Embraer SA or Bombardier Inc.: Who Stands to Gain More From the Expanding Regional Jet Market?

The regional jet market is growing rapidly, and both Embraer and Bombardier are leapfrogging over each other to get the lion’s share.

May 17, 2014 at 1:05PM

Brazilian jet maker Embraer (NYSE:ERJ) has a perfect vantage to capitalize on the absence of major aerospace giants in the regional service jet space. The aircraft maker expects as many as 6,400 deliveries in the 70- to 130-seat segment in the next two decades. Asia-Pacific would play a major role and is predicted to place orders for around 1,500 regional jets during the period.

While this opens huge prospects for Embraer, this aircraft segment isn't entirely free of competition. Canadian player Bombardier (NASDAQOTH:BDRBF) also specializes in making smaller jets, and stands to gain from the same opportunity. But who can grab a bigger share of this potential market?

Embraer's market deliveries forecast of 30- to 120-seat aircraft (2012-2031)

Source: Embraer; chart by author. Note: 30-60 seaters are expected to account for only 405 jets of the total projected deliveries of 6,795 planes. Out of 1,510 projected deliveries in Asia Pacific, 1,005 are expected to come from China.

Equation with Bombardier
Back in 1998, Bombardier was the top regional jet manufacturer, while Embraer was working hard to inch closer to the larger rival. To keep Embraer at arm's length and solidify its reign in the regional jet market, the Canadian aircraft maker launched a $1 billion program for developing a 90-seat regional jet called the BRJ-X. However, the program was shelved due to lack of sufficient funds.

Meanwhile, Embraer went on consistently with its effort and unveiled the "E-Jet" family of regional jets that positioned it where it is today. Things dramatically reversed over the years with the Brazilian plane maker taking the lead with 51% of the net orders till date in the 70- to 130-seat segment. 

Source: Embraer

Presently, both Embraer and Bombardier are fighting for a bigger share in the regional jet market with their respective new offerings -- the E2 Jets and the CSeries. Bombardier's CSeries was launched at the Farnborough Airshow in 2008, while Embraer recently unveiled the E2 series at the Paris Airshow 2013. 

Conquering "a good part of the first wave"
Despite being launched five year ahead, CSeries hasn't been able to secure a time-gap advantage. In contrast, the E2 Jet received a warm reception at the Paris Airshow where the company bagged orders for 215 aircraft from seven customers, grabbing more than half the $5 billion worth deals that were signed at the event. In comparison, CSeries signed no deals at the airshow. Selling the CSeries has been a tough job -- total firm orders and commitment stand at 214.

CSeries planes were originally slated to enter service in 2013, but it's been pushed forward to the second half of 2015 due to some technical issues. In comparison, there have been no significant technical snags with the E2 Jets, and they are all set to enter service as originally scheduled between 2018 and 2020. 

Embraer's "conquered a good part of the first wave of orders last year", and what remains to be seen is if it "can maintain that market share with the second wave", said chief executive Frederico Curado. Jeff Knittel of CIT Group echoed the same sentiments saying "Embraer has done a very impressive job of gaining market share very, very quickly." 

The E-Jet E2 stands out
There's a reason why E2 Jets are bagging more orders. They feature the Pratt & Whitney powered turbofan engine, better avionics, and refreshed wings. The jet claims double digit fuel saving, reduced emission and noise with lower maintenance cost. Bombardier also claims of similar cost savings, but Embraer's technology is more advanced. 

Luis Carlos Affonso, Embraer's COO of commercial aviation, says the E2 Jets are more suitable for the regional aircraft market than both CS100 and CS300. The 106-seater E190, with "a lower trip cost", is a better fit for a regional market compared with the 125-seater CS100. And to serve a slightly higher requirement, Affonso says that the E195 E2 "is the most optimized aircraft". CS300, being a bigger jet with up to 160 seats, overlaps more with the A320 Neo and 737 Max market. This makes E195 E2 more relevant for the 120- to 130-seat requirement.

Embraer also has huge advantage over Bombardier on the development cost of the jets. The E2 Jets have an investment budget of $1.7 billion, which is remarkably lower than Bombardier's CSeries development cost of $4.4 billion. 

This is because instead of engineering a new plane altogether, Embraer's working on a proven platform and upgrading its popular E-Jet family planes. Working on an existing platform involves lesser complications and keeps cost under check compared with Bombardier's approach of replacing the existing offerings with a totally new aircraft range. Making an aircraft from scratch needs huge R&D spending and is more susceptible to delays -- quite visible in Bombardier's case.

Foolish last word
Demand from the emerging markets is giving equal chance to both the jet makers. But the current developments show that the E2 Jets have an edge over the CSeries, and the former could be a bigger beneficiary. This improves Embraer's prospects in the commercial aviation segment.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock… and join Buffett in his quest for a veritable landslide of profits!

ICRA Online has no position in any stocks mentioned. The Motley Fool recommends Embraer-Empresa Brasileira. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers