Shortage of electronic components and lack of skilled labor in the U.S. are obstacles

07/13/2022

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Francisco Gomes Neto — Foto: Carol Carquejeiro/Valor

Embraer, the leader in the regional jet market, is on course to fulfill its forecast of aircraft deliveries for 2022, despite persistent challenges in the global supply chain. But the current quarter will determine whether, in fact, it will be possible to achieve these goals, according to the company’s CEO, Francisco Gomes Neto.

“The scenario is still challenging. The third quarter will be key for us to have a final vision,” he told Valor. The shortage of electronic components, manufactured mainly in Asia, and the lack of skilled labor in the United States, which compromises the production programs in one of the most important suppliers of parts for the aircraft industry, are the main obstacles on the way to deliveries of 60 to 70 commercial airplanes and 100 to 110 executive jets this year. These estimates include growth compared to 2021.

To circumvent the challenges in the supply chain, Embraer has placed more than 20 of its professionals inside plants of suppliers and sub-suppliers to assist them in the production programs. So far, the measure has ensured the arrival of the necessary components, although with delays. But it has not been able to prevent delays in aircraft deliveries.

At the same time, with the resumption of demand in commercial aviation and the various campaigns underway, the company is expected to have good news in sales ahead, confirming the new business expansion cycle. The Farnborough Airshow, which takes place next week in England, is the main event in the world’s civil aviation calendar, and the traditional stage for announcing new orders. Embraer will be at the show.

“We will take the message that we are ready to grow,” said Mr. Gomes Neto. For some time now, the executive has been indicating that, after putting its house in order, Embraer will experience a period of growth between 2023 and 2026. For 2022, the expectation is a return to net profit, after four years of consecutive losses.

The dramatic drop in the production of commercial jets, due to the Covid-19 pandemic, and the end of the agreement that would result in the sale of commercial aviation to Boeing led the company to promote important structural adjustments. Now, the time is to gain muscle, with more efficiency.

Among other initiatives, Embraer recently signed an agreement with Toyota to apply the concepts of the Toyota Production System in the industrial operation, in search of greater operational efficiency. By the end of 2023, the goal is to reduce the time spent in the production of aircraft by 40%. At the end of last year, the reduction was at 17%.

The backlog also grew again, reaching $17.3 billion in March, the highest since the second quarter of 2018. “The pandemic brought the biggest crisis in aviation history. But it also brought changes, such as the strengthening of domestic aviation and the greater demand for smaller jets,” said Rodrigo Silva e Souza, Embraer’s chief marketing officer for commercial aviation.

In this new market moment, the plan is for Embraer’s E2 jets to repeat the success of the E1s. The E195-E2 has already proven to be the most efficient of the single-aisle jets, and competition with the A220 does not seem to be a concern. Besides the economic and technical advantages demonstrated over its rival, the Brazilian company’s focus is on the market below 130 seats, while Airbus targets larger segments.

For the Brazilian company, the global demand for commercial aircraft up to 150 seats will be 10,900 units by 2040, including 8,640 jets and 2,260 turboprops, in a market estimated at $650 billion.

Embraer is developing its new high-tech turboprop (TP), whose project may result in partnerships with suppliers or investors, just like Eve did a short time ago. According to Mr. Silva e Souza, the TP suppliers are likely to be chosen this year and the project is expected to be submitted to the board of directors for approval by mid-2023. Several customers from North America and Asia have already shown interest in the 70-90 seat aircraft.

Eve’s project is more advanced. Listed on the New York Stock Exchange (NYSE) two months ago, the subsidiary of the urban air mobility market plans to certify its eVTOL — the flying car — by 2025.

In Defense, the business perspectives are also optimistic, despite the new reduction in orders for the KC-390 Millennium by the Brazilian Air Force (FAB). The invasion of Ukraine by Russia and the increase in defense spending by the world’s great powers, particularly in Europe, are opening up important markets for its military aircraft. Embraer is also evaluating potential partnerships in this area.

Less than a month ago, the Dutch Ministry of Defense indicated that it had chosen the KC-390 to replace its C-130 Hercules, in a communication marked by praise for the Brazilian military aircraft. “Defense is coming from a more difficult period. The war in Ukraine brought interest for the C-390 and the Super Tucano,” Mr. Gomes Neto said.

Embraer is expected to announce this month the deliveries of the first semester, usually weaker than the second half of the year. From January to March, there were six commercial aircraft and eight executive jets, totaling 14 units.

*By Stella Fontes — São José dos Campos, São Paulo

Source: Valor International

https://valorinternational.globo.com/