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Embraer in the US market
According to the International Air Transport Association’s (IATA) financial monitor, airlines share prices were 3% higher than the FTSE Global All Cap in the first 4 months of 2013. Its share prices are outperforming the market as investors are optimistic about the short-term recovery of the industry.
The recovery of the share price is particularly strong in the US. It has risen by 35% this year following the improved financial performance of the American airline companies after the implementation of restructuring plans. The combined net profit of the American airlines is forecast to be at $3.6bn in 2013, an increase of 112% compared to the $1.7billion in 2011. Additionally, IATA’s publication also shows improved confidence in the sector as the traffic volumes in the passenger business are also increasing.
In line with the recent optimism in the American air travel industry, Embraer signed a multibillion dollar contract with Republic Airlines to provide 47 EMBRAER 175 jets. The E175, which is designed for the 78 to 88 seats capacity segment, taps the gap between regional and mainline aircraft. The contract could reach the sum of $4bn if Republic Airlines requests the additional option of 47 175 jets and 94 E175.
Embraer jets (E-jets) are operated by more than 60 airlines worldwide but Republic Airlines is the largest operator of E-jets fleet in the world. The company started the production of executive and regional aircraft in Brazil in 1996 after identifying a gap in the market, namely the production of a medium-sized aircraft for efficient operation in the 37 to 120 seats category. Prior to this, Bombardier was the sole aircraft manufacturer in this segment selling the Canadair Regional Jet (CRJ) 500. Twelve years after entering the market, EMBRAER became a market leader with 70% market share in 2011.
For more information on Embraer check out the MarketLine business Case Study – Embraer: Battle in the regional jet market