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Will the new Mitsubishi Regional Jet (MRJ) erode Embraer’s market share?

In the 1990s, Embraer and Bombardier identified a gap in the production of an aircraft sized for efficient operation in the regional jet market in Europe, Asia, Africa and, particularly, in the United States. Regional American airlines were increasingly demanding an aircraft designed specifically to serve markets that can be optimized with 37 to 110 seat capacity equipment. The production of Embraer Regional Jet-145 (ERJ-145) launched the company into the lucrative regional jets market in 1996, only two years after privatization.

Prior to 1996, Bombardier was the sole player in a market of gigantic prospects selling the Canadair Regional Jet (CRJ) 500 for $18.6m. Embraer started offering its jet for $14m, cheaper than its rival, and with lower operational costs. Originally, these markets were well served by small aircraft between five and 30 seats and, on the other extreme, by aircraft with more than 110 seats, produced either by Boeing or Airbus. The capacity gap in the market has been fuelled by an increasing number of passengers flying regionally since the 1990s.

Nowadays, Embraer has more than 50 airlines as clients, including British Airways Cityflyer, Flybe, KLM, Air France, China Southern Airlines and Fujii Dream Airlines. Close to 30% of Embraer’s revenues comes from jet sales in these markets. The combined net profit of commercial airlines operating within these markets is forecasted to be $13.4bn in 2016, according to recent numbers published by IATA (International Air Transport Association).

Mitsubishi Regional Jet (MRJ), backed by the Development Bank of Japan and nine blue chip corporations, launched a family of regional jets 7 years ago in an attempt to enter this lucrative market. The Japanese company started operation in 2008 and incorporated know-how accumulated at Mitsubishi Heavy Industries, which is engaged in the production and development of major airframe components of the Boeing 767, 777 and 787.

The family of Mitsubishi jets consists of the MRJ90 and the MRJ70, respectively a 90 seat and a 70 seat class. It directly competes in this category with the Embraer 170 (70-79 seats), Embraer 175 (78 – 88). Mitsubishi believes market demand within the next 20 years will be over 5,000 units. The MRJ90 took off from Nagoya airport a few days ago on its inaugural flight, it represents a shift in the regional jets market and the starting point of prolonged market fragmentation.

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