June 5, 2012 / 10:17 PM / 5 years ago

Embraer says faces order deferrals in Europe

PARIS, June 5 (Reuters) - Regional jet maker Embraer faces order deferrals by some customers in Europe but has not yet been hit with cancellations despite the region’s debt crisis, the head of the Brazilian company’s commercial division said on Tuesday.

However it expects demand to pick up in the United States as airlines make long-awaited decisions to renew older fleets.

“In Europe this year we have a relatively small (delivery) backlog. We are not facing any cancellations, however we are facing some delays within the year...,” Paulo Cesar de Souza e Silva said.

“We are not seeing the same market we were seeing last year. Markets in general are more soft especially here in Europe with the crisis. This is not only for aviation; it is for many other areas,” he said at a news conference in Paris.

In the first quarter, the backlog of aircraft waiting to be produced shrank as the company booked orders for jets at about half the rate it delivered them, but it hopes to make up for this with sales campaigns in the United States.

“I think we are quite bullish on the North American market now. There have been very few sales in the North American market, so the bulk of our sales in the last year has been Europe, Middle East, China and so on,” Silva said.

“The U.S. airline market was in crisis in the last years since 9/11. And after the merger of U.S. airlines, it’s a more sustainable market...We believe that we are going to sell more in North America and probably less in other markets.”

North America makes up 35 percent of Embraer’s market by number of customers, with Europe at 27 percent.

Embraer makes regional jets up to 120 passengers in competition with Canada’s Bombardier.

It has renounced immediate hopes of attacking the world’s top jetmakers Airbus and Boeing in their core markets for larger jets seating about 150 passengers and instead plans to focus on revamping its 70-120-seat E-Jets with new engines by 2018.

Embraer had studied plans to build a 130-166 seat passenger jet but dropped the idea for economic reasons after Airbus and Boeing upgraded their own most popular models with new engines.

Europe’s Airbus and its U.S. rival Boeing have a combined total of some 2,500 orders or commitments for upgraded models known as the A320neo and 737 MAX respectively.

“The amount of investment it would require to develop a new aircraft versus the market we could get with new aircraft, and seeing what Airbus and Boeing are doing, we could not (make) a good business case and good return on investment,” Silva said.

“We decided to maintain our position on the E-Jets family and reinforce our strength in this segment and we are going to re-engine it and put into service in 2018. The market has understood our decision,” he told a news conference.

The E-Jet family includes four models of twinjet airplane seating between 70 and 120 passengers.

Strengthening Embraer’s reluctance to push into the larger size category between 100 and 200 seats, the Brazilian executive said Canada’s Bombardier was struggling to make headway with its own 110-130-seat CSeries model.

The E-Jet family includes four models, the E-170, E-175, E-190 and E-195.

“We are now in the process of talking to the engine suppliers. We are not in a rush. We want to make engine selection at the end of this year, this is our target,” Silva said.

Embraer has a backlog of 240 of the aircraft in total, including just 7 for the smallest of the four models which is not widely expected to join the re-engining project, dubbed G2.

Embraer’s decision to draw back from mounting a direct challenge to Airbus and Boeing leaves Canada, China and Russia as the main potential rivals in the narrowbody segment, whose sales are estimated at $2 trillion over the next 20 years.

Competition was spurred by a breakthrough in engine performance offering some 12-15 percent in fuel savings in combination with other modifications starting from mid-decade.

Airbus and Boeing so far remain the dominant manufacturers after agreeing to place similar engines on their future fleets which also have well-established support structures. (Editing by Carol Bishopric)

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