantastic."
Not everyone was so taken by Embraer's jets. Few saw immediate demand outside Europe for big RJs. In the United States, prospects were limited: Major carriers outsourced regional flights to non-unionized feeders, but only after the powerful pilots' union insisted on limits on the number and size of RJs in the fleet to prevent the loss of mainline pilot jobs. Those limits, enshrined in labour contracts, often excluded 70-seaters.
Some airline CEOs felt those limits would eventually ease. But "it was hard to get excited about the product when it was clear you wouldn't be allowed to operate them, based on how the world looked," says Bryan Bedford, CEO of Republic Airways Holdings, a top Embraer customer.
Bombardier shelved plans for a 100-seater and instead stretched its 70-seater to an 86-seat version. Fairchild Dornier collapsed.
Then, the world changed. The Sept. 11, 2001, attacks worsened the effects of a recession. Air traffic collapsed. Airlines parked hundreds of large, old jets in the desert and began moving 50-seat RJs on to routes in their place. Growing discount carriers took an even bigger bite out of airline traffic, driving down ticket prices. Soon, most major North American carriers were either in bankruptcy or restructuring to avoid it. That allowed them to win concessions from pilots on jet sizes. Just about every airline looked to add RJs as part of their rescue plans. Rising oil prices, meanwhile, made 50-seat jets less economical. Demand for small RJs fell off quickly, while orders grew for 70-seaters.
Embraer was left without a launch customer, however, when Crossair, now a part of Swiss International Airlines, slashed and delayed its order. But everything else was going Embraer's way.
People in the industry were beginning to notice its new jets. Many told Embraer they didn't look like RJs. "They said this is the cabin of a big jet," says Mr. Neto. "And I said, 'Hmm, maybe I'm marketing it wrongly.' "
With the jets still in development, Mr. Neto dropped the RJ tag and moulded post-9/11 market realities into a pitch for Embraer. Fifty-seaters were overused and on routes too long for comfort, he said. Too many large jets were flying with too few passengers: More than 60% of flights by single-aisle jets were flying with loads best suited to 70- to 110-seaters. But the distorting effect of pilot contracts meant there were few properly-sized jets now flying. The answer was his rebranded "E-jets."
Even Bombardier concedes Embraer got the industry to think on its terms. "Embraer, to their credit, have done a great job promoting themselves and their products," says Steve Ridolfi, Bombardier's regional aircraft president.
By 2002, Air Canada's Mr. Milton was talking up Embraer jets. Though his airline was headed for bankruptcy protection, he saw Embraer jets as "a real competitive weapon" to help a restructured Air Canada. He figured a 93-seat Embraer 190 could service Montreal-New York for 22% less cost than Airbus 319s, and provide direct service for the first time on such routes as Montreal-Regina. "Being in Montreal, we never really thought beyond Bombardier and regional jets," he says. "We never would have considered an Embraer 50-seater. But with the [new] Embraer aircraft, we were starting to move toward a territory where ... the alternative [Bombardier's 70- and 86-seat jet] was nothing more than a stretch of a 50-seater. It was never very popular with the customer as a jet.
"Frankly, [Bombardier is] at a disadvantage now."
Embraer was even winning the marketing battle despite the accepted view that Bombardier's large RJs were cheaper to operate. Bombardier has even improved the performance of its 70- to 86-seaters recently, but that doesn't seem to matter to Embraer's fans. "We don't dispute" Bombardier's 70-seater operates at a lower cost than Embraer's 170, says Mr. Bedford, who has ordered 39 big Embraer jets for Republic's Chautauqua Airlines unit, to provide feeder service to major airlines including Delta. Customers will "ultimately pay a small premium to fly a clearly superior product," he says.
That leaves some industry observers in disbelief. "Things are so tight in the airlines that cost really counts," one industry executive says. "You have to watch your costs like a hawk in this business."
With a head start on Embraer and more than 300 orders already for its large RJs, Bombardier says it's not worried -- even though Embraer has now surpassed it, with 343 orders for its 170 to 195s as of the end of 2004.
"The passenger has voted overwhelmingly over the last two decades," Mr. Ridolfi says he can't imagine passengers booking around CRJs to get on an Embraer, just for the extra comfort. "It's just not going to happen ... I still expect to win my share" of orders.
Embraer pulls off mission impossible
Brazilian jetmaker uses unorthodox methods to get noticed
Sean Silcoff
Financial Post
Monday, March 28, 2005
Bombardier Inc. may be one of the biggest, best-known and most controversial companies in Canada, but the world's third-largest maker of airplanes has been upstaged recently by rival Embraer. The Brazilian firm has been flying high thanks to the success of a new family of commercial jets, translating into a flurry of orders and worries for its Canadian rival. How did a Third World country like Brazil come to host one of the top aerospace firms in the world? Montreal bureau chief Sean Silcoff travelled to Embraer's headquarters in Brazil this month for an in-depth look at the company. His report, which began on Saturday, continues today.
- - -
SAO JOSE DOS CAMPOS, Brazil - If you had asked Embraer executives four years ago who was the last person they expected to buy their jets, the answer would have been unanimous: Air Canada chief executive Robert Milton.
The Brazilian aircraft maker was in the midst of developing a family of 70- to 110-seat planes that looked like nothing it had sold before. The new jets were comfortable and spacious, more like Airbuses than the cramped 50-seat regional jets (RJs) it had been selling briskly since the mid-1990s to airlines keen to expand into smaller markets.
The challenge was getting airline CEOs to see the jets for themselves. For the previous two years, Embraer had invited North American airline bosses to give their input on the planes. It didn't matter that the meetings were held in Brazil, Paris and Florida: Few came. And many, including Air Canada, were loyal customers of rival Bombardier.
"We decided if the mountain will not come to Mohammed, Mohammed will go to the mountain," says Orlando Jose Ferreira Neto, Embraer's director of market intelligence.
The firm built a cross section of its jet with enough seats to give observers a sense of the interior. It loaded the tube onto a truck and sent it to the backyards of the North American CEOs it was trying to court. But first, Embraer had to get their attention.
Mr. Milton was in his office one day in spring 2001 when a package arrived. There was a personal DVD player inside and a note asking him to turn it on.
There on the screen was Embraer CEO Mauricio Botelho with a message. "Hello, Robert," he began, in a thick Portuguese accent.
A cutaway of Embraer's new jet was heading to Dorval International Airport, Mr. Botelho said on screen. Would Mr. Milton kindly visit when it arrived?
If this sounds like a scene from Mission Impossible, consider the situation. Air Canada already had 25 RJs made by Bombardier, its corporate neighbour in Montreal. Canada and Brazil were in a trade war over their jetmakers. "I'm willing to bet those guys never believed in a million years Air Canada would buy a ton of Embraers," Mr. Milton says.
But he loved the marketing gimmick. "I thought it was really clever stuff: How to get somebody to go look, where there is probably not a chance in the world [he'll] look at this airplane or ever buy [it] because he's running Air Canada," Mr. Milton says. He toured the visiting cross-section, and even got to keep the DVD player. Two and a half years later, Air Canada bought 45 Embraer jets.
"Who would have said Air Canada would acquire our aircraft?" a grinning Mr. Botelho says in his Sao Paulo office. "I have a special place in my heart for that."
Furthermore, Mr. Milton became a champion of Embraer's jets. "It's a game changer," he says. "We're just licking our chops at getting these airplanes."
Ten years after escaping financial ruin, Embraer is the toast of the airline world with its family of "E-jets," ranging from the 70-seat Embraer 170 to the 108-seat Embraer 195. Mainline, regional and even discount airlines -- which typically fly planes suited to 150 passengers -- are eyeing Embraer jets. U.S. discounter JetBlue Airways has ordered 100 of them. Even longtime Bombardier customer Comair, a Delta Air Lines' feeder service, is looking.
"The 170 owns the market right now," says Canaccord Capital analyst Bob Fay. "It will attract passengers, even away from other narrow-bodied jets. They've hit the sweet spot and have a five-year head start."
How Embraer found itself in this spot is the result of years of research, millions of hours of engineering, slick marketing and lots of money. But there's something else: a series of unforeseen events that turned the airline world on its head and thrust Embraer into the spotlight. Winning over Mr. Milton was just a start. "We didn't predict Sept. 11, the downturn, turmoil in the airline industry or US$50 oil," Mr. Neto says. "But we started to surf a very interesting wave."
- - -
By 1997, Embraer's 50-seat ERJ was starting to take off as a replacement for noisy and slow turbopropeller planes and a way for airlines to open new routes beyond the range of the older craft. As they expanded their service, however, airlines saw a need for RJs with 70 or more seats.
In early 1997, Bombardier said it would "stretch" its 50-seat CRJ model into a 70-seater. The CRJ was based on the 1970s-era Challenger private jet, with four seats abreast. Stretching it would cost less and take less time to get to market than designing a new jet. Bombardier could also sell airlines on the cost savings of having a common family of RJs.
That "pushed us into thinking more deeply and seriously" about larger RJs, says Satoshi Yokota, Embraer executive vice-president of development and industry.
Embraer couldn't stretch its 50-seat ERJ. It was already a reworked Brasilia turboprop, with three seats across. Stretching it to 70 seats would make the jet too long to perform well. That meant Embraer would have to start over, handing Bombardier a four-year lead.
Jetmaker Fairchild Dornier was also developing a 70-seater, the five-abreast 728. If Bombardier had the most cost-effective 70-seater, the 728 looked to be the roomiest. Then Bombardier said it would make a 100-seater. Embraer faced a crowding field.
Starting from scratch gave Embraer one important advantage: It could design a jet tailored to its intended size, rather than working to the constraints of a plane originally designed for another use. After a six-month study, it made its case to the board in late 1997 and the program launched in early 1999.
The first question was how big the jets should be. Seventy seats was the starting point for a family of products. The bigger the jets got, though, the more perilous the competition. Airbus and Boeing made jets with as few as 106 seats. "The first issue was, did we want to get close to Airbus and Boeing? We didn't have enough resources to face a war," Mr. Yokota says. Embraer decided for the time being to top out at 90 seats.
Next, it turned to passengers. RJs were cramped and got low marks for comfort.
"We knew we had to make something as comfortable as the Airbus A320 (which was known for its spacious cabin) or better," Mr. Yokota says. Embraer planners decided the aisle would have to be wide enough for roll-on suitcases and the overhead bins big enough to store them -- unlike 50-seaters. To get a wide cabin, Embraer copied the larger aircraft makers by making a "double-bubble" fuselage. It was a design trick that made the jets feel larger: If you were looking at a cross-section of the body of the plane, you would see a large circle squashing down into a smaller one, like an upside-down egg. This produced a cabin interior with tall aisles and walls that didn't curve in on window passengers, and a taller cargo hold.
The seats would be 18.5 inches wide with a 32-inch distance between seatbacks. That was one inch more than the Bombardier 70-seater on both counts.
Embraer surveyed 45 airlines to ask if its jets should have four- or five-seat rows. With five, one side of an aisle would have three seats. "Sixty percent of the airlines said passengers hated the middle seat," Mr. Neto says. "Do you like the middle seat? If I even tell you the middle seat is wider than the other seats, do you keep hating it? Or do you then start to fall in love with it? You're stuck in the middle. So we decided to make the best four-abreast ever produced."
A four-seat design would make the plane smaller and lighter, improving its economics. The engines would go under the wings, as opposed to being mounted on the back (like Bombardier's 70-seater). That made for a smooth ride and lighter body. But it also meant more spindly and expensive landing gear and more maintenance for the engines, which were closer to the ground and would ingest more debris. It also made the plane shorter. The designers ensured it wasn't so short that service trucks for fuel, food and toilet cleaning would crowd together between flights and risk hitting the wing, Mr. Yokota says.
The airlines also wanted jets to fly farther than the 1,400 nautical-mile range of 50-seaters. Embraer's big RJs would go 64% farther, enough to fly New York to Los Angeles.
By the end of 1999, "it was very clear to us we were on the right track in terms of cabin comfort and efficiency of the aircraft, and the economics were starting to take place for it to be a very competitive product," Mr. Neto says.
To finance the US$1-billion development cost, Embraer used a strategy it had pioneered with its 50-seater. Suppliers paid a fee to Embraer and developed components at their own cost. In return, they became exclusive suppliers. In the past, jetmakers had paid suppliers to develop components for them. "We said 'we can't afford it,' " Mr. Neto recalls. "If you want to get on board, you develop at your own risk. If I sell the product and we deliver, you get paid."
Embraer signed up GE for engines and Honeywell for in-flight systems, among others. The suppliers put up two-thirds of the cost. For its share, Embraer did an equity offering in 2000 on the New York Stock Exchange. "We funded this program totally on market conditions," Mr. Botelho says. "Our suppliers invested in it, and we have our cash at risk. This is our shareholders' money."
The last piece of the puzzle was a launch customer. A new airliner needed to kick off with a big order to prove its viability and start production. In August, 1998, Mr. Botelho met Moritz Suter, chairman of European regional airline Crossair, at a restaurant on the Rhine River in Germany. Crossair was leaning toward Fairchild 728s, but Mr. Botelho made his case. Ten months later, as Mr. Botelho crossed immigration at Charles de Gaulle International Airport in Paris, his cellphone rang. It was Mr. Suter. Crossair's board had agreed to be Embraer's first customer.
"I yelled out, 'Ooh-wow! I got it!' " Mr. Botelho says in a booming voice. Crossair wanted bigger jets, so Embraer stretched its design to 110 seats. The airline ordered 60 of Embraer's 70-seaters, 60 of the 110-seaters and 15 ERJs.
On Feb. 19, 2002, at 8:37 a.m., Embraer's 170 flew for the first time from Sao Jose dos Campos's airport. It was 21C and overcast. Mr. Neto was in tears. "It was like a dream come true," he says. "When I saw the bird fly, it was fantastic."
Not everyone was so taken by Embraer's jets. Few saw immediate demand outside Europe for big RJs. In the United States, prospects were limited: Major carriers outsourced regional flights to non-unionized feeders, but only after the powerful pilots' union insisted on limits on the number and size of RJs in the fleet to prevent the loss of mainline pilot jobs. Those limits, enshrined in labour contracts, often excluded 70-seaters.
Some airline CEOs felt those limits would eventually ease. But "it was hard to get excited about the product when it was clear you wouldn't be allowed to operate them, based on how the world looked," says Bryan Bedford, CEO of Republic Airways Holdings, a top Embraer customer.
Bombardier shelved plans for a 100-seater and instead stretched its 70-seater to an 86-seat version. Fairchild Dornier collapsed.
Then, the world changed. The Sept. 11, 2001, attacks worsened the effects of a recession. Air traffic collapsed. Airlines parked hundreds of large, old jets in the desert and began moving 50-seat RJs on to routes in their place. Growing discount carriers took an even bigger bite out of airline traffic, driving down ticket prices. Soon, most major North American carriers were either in bankruptcy or restructuring to avoid it. That allowed them to win concessions from pilots on jet sizes. Just about every airline looked to add RJs as part of their rescue plans. Rising oil prices, meanwhile, made 50-seat jets less economical. Demand for small RJs fell off quickly, while orders grew for 70-seaters.
Embraer was left without a launch customer, however, when Crossair, now a part of Swiss International Airlines, slashed and delayed its order. But everything else was going Embraer's way.
People in the industry were beginning to notice its new jets. Many told Embraer they didn't look like RJs. "They said this is the cabin of a big jet," says Mr. Neto. "And I said, 'Hmm, maybe I'm marketing it wrongly.' "
With the jets still in development, Mr. Neto dropped the RJ tag and moulded post-9/11 market realities into a pitch for Embraer. Fifty-seaters were overused and on routes too long for comfort, he said. Too many large jets were flying with too few passengers: More than 60% of flights by single-aisle jets were flying with loads best suited to 70- to 110-seaters. But the distorting effect of pilot contracts meant there were few properly-sized jets now flying. The answer was his rebranded "E-jets."
Even Bombardier concedes Embraer got the industry to think on its terms. "Embraer, to their credit, have done a great job promoting themselves and their products," says Steve Ridolfi, Bombardier's regional aircraft president.
By 2002, Air Canada's Mr. Milton was talking up Embraer jets. Though his airline was headed for bankruptcy protection, he saw Embraer jets as "a real competitive weapon" to help a restructured Air Canada. He figured a 93-seat Embraer 190 could service Montreal-New York for 22% less cost than Airbus 319s, and provide direct service for the first time on such routes as Montreal-Regina. "Being in Montreal, we never really thought beyond Bombardier and regional jets," he says. "We never would have considered an Embraer 50-seater. But with the [new] Embraer aircraft, we were starting to move toward a territory where ... the alternative [Bombardier's 70- and 86-seat jet] was nothing more than a stretch of a 50-seater. It was never very popular with the customer as a jet.
"Frankly, [Bombardier is] at a disadvantage now."
Embraer was even winning the marketing battle despite the accepted view that Bombardier's large RJs were cheaper to operate. Bombardier has even improved the performance of its 70- to 86-seaters recently, but that doesn't seem to matter to Embraer's fans. "We don't dispute" Bombardier's 70-seater operates at a lower cost than Embraer's 170, says Mr. Bedford, who has ordered 39 big Embraer jets for Republic's Chautauqua Airlines unit, to provide feeder service to major airlines including Delta. Customers will "ultimately pay a small premium to fly a clearly superior product," he says.
That leaves some industry observers in disbelief. "Things are so tight in the airlines that cost really counts," one industry executive says. "You have to watch your costs like a hawk in this business."
With a head start on Embraer and more than 300 orders already for its large RJs, Bombardier says it's not worried -- even though Embraer has now surpassed it, with 343 orders for its 170 to 195s as of the end of 2004.
"The passenger has voted overwhelmingly over the last two decades," Mr. Ridolfi says he can't imagine passengers booking around CRJs to get on an Embraer, just for the extra comfort. "It's just not going to happen ... I still expect to win my share" of orders.
