{"id":397836,"date":"2021-07-19T18:43:12","date_gmt":"2021-07-19T21:43:12","guid":{"rendered":"https:\/\/revistapesquisa.fapesp.br\/?p=397836"},"modified":"2021-07-19T18:43:12","modified_gmt":"2021-07-19T21:43:12","slug":"turbulence-in-the-air","status":"publish","type":"post","link":"https:\/\/revistapesquisa.fapesp.br\/en\/turbulence-in-the-air\/","title":{"rendered":"Turbulence in the air"},"content":{"rendered":"

Year 2020 will be one to forget for Embraer. With the outbreak of the novel coronavirus pandemic, the aircraft maker, based in S\u00e3o Jos\u00e9 dos Campos, southeastern Brazil, was hit by a perfect storm. On the one hand, the pandemic severely impacted the global airline industry, causing new aircraft sales to plummet. And to make matters worse, Boeing announced in April last year that it would withdraw from a deal it had signed in 2018 to acquire Embraer\u2019s commercial aviation division, where its highly successful E-Jet family is produced. The Brazilian company would have received an injection of US$4.2 billion for the division, and would gain a 20% stake in a newly created joint venture, with the remaining 80% held by the US aviation giant (see <\/em>Pesquisa FAPESP issues 268<\/a> and 291<\/a><\/em>). The cancellation of the deal led to an arbitral dispute that remains pending, with the former would-be partners blaming each other for the agreement going sour.<\/p>\n

The effects from such a turbulent year were visible in Embraer\u2019s balance sheet at year-end 2020. Aircraft deliveries dropped by 34% from the previous year (130 units compared to 198) and the company\u2019s order backlog shrank by 15%, to US$14.4 billion. Total revenue across the commercial aviation, executive jets, and defense and security divisions fell by 10% to R$19.6 billion, hurt primarily by poor performance in the commercial aviation division, while net losses nearly tripled from R$1.32 billion to R$3.62 billion. \u201cThe pandemic has meaningfully impacted the results of our business,\u201d Embraer CEO Francisco Gomes Neto acknowledged in an earnings call in 2020. \u201c2021 will still be a challenging year as the crisis has not ended yet and the scenario remains uncertain and volatile.\u201d<\/p>\n

To return to growth, Embraer has made innovation a core element of its new business plan for 2021 through 2025. \u201cAmid this difficult time, we have continued to invest in innovation because we know that technological development is an imperative to compete in the global market,\u201d engineer Lu\u00eds Carlos Affonso, Eletrobras\u2019s senior vice president for Engineering, Technology Development, and Corporate Strategy, told Pesquisa FAPESP<\/em>. \u201cWe\u2019ve identified several key innovation levers, or areas where we want to innovate and which we see as are crucial to our continued competitiveness and longevity as a business. These include sustainability, electric propulsion, autonomous flight, aerodynamic efficiency, and artificial intelligence.\u201d<\/p>\n

Plans have been created for each of these areas to ensure the company can continue to design and build competitive aircraft, says Affonso. \u201cWe\u2019re investing in open innovation projects, building partnerships with science and technology institutions and other companies, and approaching research funding agencies for support,\u201d he says. This research is being spearheaded by the company\u2019s renowned engineering team, one of its biggest assets. \u201cEngineering is among Embraer\u2019s greatest strengths. We have approximately 3,500 development engineers forming a central research body spanning all business units,\u201d he explains.<\/p>\n

One of Embraer\u2019s most recent research projects, a collaboration with researchers from USP\u2019s S\u00e3o Carlos School of Engineering (EESC), found that minute changes in wing geometry can decrease aircraft noise by around 20%. The project, launched more than 10 years ago, received funding of R$3.7 million from FAPESP through the Research Partnership for Technological Innovation Program (PITE).<\/p>\n

The engineering department is also where early studies preceding the development of new aircraft are carried out. One new project, a passenger turboprop for regional flights, with versions seating 70 and 90 passengers, will compete in a market currently dominated by Franco-Italian aircraft manufacturer ATR. The goal of the project is to develop advanced aircraft with 25% more seats than the competition, 20% more speed, and 15% lower operating costs per passenger.<\/p>\n

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Airbus <\/span><\/a> An Airbus assembly line: the European aircraft maker is Embraer\u2019s primary rivalAirbus <\/span><\/p><\/div>\n

\u201cTurboprops are making a comeback because they are more economical and generate less CO2<\/sub> [carbon dioxide] emissions,\u201d says Affonso. \u201cBut current models are cramped and uncomfortable. Our proposition is to combine the advantages of turboprops [sustainability and fuel savings] with added space and less noise and vibration.\u201d<\/p>\n

\u201cThere\u2019s definitely a market to be explored, as the regional turboprop Dash 8 [built by Canadian planemaker De Havilland] is nearing the end of production and ATR\u2019s program is more than 30 years old. Embraer\u2019s program has a good shot at success,\u201d says Richard Aboulafia, an aviation industry analyst and vice president of aerospace and defense consultancy Teal Group.<\/p>\n

Marcos Jos\u00e9 Barbieri Ferreira, an economist and aerospace expert at the University of Campinas School of Applied Science (FCA-UNICAMP), believes a turboprop would allow Embraer to claim the 70-to-100-seater market for its own. \u201cEuropean aircraft manufacturer Airbus only makes planes for more than 100 passengers. And Embraer has more than the required expertise to design and develop turboprops.\u201d<\/p>\n

Another study, launched under a memorandum of understanding with the Brazilian Air Force, could lead to the development of a new light military transport aircraft. Dubbed STOUT (Short Take Off Utility Transport), the new tactical transport will be designed for short, narrow, and unpaved runways such as those in the Amazon. With a high-wing design, a rear loading ramp, and capacity for 30 soldiers, the utility aircraft will replace the Brazilian Air Force\u2019s older C-95 Bandeirante and C-97 Bras\u00edlia.<\/p>\n

Among the STOUT concept\u2019s new features is hybrid propulsion, with a combination of turboprop and electric engines. \u201cThe study [to develop the aircraft] will also seek to explore new technologies to provide solutions to the Air Force\u2019s extreme demands, such as different system architectures, innovative platform solutions, and hybrid-electric propulsion, among others,\u201d Embraer stated in a press release.<\/p>\n

\u201cThe new study is good news. It\u2019s a project at the frontier, the future of aviation,\u201d says Ferreira. Like the regional turboprop, the STOUT program is still at an initial stage and will take at least four years to complete following approval by the Board of Directors.<\/p>\n

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Embraer<\/span><\/a> The new turboprop model with which Embraer hopes to compete in a market now dominated by Franco-Italian aircraft manufacturer ATREmbraer<\/span><\/p><\/div>\n

Embraer\u2019s new strategic plan predicts the company will only resume growth next year. \u201c2020 was a year of survival, with Embraer having to buckle up and make tough decisions; 2021 will be a year of stabilization. We should see renewed growth in 2022,\u201d predicts Affonso. The aircraft maker hopes to reach pre-pandemic revenue levels in 2023, and exceed them in either 2024 or 2025.<\/p>\n

For this to materialize, Embraer is banking on its highly successful portfolio of modern aircraft. In its flagship commercial aviation division, securing new orders is the immediate goal, with talks currently underway with several airlines, including German Lufthansa. When the pandemic recedes, the aviation market will be particularly favorable for smaller aircraft.<\/p>\n

\u201cCOVID-19 is reshaping aviation demand. We are likely to see more direct, nonstop flights between medium-sized cities. This will allow people to spend less time in airport lounges. Smaller aircraft are ideally suited for these types of flights,\u201d explains aerospace engineer Jorge Eduardo Leal Medeiros, a professor in the Department of Transportation Engineering at the University of S\u00e3o Paulo\u2019s Polytechnic School (POLI-USP).<\/p>\n

In the defense division, Embraer hopes to secure additional orders for its C-390 Millennium multi-mission airlift aircraft, after recently signing a contract for two units with the Hungarian government. Hungary is the second European nation to select the C-390 Millennium, alongside Portugal (five units) and the Brazilian Air Force (28 aircraft), the program’s development partner. The aircraft is the largest plane ever made in Brazil (see Pesquisa FAPESP issue no. 225<\/em><\/a>).<\/p>\n

Embraer\u2019s executive aviation division has also performed well, setting a revenue record last year and accounting for 29% of the company\u2019s net revenue. The commercial aviation division had a similar share of net revenue (30%), down from 50% before the crisis. The company\u2019s executive jet portfolio includes four different models, with the Phenom 300 becoming the world’s best-selling light jet for the ninth consecutive year in 2020, according to the General Aviation Manufacturers Association (GAMA).<\/p>\n

Aviation industry analysts interviewed by Pesquisa FAPESP <\/em>agree that Embraer is traversing one of the most delicate chapters of its history post-privatization in 1994, but believe the company has the resilience to weather the turbulence and resume growth.<\/p>\n

\u201cEmbraer\u2019s financial results have been neither better nor worse than those of its rivals. It\u2019s been a bad year across the board,\u201d says Aboulafia. Airbus, the current industry leader, reported losses of R$7.4 billion last year, while Boeing, beset by problems in its grounded 737 MAX program, sustained even higher losses at R$65 billion.<\/p>\n

In addition to the challenge of reorganizing itself as an independent company, Embraer needs to work aggressively to close the gap to its competitors, especially Airbus, in terms of supply chain cost-effectiveness. \u201cBut Embraer has always thrived on its own and will continue to do so.\u201d Company executives have said they no longer intend to dispose of or create any joint ventures involving any business units.<\/p>\n

The analyst\u2019s reference to Airbus as a competitor is explained by the European company\u2019s recent entry into the up to 150-seat segment, a niche market dominated by the Brazilian aircraft maker. In 2017 Airbus acquired the CSeries commercial jet program from Canadian Bombardier, then Embraer\u2019s biggest rival. The program\u2019s two models have been renamed as the A220 family. The smallest (A220-100) seats up to 135 passengers and is a competitor to Embraer\u2019s largest jets, the E190-E2 and E195-E2, with seating capacities of respectively 114 and 146 passengers. In 2020 Airbus delivered 38 units and received 64 new orders for its A220 family, which also includes the A220-300, a 160-seater.<\/p>\n

\u201cEmbraer missed a good opportunity when its partnership with Boeing was undone. The competitive landscape has now become more challenging,\u201d says Leal Medeiros. \u201cAirbus offers a broader product range, has greater bargaining power, and will be a tougher rival than Bombardier was in the past.\u201d<\/p>\n

Aerospace engineer Graham Warwick, executive editor at Aviation Week, one of the most respected publications in the aviation sector, agrees that the outlook for Embraer is challenging, but puts it into perspective. \u201cEmbraer doesn\u2019t need a backlog the size of Airbus\u2019s or Boeing\u2019s to survive. All it needs is new orders,\u201d he says. \u201cAs the aviation market rebounds, new orders will be placed and some will end up going to Embraer, enough for it to survive or even grow.\u201d<\/p>\n

Project<\/strong>
\nSilent aircraft: Aeronautics research (n\u00ba 06\/52568-7<\/a>); Grant Mechanism <\/strong>Research Partnership for Technological Innovation Program (PITE); Embraer Agreement; Principal Investigator<\/strong> J\u00falio Romano Meneghini (USP); Investment<\/strong> R$3,740,785.57.<\/p>\n","protected":false},"excerpt":{"rendered":"Embraer banks on its successful aircraft portfolio and investment in innovation to navigate one of the most difficult chapters in its history","protected":false},"author":23,"featured_media":400799,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[169],"tags":[228,243],"coauthors":[116],"class_list":["post-397836","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology","tag-engineering","tag-innovation"],"acf":[],"_links":{"self":[{"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/posts\/397836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/users\/23"}],"replies":[{"embeddable":true,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/comments?post=397836"}],"version-history":[{"count":3,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/posts\/397836\/revisions"}],"predecessor-version":[{"id":401235,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/posts\/397836\/revisions\/401235"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/media\/400799"}],"wp:attachment":[{"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/media?parent=397836"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/categories?post=397836"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/tags?post=397836"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/revistapesquisa.fapesp.br\/en\/wp-json\/wp\/v2\/coauthors?post=397836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}