Consultant Presses Embraer To Confirm Large Bizjet Plans

Embraer this week reaffirmed that it is actively studying the case for entering the large-cabin business jet market. Speaking at its investors day event at the New York Stock Exchange, a leading consultant urged Embraer Executive Jets president and CEO Michael Amalfitano to confirm whether his group will step up to compete with Gulfstream, Bombardier, and Dassault, and he didn’t rule out the move.

Dean Roberts, v-p for strategy, sustainability, and development with Rolland Vincent Associates, argued that the time is right for the Brazilian manufacturer to expand its portfolio beyond its Phenom and Praetor family of light and midsize jets. In his view, its U.S., Canadian, and French rivals aren’t fully addressing the market.

“You've got success,” Roberts told Amalfitano during the discussion. “There's plenty of growth in market share to keep going. But if you want to keep going long term, you're going to have to move into large aircraft. Large is the biggest value market. Large is the fastest growing market.”

“The incumbents have moved up to the top end of large with heavy, large expense machines that are suitable for the real top end,” he added. “But they've left a gap at the bottom of large that I would argue has got old or suboptimal machines serving the market requirements that are not being met. It’s a perfect space for an Embraer disruption.”

While declining to rule out the move, or say when and how Embraer might take this step, Amalfitano said his company will take its time. Until 2020, the manufacturer produced the larger-cabin Lineage and Legacy 600/650 models.

“You have to do it very thoughtfully,” he said. “If we're going to unlock at least the potential of disrupting another market yet again…we have to do it right. And when you poke those bears ahead of us, you cannot show up with a me-too product. It has to have differentiation and disruptive characteristics, just like the Phenom and Praetor family, such that the marketplace will accept it and use that space.”

According to Amalfitano, the post-pandemic years have defied conventional thinking about the trajectory of the business aviation market. Embraer believes it has benefitted from the market reset.

Market Dynamics Shift

“[In the past], you always saw the top of the market recover before the bottom of the market,” he commented. “The exact opposite happened with Covid. The pandemic was flipped upside down. All of the aviation sector for private came from the bottom. The entry-level, light, mid-category aircraft for Phenoms and Praetors [led] the recovery.”

Embraer now claims almost a third of this sector. “In these four categories we own 31% of the market, dominating the classes in this space,” Amalfitano told analysts and reporters present.

According to Roberts, VP Strategy, business aviation went through “a bit of a hiccup” into the second quarter this year. In in the third quarter ended on September 30, “[the industry] saw a very strong bounce back in current terms of confidence in buying intentions for business aviation as a whole. Along [with] my theme about business aviation being different, the clientele is different, in that they typically represent the top 10% of the population, and they do 50% of the economic buying. They're less susceptible to inflation.”

Embraer’s improving financial position, driven in part by executive jet sales and the growth of this market, is part of what’s prompting the studies about entering a larger business jet sector. The company has recovered from the deleterious effects of the pandemic and now has a strong balance sheet.

The three major credit rating agencies now classify Embraer as investment grade. Profits and margins are among the best for companies its size. Credit Suisse earlier this year noted that global wealth is going to grow 20% by 2029.

However, the case for Embraer to invest in the development of a business jet at the top end of the sector has to compete with the aerospace and defense group’s ongoing ambitions to directly challenge Airbus and Boeing in the race to dominate the next generation narrowbody airliner market. This could explain why Amalfitano still feels the need to hedge his bets.