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Embraer Makes Aircraft Forecast : Optimistic outlook for 2008-2017 timeframe

As we enter what promises to be a golden age of business jet sales and manufacturing- more and more companies are making public their forecasts of how they think the market is going to evolve. The latest entry is Embraer- which issued a long-term outlook of the markets it competes in during the eighth Embraer Day event the company hosted in Saõ José dos Campos- Brazil on November 14-15. The company also released its two-year production and delivery forecast for 2008 and 2009.

Embraer joins Honeywell and Bombardier in issuing forecasts in the tail end of 2007. Also expected to weigh-in on its outlook for the market is Rolls-Royce- which has historically issued a forecast at the NBAA Convention in the fall- but last year changed its pattern- saying it would issue its forecast at EBACE in May.

Like all of the other organizations offering a prediction for the 10-year future of business aviation- Embraer’s outlook is bullish. In fact- of the three forecasts- Embraer’s may be the most optimistic of all- if only by a narrow margin. I use the word “may” because precise comparisons between the three forecasts can be a little difficult. None of the three covers the same timeframe- and nor is there precise agreement on what constitutes the market. So- in making a comparison- it is necessary to extrapolate some figures and to make some assumptions.

Basically- Embraer is predicting a market for 13-150 airplanes worth $201 billion over the 10-year period from 2008 to 2017. That would produce an average annualized market of 1-315 airplanes in each of the next ten years- which represents an approximately 30-percent gain over where the market stood at year-end 2007.

When you consider that 2007 was on pace to be the strongest ever in the history of business jet deliveries- that’s a very optimistic forecast. Moreover- during the previous 10 years (1997-2006) business jet deliveries had averaged 657 units per year. If Embraer’s prediction is correct- the decade starting this year will see a 100-percent increase over 2006.

As remarkable as these numbers are- they are not significantly different from what Honeywell is predicting. In fact- initially Honeywell’s numbers look even larger than Embraer’s. The headlines in Honeywell’s news release accompanying the survey read “$233 billion in new business jet deliveries through 2017-” and “14-000 new business jet deliveries through 2017.” But a cursory study of the text reveals that Honeywell’s $233 billion and 14-000 airplanes are actually over an 11-year period- compared with Embraer’s 10-year prediction.

Annualizing Honeywell’s deliveries by a straight averaging method results in a delivery rate of 1-272 airplanes per year. That’s about three percent below what Embraer is forecasting. We know- however- that 2007’s total won’t emerge to have been as high (1-272)- although it will certainly top 1-000 and could surpass 1-100- which is my own prediction.

Instead- if we assume Honeywell’s expectation was for a 1-000-unit year in 2007- and then average the remaining 13-000 units over the next 10 years- we get an annualized rate of 1-300 airplanes a year – about one-percent below Embraer’s forecast.

In the forecasting business- a percentage point or two is really insignificant. So the bottom line- really- is that Embraer and Honeywell foresee a very similar future for traditional business aviation aircraft- and that future is very bright.

Meaningful comparisons
While their projected total market deliveries are quite similar- there are some differences in how Embraer and Honeywell think specific segments of the market will unfold. While the two companies don’t precisely agree on business jet categories- there is sufficient similarity to draw meaningful comparisons.

By categories- then- here’s how the Embraer and Honeywell forecasts compare. The categories are grouped as Honeywell presented them in its forecast- to facilitate comparison. Airplanes listed in the various categories are according to Honeywell’s survey. (Embraer doesn’t specify what models are in what categories- except where it has its own current entrants or aircraft in development).

Very Light Jets: Embraer expects 3-380 deliveries in this category- or 26 percent of all business jets between 2008 and 2017. Embraer lists its new Phenom 100 in this grouping. It does not specify what competitive products are included in the grouping. Honeywell sees the market a little smaller- at 3-125 for the same period. Aircraft Honeywell lists in the market include the Cessna Mustang and CJ1 and CJ2; Hawker Beechcraft Premier I- HondaJet- Sino-Swearingen SJ30 and the Phenom 100.

Light and Light-Medium Jets:
Embraer believes these combined categories- which it terms Light and Midlight- will total 4-040 units- or about 31 percent of the total jet market. The company’s new Phenom 300 is in the Light category. Honeywell’s forecast in this segment is about 3-575 units in the same period.

This Honeywell total includes an adjustment of 275 units calculated by this author to account for the extra year in Honeywell’s forecast. The adjustment is based on current and probable year-end GAMA numbers from 2007 for the aircraft Honeywell lists in this category- including the Hawker 400XP- the Citation Encore business jet for sale- XLS and CJ3- and the Lear 40 and 45- and is necessary because Honeywell didn’t specify how many airplanes it expects in this category in 2007.

Medium and Medium-Large:
Embraer expects these categories- which it terms Midsize and Super Midsize- to total 3-020 units between 2008 and 2017. Honeywell’s expectations are somewhat lower- at 2-320 units in a category Honeywell sees as being driven heavily by orders from fractional fleet operators. Embraer lists its Legacy 600 in this category- although Honeywell lists the 600 in the Large segment. Honeywell lists the Citation X and Sovereign- Gulfstream 200 and 150- Hawkers 900XP- 850XP- Falcon 50EX and Learjet 60 aircraft for sale.

Large jets for sale:
Embraer is forecasting deliveries of 1-480 units in this category- compared with Honeywell’s estimate of 1-180. Entrants include the Challenger 604/605; Gulfstream 350- Falcons 2000- 2000DX and EX- and a future Super-Midsize Falcon.

Long-Range and Ultra-Long Range:
Embraer’s forecast is for 920 units in the Ultra-Long Range grouping- in which it has no market entry. Honeywell’s expectations are significantly higher- with its forecast predicting about 1-850 units- including an adjustment by the author of 150 units to account for 2007- calculated by the same methodology used in the Light and Light Medium category. Market entrants include the Bombardier Global Express business jets and Global 5000- Challenger 850- Gulfstreams G450- G500 and G550- and Dassault’s Falcon 900EX- DX and Falcon 7X.

Embraer recognizes a further category in its forecast- and that is Ultra-Large. This is the category for airliner-based business jets- and is a segment Embraer will soon enter with its new Lineage 1000- which is based on its EMB190 airliner platform. Embraer expects this segment to ship 310 units over the 10-year period from 2008 to 2017.

Honeywell- meanwhile- calls the Ultra-Large category Business Liners and doesn’t specifically include them in its forecast- although it does offer a market prediction in supporting materials issued with the forecast. Once again- Honeywell’s estimate is somewhat lower than Embraer’s- with a total of around 230 units.

In conclusion
You can see- then- that while Embraer and Honeywell expect a similar-sized market- they don’t fully agree on how it will be distributed. Generally speaking- Embraer seems to be expecting more growth in the middle segments of the market- while Honeywell expects the upper end to do better.

Then there is the bottom end of the jet market- where both new products and new markets are evolving and where there isn’t any historical data on which to base a traditional forecast. Neither Embraer nor Honeywell make it part of their forecast- but both acknowledge there is likely to be a lot of activity in this end of the market. There is fairly wide disagreement on how big the emerging markets are likely to be.

Embraer thinks the emerging air taxi market could potentially add another 3-500 to 4-400 airplanes to the mix. If that were to occur- and if Embraer’s primary forecast proves accurate- total business jet deliveries could actually be in the range of 16-650 to 17-550 units for the 10-year period from 2008 to 2017. Two of Embraer’s new emerging products- the Phenom 100 and Phenom 300- could likely play a significant role in the air taxi scenario- depending on how that market evolves.

Honeywell doesn’t specifically address air taxis- but it does cite the developing market in very light personal jets – many of which could conceivably enter the air taxi market. Honeywell estimates the demand for light personal jets to be in the 6-000 to 7-000 unit range over the next 10 years. In that scenario- we could actually see a 2-000-unit jet market sometime early in the next decade. Wouldn’t that be something? We’ll just have to see.

More information from www.embraer.com or www.honeywell.com

Read more about: Embraer

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