Embraer’s Curado Upbeat Ahead Of E2 Phase-In
Frederico Fleury Curado, 53, has been a key figure in Embraer’s rise to become one of the world’s primary aircraft manufacturers. He led sales in the commercial aircraft division when the E-Jet was introduced in 1999. The aircraft family is now the backbone of Embraer’s market success and forms the basis for the E2 family that features new wings, engines and many additional systems upgrades. But Curado’s tenure at Embraer is not only about commercial air transport—its footprint has broadened to include executive aviation as well as a much stronger focus on defense activities. Curado is known for his emphasis on detailed and cautious market analysis ahead of important decisions. Embraer took long to decide whether to reengine the E-Jet or to go for an all-new larger aircraft model. Curado talked to Managing Editor Commercial, Jens Flottau.
AW&ST: Embraer began as a tiny player in aerospace, now your offerings encompass commercial, executive and defense aircraft. What does the future hold?
Curado: In the 1990s and 2000s commercial aviation comprised 90-95% of our revenue. Defense was always there, it just became less and less important; but in the last 6-8 years we gave it a big push. We also entered into executive aviation. Now we have a good footprint in three markets; roughly 60% commercial, 20% defense and 20% executive aviation. Going forward, maybe commercial will constitute 50%, and the other two businesses a quarter of revenues each. But there will be fluctuations. We are also trying to diversify to non-aviation sectors in a very careful way. We set up a prototype business unit—Embraer Systems—and are leveraging our core competencies such as integration or maintenance forecasts. This is kind of a seed business unit, so it is hard to tell where it will take us. We’re dedicating some engineering resources to ancillary businesses, but we will not veer from our core.
Are you considering adding more activities in aerospace?
For the foreseeable future we have the three avenues of growth. In defense, the KC-390 is our big lever. It’s a new product that will be a step up in the export arena. On the busines- jet side, we are just ramping up the Legacy 500; the 450 will be certified this year. That gives us two more products in our portfolio. From the Phenom 100 to the Lineage 1000 we now have a very broad portfolio for the first time, and that will ensure growth. And the E2—we will do well with the E1 until 2018; from the E2, we expect the same good performance, but to sell even more than its predecessor.
But if you are thinking about new projects, where does that take you?
We are constantly thinking about this—me, the management team, the board. As always, we will make a thorough analysis of the competitive landscape. I’m not trying to be evasive, we are weighing many prospects: A new executive aircraft? It’s possible. Are there new military programs with an anchor customer? That is a well-desired possibility. Although it seems unlikely now, 2-3 years from now, who knows? And of course in commercial aviation can we go smaller or bigger? It will depend a lot on where oil prices go, the competitive landscape, technological breakthroughs and so forth. It is a continuous process.
Are you sticking to your traditionally cautious production strategy?
I don’t see the need for any major change. We have been able to be very precise in our plans vis-a-vis market demand. I don’t think we lost any deal due to a lack of production capability. We do have an installed capacity that is higher than what we are using today. So we have the footprint in place and can react if needed, the same applies for the supply chain. If we need to increase production by say 10% or 20% we can probably do that within about a year and a half. But we are forecasting deliveries of 95 to 100 E-Jets this year, similar to 2014.
The transition from the current versions of narrowbodies to the reengined variants has been an issue of great concern for both Airbus and Boeing. How about Embraer?
I am much less concerned than I was a couple of years ago. For now, 2015 is really good, 2016 looks pretty good, 2017 also looks pretty encouraging. Paulo Cesar Silva (President and CEO Embraer Commercial Aviation) has been doing an outstanding job blending E1 and E2 demand and orders. We just announced three orders for E1s—Republic Airlines, Air France-KLM and Tianjin Airlines. Tianjin and Azul also bought E2s. We can run both products in the same assembly line. On the industrial side we don’t have any constraints; it is really just market demand. There will be some degree of overlap, which is a great problem to handle.
But at some point you will stop offering E1s.
That is correct. But my point is that two years ago we could see a gap, which would have been a very uncomfortable situation. Today I don’t see a gap.
So production rates will not go down.
At this stage a stable scenario until 2018 is probably a fair assessment.
To what extent does the 175-E2’s success depend on relaxation of U.S. scope clauses. It currently exceeds the weight limit for regional feeding.
The current limitation is a maximum takeoff weight of 86,000 lb. Our E175 is compliant and is selling in large numbers. Its competition is still the [Bombardier] CRJ900. The E175-E2 is a larger and heavier aircraft; it has a bigger engine, bigger wings. The E2 will therefore not be compatible. But the potential competition, the Mitsubishi MRJ90, is also heavier than 86,000 lb. If the limit goes away the market will go toward the aircraft with the new engines—the Mitsubishi and the E175-E2. If it doesn’t, we have the E175 which is a very competitive aircraft. And again: With the way we have designed our industrial footprint, we can [produce] both aircraft at the same time. Not coincidentally we decided to make the E175-E2 the last member of the family to be certified in 2020. If the weight limit moves higher, the E2 will be there. If not, we can keep the E1 going.
It is probably hard to predict now, given the scope clause issue, but where do you think most of the production volume will move?
That is a bit of a guess. Today I would probably say it will be the Embraer190 and 195. But there is a caveat: In different moments in the past I would have given you different answers. In 1999, when we launched the E-Jets, I would have said definitely the 170. And for many years that was right. Then the 190 really took over. Then the 175 became the flag carrier of the family.
Have your customers’ buying habits altered related to lower oil prices?
In the long term I don’t think so. Older aircraft will still be replaced. It is just the nature of our industry: Once you have superior technology you move toward it. In the short term we saw a bit of a pause in acquisitions, particularly for mid- to long-term deals. But it was a very short-term phenomenon. And airlines that do not need aircraft in the short term can afford to wait a bit.
The Brazilian real has lost around 20% in value recently. How is Embraer affected?
It is hard to tell where it will end up, but our own forecast is that it will not get stronger. The largest part of our cost is dollar-denominated so that is indifferent. For about 25% of our cost we do have an advantage through a weaker real. We were suffering a lot when the real was much stronger three or four years ago, but it is now at a comfortable level. It is a little tailwind, but not something that will change our life. We are concentrating our Phenom production in the U.S. so it is not an important factor.
There are uncertainties about the future Brazilian defense budget and that could affect your KC-390 program. How concerned are you?
I am concerned. The government just announced a $20 billion-plus overall cut in the federal budget. It will probably take another few weeks to see whether the anticipated impact is something we can easily manage or whether it is bigger than that. I remain optimistic because all the indications that we see are that the KC-390 remains a key priority. My gut feeling says it will not be anything drastic.
But any delay in the Brazilian process would have an impact on export order?
Yes, of course. We have something like 1,200 people working on this program. It is a key part of our defense business. So any change there would have a major impact. But again: We are way down the road. The first prototype has flown, and we are preparing for the full-blown flight-test program. It would not be logical to stop or significantly delay the program.
The aircraft flew once, but has not flown since. Why?
This has absolutely nothing to do with this budget issue. We flew the first flight in direct mode, not fly-by-wire. After the flight we analyzed everything and decided we should put the aircraft into final configuration even if that takes a few months and then start a very efficient flight-test campaign with just two prototypes. We have two years for 2,000 hr. It was a tactical choice.
So when will it fly again?
Probably in the third quarter.
This article was originally published in the May 29 digital edition of Aviation Week & Space Technology.