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2005 - Chinese Market Presentation May 2005

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  • 1. Embraer & China’s Regional Aviation Market
  • 2. Contents • Embraer’s Market Forecast • Regional Aviation in China • Embraer’s Commitment to China THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 3. Global Business Operations in Brazil, United States, Europe, Singapore and China USA Nashville Palm Beach Gardens China Fort Lauderdale France Beijing Jacksonville* Le Bourget Harbin Singapore Singapore Brazil Gavião Peixoto Botucatu São José dos Campos THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 4. Complete Product Portfolio 108 Seats 98 78 70 50 44 37 The only manufacturer that offers complete 30-120 seats coverage FA 14/Nov/02 THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 5. ERJ 145 Family Orderbook Deliveri Firm Firm Options Total es Backlog ERJ 135 123 2 125 108 15 ERJ 140 94 20 114 74 20 ERJ 145 681 211 892 634 47 Total 898 233 1,131 816 82 (as of 1st quarter, 2005) THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 6. E170/190 Family Orderbook Firm Firm Options Total Deliveries Backlog EMBRAER 170 172 137 309 56 116 EMBRAER 175 15 - 15 15 EMBRAER 190 155 230 385 - 155 EMBRAER 195 15 20 35 - 15 Total 357 387 744 56 301 (as of 1st quarter, 2005) THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 7. Market Forecast 2005-2024 World Deliveries by Segment - Jets Segment 2005-2014 2015-2024 2005-2024 30-60 seats 650 1,300 1,950 61-90 seats 1,300 1,550 2,850 91-120 seats 1,250 1,750 3,000 Total 3,200 4,600 7,800 World Total Deliveries (30-120 seats): 7,800 Jets THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 8. Market Forecast 2005-2024 30 - 120 seats: 7,800 Jets North America North America Europe, Europe, China 4,165 4,165 Middle East & China Middle East & 53% Africa Africa 635 635 1,991 1,991 8% 26% Latin American Latin American & Caribbean & Caribbean Aisa Pacific Aisa Pacific 538 538 471 471 7% 6% THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 9. Regional Jets - A Dynamic Tool When markets are weak RJs help to defend an airline’s competitive market position by: • maintaining high route-frequency • preserving network integrity and overall market presence • replacing unprofitable mainline jet service • rightsizing aircraft capacity with demand THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 10. Regional Jets - A Dynamic Tool …and when markets are strong RJs expand catchment areas by adding more spokes to hubs in addition to: • increasing route frequency • supplementing mainline jet capacity • opening new “long & thin” routes with small, low-risk capacity THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 11. China’s Regional Aviation Market
  • 12. Strong Traffic Growth 15.6% annual growth 1.3% annual growth 38.2% annual growth 21.9% 2002 2003 2004 2005 SARS Source: State Statistics Bureau 10% traffic growth forecasted in the coming 10 years - world highest THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 13. Small regional aircraft fleet Aircraft in service: 758 (Feb. 2005) Narrow Body 7 Regional TP 58 572 65 8.5% RJ Wide Body 121 Currently regional represents 8.5% of the fleet, compared with 35% worldwide THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 14. Airports are under utilized Airport pax traffic 2004 Source: CAAC Statistics 20 airports represent 80% of total traffic 50 out of 133 airports are with traffic less than 200 daily THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 15. PDEW vs. Frequency Total 786 domestic routes Daily Passenger Traffic 480 129 59 33 21 15 14 8 5 3 61% 16% Daily Frequency THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 16. Market Opportunities - Right Sizing
  • 17. Thin Traffic Routes Frequency /day Y2002 Domestic Routes with PDEW < 120 • Improved Service • Profitable Load Factor Low LF Add Frequency Low Frequency Low Freq. Medium High LF Rightsizing LF RJ provides the right solution for the thin Traffic Routes THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 18. Yield Distribution Yield (RMB/KM) Y2002 Chinese airline data – Domestic routes 1.8 150 Seaters 50 Seaters 1.6 Power (50 Seaters) Power (150 Seaters) 1.4 Right sized aircraft for the right routes have better yield 1.2 1.0 0.8 0.6 Over sized aircraft 0.4 have to slash fare to fill empty seats 0.2 0.0 - 500 1,000 1,500 2,000 2,500 KM THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 19. Market Opportunities - Shuttle service model
  • 20. Sichuan Shuttle Service Sichuan Airlines The Route: Q Short trunk route Q Compete with highway link Chengdu Q 300 KM (45 minutes BH for ERJ145) The Operation: Q High Frequency – 6 pairs per day Chongqing Q High Yield – RMB1.16/KM Q Express check-in procedure Q Shuttle bus link to downtown Q One price includes all (airport tax, shuttle bus) Q High load factor – more than 80% Q High aircraft utilisation: 9 block hours/day A successful shuttle service with ERJ 145 THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 21. Sichuan Shuttle Service Well-shaped dual hub network THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 22. Market Opportunities - New Market Development
  • 23. Trip Cost Comparison RMB 53% TOC = 57,502 Sector Length: 1000 KM Typical Chinese assumptions TOC = 26,781 RJ’s trip cost advantage makes it best equipment for opening new markets THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 24. China Southern’s ERJ145 Network MACAU RJ is a powerful tool for developing new routes and enhancing hub THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 25. Market Opportunities - HK and Macau market
  • 26. Mainland HK New Agreement Trunk routes (14) 2nd tier routes (30) 400 additional frequencies will only be available for 2nd tier destinations THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 27. Macau Daily Frequency Daily Flights Daily Frequency 21.2 20 53% of Macau traffic is transfer pax. Low 15 frequency and lack of direct flights resulted in bad connectivity. 10 8.1 8.2 5 2.4 1.1 0.9 1.3 1.0 0.2 0.6 0.1 0.2 0.2 0.4 0.5 0.3 0.2 0.2 0.2 0.1 0 Beijing Nanjing Haikou Guilin Ningbo XiAn Fuzhou Shanghai Kunming Hangzhou Kaohsiung K.Lumpur Manila Taipei Chongqing Seoul Bangkok Chengdu Xiamen Singapore RJ will help to improve frequency and opening new direct flights THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 28. Market Challenges
  • 29. Jet Fuel Price THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 30. Shortage of Pilots 4000 accumulative pilot demand 3500 3000 Short of 630 pilots in Y2006 2500 accumulative pilot supply 2000 1500 1000 500 0 Y2004 Y2005 Y2006 Y2007 Y2008 Huge mainline aircraft orders are draining airline’s resources, most notably causing pilot shortage THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 31. Smaller airports are more expensive Airport charge for aa 50-seat RJ Airport Charges for 50 seat RJ RMB 3,500 3,052 2,922 2,916 3,000 2,766 Ground Handling (Max Payload) 800 Security Check Fee (Max Payload) 2,500 800 800 (Seats & 800 Passenger Service Fee Apt. Cat.) 200 Terminal Navigation (MTOW) 2,000 200 200 200 Landing Fee (MTOW) 1,500 1,463 1,463 1,625 1,300 1,000 500 88 88 88 88 378 372 365 339 - 1 2.1 2.2 3 Airport Category big airports small airports THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 32. Embraer’s Commitment to China Market
  • 33. Embraer’s Presence in China Harbin Beijing Rep. Office Spare Center Beijing Chengdu Nanjing Wuhan Guangzhou Zhuhai Hongkong Macau THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 34. Industrial Cooperation • Shareholding structure: Embraer 51%, Hafei 49% • Capital investment: 40 million USD • Transfer of technology and management expertise • Same standard of Embraer manufacturing process, product quality and customer services THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 35. Beijing Spare Parts Center • Bonded Warehouse in cooperation with CASC • Set up in Feb.2002 • Worldwide integrated computer spare parts management system and advanced custom declaring system • Quick spare parts support and shortened delivey time THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 36. ERJ145 Simulator in Zhuhai • ERJ145 Full Flight Simulator • Will be installed in China Southern Zhuhai Flight Training Center in June 2005 • Will greatly reduce the airline training cost THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
  • 37. THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.