IT'S a simple statement, but it oozes confidence. 'The airline industry is better prepared to face the current global economic slowdown than it has ever been in over a decade,' says the head of the world's third biggest commercial planemaker as the world faces what could potentially be its worst economic crisis in recent memory.

But Frederico Curado, president and chief executive of Brazilian planemaker Embraer, believes that global airlines have learnt valuable lessons from their previous crises caused by the terrorist attacks of September 2001 and the Severe Acute Respiratory Syndrome (Sars) attack of 2003. And one of the crucial lessons this industry learnt was the need for smart capacity planning.

'The current slowdown will prompt many airlines to look seriously into right-sizing their fleets,' says Mr Curado.

In short, rather than fly 160-180 seater single aisle planes half or three-quarters full, airlines will have to start looking at deploying planes in the 70-120 seater capacity range. And this is Embraer's sweet spot.

Created by Brazil's Ministry of Aeronautics in July 1969 and now headquartered in São Jose dos Campos, São Paulo, Embraer is one of the country's three biggest exporters. Although the company produces military and corporate aircraft, its biggest product is regional jets. Today, with some 24,000 employees, it dominates the global market for regional jets with a capacity of 70 to 120 seats.

'We forecast a demand of some 3,400 Embraer jets over the next 10 years, which means about 350 or so airplanes a year,' he says. 'This is not a huge number compared to Boeing and Airbus, but we see a stable and organic growth in this 70 to 120-seat market .'

If this happens, Embraer will become a mainline jet, alongside the likes of Boeing's 737 family and Airbus' A320 family. And this could already be happening.

'Today, our single aisle E190 and E195 sit side by side at airports with an Airbus 320 and a Boeing 737, the basic difference only being size.'

Embraer delivered 145 jets during the first three quarters of this year, a 34 per cent rise compared to last year. And it expects total deliveries to hit 200 by the year-end. The company's business jets, including its new Phenom 100 business jets, have also been selling well. At end-September, the Brazilian planemaker had a firm order backlog of US$ 21.6 billion, an increase of 4.3 per cent over the previous quarter.

Embraer also believes that demand for its planes will increase as new aviation markets come into play. And many of these markets are secondary city pairs.

It estimates that there are 5,000 city pairs worldwide currently served by fewer than two daily flights by aircraft in the 91-175 seat capacity, flying 2000 km. And these city pairs, Mr Curado contends, could be better served by more frequencies, but with aircraft in the 70-120 seater capacity. And he notes that many of these city pairs are in the Asia-Pacific region.

If so, why hasn't Embraer sold more jets in this parts of the world, especially to the region's burgeoning low cost carriers?

'The aviation industry in Asia is still developing. The US is a more liberalised and deregulated market, but this wave of liberalisation and deregulation is making its way slowly to Asia - for example the forthcoming Asean free skies. We also have to concede that Boeing and Airbus are strong brands that have been present here for many years, over 30 years. We, in comparison, are relatively new. Eight years is a relatively short time to be here.'

But Embraer has been quietly building up its brand in Asia Pacific.

'We don't do this by advertising, but by investing a lot of money in having airplanes in this region and people to provide the support. Having a service centre here in Singapore, where our customers from all over the Asia Pacific including Australia can come to for their servicing needs, is one of the best sales argument we can have. But building our brand will take time. It's natural to see customers start first with a B737 or A320 even in markets where such planes may not be optimal. It's almost like an inertia thing.'

There is also the incumbency 'thing'.

'Once a planemaker has established itself with a certain customer, it has an advantage of incumbency. There is something to be said for customer loyalty. Also, when you are an airline which has established a certain fleet type, you have to look at how introducing a second fleet type impacts your costs. '

As to why Asia's booming low cost airlines have yet to turn to Embraer, he says: 'The LCC model is supposed to service secondary markets, but in Asia it focuses on main markets in head-to-head competition with established airlines using legacy aircraft. That being the case, to get proper returns, they need to have bigger aircraft and fly them as full as possible.'

But he is confident Embraer's regional jets will ultimately find favour with regional LCCs. 'Over time hopefully they will consider an E190 because it would make more economic sense in view of the frequency of flights and the number of people, say about 300-500 people a day.'

Still, he insists, the company has been making good inroads in Asia Pacific in recent years.

'We don't think we are performing badly. We have conquered a few important customers in the region. There's activity going on, but we can't talk too much about sales at this point in time. Getting 10 firm orders and seven options from Japan Airlines is an important deal for us. And Mandarin Airlines, which is part of China Airlines, is a large customer. We also have a couple of customers in India - Star Aviation starts operating next March and Paramount is already operating five airplanes - E170s and E175s. India is a very interesting place, as its size and integration makes acceptance of aircraft of 78-80 seat capacity natural.'

Then there is China.

'All in all, South-east Asia and China make up 20 per cent of our backlog. Again, being in Asia, we have learnt the virtue of patience. We have learnt the art of looking at a glass half full, rather than half empty. I think we have done reasonably well over eight years. We've come from zero presence, to 10-15 customers and a fleet of 116 airplanes flying in this region, excluding China. In a few years, the number of Embraer jets you will see at airport tarmacs will be significantly higher.'

But he says that ultimately sales will take off when airlines have a 'critical mass'.

'In the US when we first sold some E190 jets to Jet Blue, we matched the number of markets which were ideally suited for 100-seater aircraft. I recall it was 832 markets which were serviced by higher frequency regional jets or low frequency empty narrow body jets. They had both point-to-point service markets and also some spokes. And the beauty was that you could have a long spoke, such as a two-hour, 1,000-mile Houston-California, which you could connect to the hubs at either side with larger intercontinental flights.'

Meanwhile, Embraer's production plant and flight testing facility in Gavião Peixoto, São Paulo state - boasting the world's third longest runway at 5,000 metres - is scrambling to cope with an influx of new orders from across the globe.

Singapore, where it first set up an office in end-2000, and subsequently upgraded to a full subsidiary in end-2006, has also become an important operating node. The Republic hosts Embraer's regional training facility and is home to its US$30 million Asia Pacific spare parts inventory.

Going forward, Mr Curado is cautiously optimistic, despite the gloomy global financial circumstances.

'This time, there are countries or regions around the world which can help to keep some balance, in terms of growth. Markets like China, India, Brazil and the Middle East could help the world avoid a prolonged global recession.'

As for the airline industry: 'This is a cyclical industry and it is hard to predict the length and the amplitude of the cycles. We are at the end of a huge global economic boom which has lasted almost a decade. But I don't think there is a fundamental change in the behaviour of passengers or our customers. And I think the airlines are better prepared, operationally and financially, to face this crisis than they have ever been before.'

But while the mantra for previous crises was cost management, the new mantra for the industry will be 'right-sizing'.

ven@sph.com.sg

FREDERICO CURADO
President and CEO, Embraer

2007: Assumed position of president and CEO of Embraer