2005 - Embraer Paris Air Show Presentation Commercial Aviation

EMBRAER Analysts Airline Market Outlook
Airline Market
& Investors Meeting
Trends and Outlook
June th - 25th February 2005
24 15th, 2005
President Wilson Hotel, Geneva
Some Key Elements Shaping the New Industry
Paris, France
(30 to 120 seat segment)

Orlando José Ferreira Neto
Orlando José Ferreira Neto
Director of Market Intelligence
Director of Market Intelligence

Contents

Key Global Market Trends

Regional Jets Sustained Operation

From Concept to Reality – the E-Jets Family

Embraer Market Forecast

THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.

Forward Looking Statement

This presentation includes forward-looking statements or statements about events or
circumstances which have not occurred. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends
affecting our business and our future financial performance. These forward-looking
statements are subject to risks, uncertainties and assumptions, including, among other
things: general economic, political and business conditions, both in Brazil and in our
market.
The words “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,” “intends,”
“expects” and similar words are intended to identify forward-looking statements. We
undertake no obligations to update publicly or revise any forward-looking statements
because of new information, future events or other factors. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this presentation
might not occur. Our actual results could differ substantially from those anticipated in our
forward-looking statements.


• Traffic Recovery
Intra-Europe (RPK Billion) US Domestic (RPM Billion)
600
300

500
250

400
200

150 300

100 200

50 100

0 0
2000 2001 2002 2003 2004 2005F 2000 2001 2002 2003 2004 2005F

Network Low Cost Regional Network Low Cost Regional

• Disconnection from
Forecast Ground Rules
• Historically > 0.90% of GDP, Passenger
Revenue is below 0.70%.
• RPM is becoming a more complex function
Source: US Bureau of Economics Analysis and DOT Form 41
of GDP and Yield.

• LCC Expansion
• Around 70% of all domestic passengers
in North America and Europe have
access to low cost carriers services.
• LCCs hold air fare pricing power.
• Passengers are more stringent on air
travel value proposition.

US Domestic (% RPK) Intra-Europe
• Shift in Market Share 100% 3%
12%
5% 9% 14% 16% 15%
19% 1%
80% 7%
27% 17%
• US: LCCs and Regionals expanding.
60%

• Intra-Europe: LCCs expanding and 40% 85% 85%
76% 77%
64% 68%
Regionals concentrating on secondary/
20%

/business markets development. Source:
Airlines,
Embraer
0%
1995 2000 2004 1995 2000 2004
Network Low Cost Regional


% Change in Passenger Revenues per Mile (Yield) vs 2000
10%

• U.S. Pax Yields Down 5%

Sharply from 2000 0%

-5%

-10%

• No evidences or expectation of a
-15%

-20%

sizable recuperation. -25%

-30%

Jan-01

Apr-01

Jul-01

Oct-01

Jan-02

Apr-02

Jul-02

Oct-02

Jan-03

Apr-03

Jul-03

Oct-03

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05
Source: ATA - Air Transport Association

• Crude Oil and Jet Fuel Prices 60
WTI
200

Jet F u el (U S¢/G allo n )
C ru d e O il (U S$/B arrel)
50 Jet Fuel
• Several factors (cold weather, wars, higher 150
40
import rates, refinery operations issues etc) 100
led to higher crude oil/refined product prices. 30
20 50
• Projected oil prices indicate a shift from
historical US$25-30/barrel level to US$ 45-50 10 0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
short term and US$40-45 longer term.


25
• Fleet Right-Sizing 60%
20
• 60% of all US domestic flights depart with load of flights
15
factor more appropriate to 70-110 seat aircraft.

%
10
• 95% of all North American narrow-body flights
are within 1,700nm range. 5
4 8 13 15 20 13 8 7 5 2 2
• 85% of city pairs exclusively served by narrow 0
50 60 70 80 90 100 110 120 130 140 >150

body jets have less than two daily frequencies. Source: US DOT/Embraer Passengers per Departure

• Replacement Crisis – Ageing Fleets (61 to 120 seats)
810
• 35% of total fleet is more than 20 years in service 492
Aircraft older
than 20 Years
451 35% of total fleet in service

and shall start to be replaced in the coming years. 361
320

• Old technology equipments, most of them no longer 233
212
237

in production.

• Inefficient and expensive aircraft to operate. 0-5 6-10 11-15 16-20 21-25 26-30 30
Source: DOT/Embraer - Fleet in service - Jan 2005 Aircraft Age (Years)


Not Another Cycle, but a Fundamental Change

New Passenger Profile Different Set of Values

Ultra Competitive Environment

Strong Focus on Cost Reduction, Reduced Investments
Cash is King

Maximum Utilization of Assets (fleet optimization and flexibility)

Clash of 3 models (LCC x Network x Regional)
It´s about cost and efficiency

B737

MD80
A319

B757
A320
B737
A320
It´s about value proposition

B757
MD80

B737
70 to 110
70 to 110

B737

B757
A320
A319
Fast Scope Clauses Relaxation / Seats
Seats

B757
A319

A320
/ Closing the 70-110 Seat Gap

B737

B757
B737

B737
MD80
B737

B737

B757
(Bottom-Up and Top-Down)
25 50 75 100 125 150 175+
Source: US DOT/Embraer Seat Capacity


Regional Jets
Sustained
Operation
(30-60 seat segment)

Regional Jet - A Dynamic Tool

When markets are strong…
RJs expand the air transport system by
enhancing catchment areas, adding
more spokes to carrier hubs, opening
new routes and increasing frequency.

… and when markets are weak
RJs help to defend an airline’s overall
market presence / network integrity by
maintaining route-frequency, replacing
unprofitable mainline jet services and
rightsizing aircraft capacity to demand.


ERJ 145 Family
The Evolution of Regionals

An Intrinsic Part of the Solution

ERJ 145 Family Orderbook

(as of March 31st., 2005) Firm
Firm Options Total Deliveries
Backlog

ERJ 135 123 2 125 108 15

ERJ 140 94 20 114 74 20

ERJ 145 681 211 892 634 47

Total 898 233 1,131 816 82


Regional Jet Network - Europe

Jan 1995: 104 Routes

Jan 2005: 1143 Routes

Source: Back/OAG (Feb/05 - ERJ-145/140/135, CRJ-100/200/440, 328Jet routes)

ERJ 145 Family Network - Europe
New Routes
Jet Complement
Jet Replacement
TP Complement
TP Replacement
100%

31%

75%

17%

50%
18%

13%
25%

21%

0%
Average Stage Length = 430 miles 424 routes
Source: BACK/OAG(Jan/05)

New Routes Development - London City
ERJ 135: Steep Approach Capable (London City Airport)
Still Air Range: 600 nm

ERJ 135

- Typical European airline OEW
- Full PAX
Passengers at 90.7 kg (200 lb)
- Cruise at LRC
- Airport Temp. at 20.5ºC / ISA+5.5ºC
(85% Summer)
- 85% Summer Winds

- JAR OPS Reserves
100 nm alternate


New Routes Development - China

ERJ 145 Average Stage
Length: 345 m

China Eastern
Backlog of 5 ERJ 145

Chengdu

Sichuan Airlines China Southern
5 ERJ 145 Guangzhou 6 ERJ 145

Source: BACK/OAG(1Q05)


ERJ – AeroLitoral
New Routes
Jet Replacement
CJS
CJS
TIJ
TIJ
TP Complement
TP Replacement
HMO
HMO CUU
CUU

CEN
CEN
100%
LMM
LMM MTY
MTY 17%
CUL
CUL
75% 17%

BJX
BJX 50%
GDL
GDL
MEX
MEX 41%

The ERJ 145, on average, attracts 10 more pax per flight 25%
on every route it replaces the Saab.
25%
Since the incorporation of the ERJ 145s, AeroMexico’s
market share, on disputed routes, has increased by 9 p.p. 0%

Regional Jet Network - USA

Year 1995: 192 Routes

Year 2004: 2912 Routes

Source: Back/OAG (Mar/05; ERJ-145/140/135, CRJ-100/200/440, 328Jet routes)


ERJ 145 Family Network - USA
New Routes
Jet Complement
Jet Replacement
RJ Complement
RJ Replacement
TP Complement
TP Replacement

100%

28%

75%
18%

50%
22%

3%
25% 5%
6%

Average Stage Length = 460 miles 18%

0%
1371 routes

ERJ 145 Family Network

< 1 hour
1 – 2 hours
2 – 3 hours
> 3 hours

Number of Routes

Jan/2000 Jan/2005

< 1 hour 41 (14%) 179 (15%)

1 - 2 hours 157 (55%) 639 (51%)

2 - 3 hours 87 (31%) 380 (30%)

> 3 hours 0 48 (4%)

Source: BACK/OAG (Jan/05)


RJ Routes - Network Airlines

Year 2004
Total RJ Routes: 2912
RJ Monopoly Routes: 848
(29% of total RJ routes
without any direct competition)

Source: Back/OAG (Yr 2004: ERJ-145/140/135, CRJ-100/200/440, 328Jet routes)

US Regional System Network

50%
44%

40%
35%

30% 27%

21%
20%
15% 15%

10%

0%
AA CO DL NW UA US

• A high percentage of RJ service is on monopoly routes

Source: BACK/OAG (Jan/05; analysis by airport)


30-60 Seat RJs Monopoly Routes

0-2 2-5 5-7
100%

80%

60%

40%

20%

0%
AA CO DL NW UA US Total
System

• 75% of all RJs monopoly routes are operated with less than 2 daily frequencies

Source: OAG (2004)


From Concept
to Reality –
E- stablishing
the 170/190 Family

(61-120 seat segment)

The Rule of 70 to 110 (www.ruleof70to110.com)

THE FIRST ISSUE: THE NEED FOR AIRLINES TO RIGHT-SIZE THEIR FLEETS
The Rule gives the airlines the tools to right-size their fleets thereby optimally
matching capacity to demand.

THE SECOND ISSUE: AIRLINES USING AIRCRAFT WITH TOO MUCH CAPACITY
The Rule, by allowing the airline to efficiently right-size, creates increased
frequency to capture market share and provides customers with more choice.
The airlines can therefore focus their 120-plus seat aircraft on high-demand routes.

THE THIRD ISSUE: USE OF TODAY’S REGIONAL JETS IS NOT OPTIMIZED
The Rule provides the right aircraft for the right market and allows the airlines to
reposition their existing fleets to ensure that aircraft are neither overused or
underused.

THE FOURTH ISSUE: AGEING FLEETS
The Rule, by introducing the right equipment for the right market, gives airlines the
opportunity to develop the most optimum aircraft replacement strategy.


The E-Jets Family


The E- Jets Family Positioning

Natural evolution of 50 seat market

Tapping an existing gap

Enhancing services (frequency)

Low risk for demand stimulation

Improving network deployment
(capacity & range)

New markets opportunities
(long & thin routes)

Replacing old & inefficient narrow
body jets

Blurring the line between regional
and mainline operations


EMBRAER 170 EIS Statistics
Operating Summary

Operators 5

Aircraft in Service 62

Flight hours 102,829

Flight Cycles 70,820
(as of May 31st., 2005)

PR 03/Jun/05 THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.

EMBRAER 170 Network

New Routes

Right-sizing

Natural Growth

100% 5%

75%
50%

50%

25% 45%

0%

EMBRAER 170 - Republic
“The delivery of our first EMBRAER 170 ushers in a new period in the
continued growth of our company and will allow us to support our growing
United Express operation. The 170’s unique design allows us to offer
United a true mainline product but at regional jet operating economics”.
Bryan Bedford, Chairman, President and CEO
of Republic Airways Holdings (Sep/2004)

70 seats: 48 @ 31” pitch 16 @ 34” 6 @ 36”

FA Seat Wardrobe
Aft Lavatory FA Seat
Aft Galley Forward Lavatory
Forward Galley


EMBRAER 170 Network

New Routes

Right-sizing

Natural Growth

2%
100%

39%
75%

50%

59%
25%

0%

EMBRAER 170 Main Missions
Natural Growth Right-sizing New Routes

100% 2% 5% 6%
7% 8%

75% 39%
48% 50% 48%
68%
50%

59%
25% 45% 45% 46%
24%
0%



LCC Next Step - Moving Downward in Capacity
Year 2004
1,304 markets
500 PDEW = 160/170 seater x 100% LF x 3 frequencies
upper boundary for a B737, A319/320
21%
315 PDEW
lower boundary for a B737, A319/320

50% From these 1,304 markets, at
least 646 are perfectly suited for
a 70-110 seater LCC operation

150 PDEW
upper boundary for a 50 seater
29%
105 PDEW = 50 seater x 70% LF x 3 frequencies
lower boundary for a 50 seater

Source : US DOT OD1A


200 400


75%
65%


Network Carriers

Opportunities

Opportunity for Right Size - Aircraft Capacity

25% of flights 35% of flights More than half of the US domestic
depart with loads depart with loads
appropriate for flights in 2003 would be better
appropriate for
90-110 seat suited to 70-110 seat aircraft.
70-80 seat aircraft
aircraft Excess capacity translates to wasted
seats, higher operating costs, and
25
greater potential for unprofitability
20
20

15
% of Flights

15 13 13

10 8 8
7
5
5 4
3
2 2

0
<50 50 60 70 80 90 100 110 120 130 140 ≥150
Passengers per Departure
US Domestic Flights (Jets ≥ 100 seats)
Source: Back (US DOT T100; 2003)


US Domestic Flights (Jet aircraft ≥ 100 seats)
25 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

20
% of Flights

15

10

5

0
<50 50 60 70 80 90 100 110 120 130 140 ≥150
Pax per Departure
Source: US DOT (T100 - Segment)

Optimizing Fleet Capacity
In 38% of all UA flights the
actual load factor called Mainline United Airlines
for a 90-110 seater
In 19% of all Domestic Network
UA flights the
actual load 13 13
factors called for 12
Percent of Flights

a 70-90 seater
10
9 9
8

6 6
5
4
3
2

<50 50 60 70 80 90 100 110 120 130 140 150 >150

Passengers per Departure

Source: United Airlines (The-Mechanic.com) IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.
THE INFORMATION CONTAINED HEREIN

The Opportunity for Right Size - Range

Total Market Served by 91-180 Seats Aircraft (US Airlines)

1.000.000

800.000
Number of Flights

600.000
2004

400.000

200.000

1995
0
100 300 500 700 900 1100 1300 1500 1700 1900 2250 2750 >3000

Distance Sector (nm)

95% of flights are within 1,700 nm range
with no remarkable evolution since 1995
Source: Back/OAG


Opportunities for Enhancing Market Presence

Rightsizing and Frequency Increase
Average Daily Frequency by Route (USA and Europe - Yr 2004)
Routes operated exclusively by Jet aircraft (from 91 – 180 seats ; routes up to 2000 nm)

5760 routes with less than
2 average daily frequency

53%
City Pairs

28%

12%
5%
2%

0 - 0,5 0,5 - <2 2 - <5 5 - <10 >=10
Average Daily Freqency
Source: OAG (Jan/2005)

EMBRAER 190 – Air Canada
“The introduction of new generation small jet aircraft to our fleet is a key
component of Air Canada’s restructuring business plan to implement high
frequency, low-cost services on new and existing routes in Canada and the US.

Consistent with this strategy, the EMBRAER 190 will be deployed to pursue
strategic market opportunities in North America while offering customers a
premium travel experience with enhanced space, comfort and convenience".

Robert Milton, Air Canada President and CEO (Sep/2004)

EMBRAER 170/190 Family Orderbook

Firm
Firm Options Total Deliveries
(as of March 31st., 2005) Backlog

EMBRAER 170 172 137 309 56 116

EMBRAER 175 15 - 15 - 15

EMBRAER 190 155 230 385 - 155

EMBRAER 195 15 20 35 - 15

Total 357 387 744 56 301


EMBRAER 170/175 - LOT

• four EMBRAER 170 options from their original contract converted into four firm
orders for EMBRAER 175

“The EMBRAER 170s and EMBRAER 175s are pivotal elements in our business
plan to support our network expansion from the Warsaw hub. These aircraft give
us more seat capacity and range, which will enable us to access new markets”.
Marek Grabarek, LOT CEO (May/2005)


Embraer Market Forecast (2005-2024)

Worldwide Jet Deliveries by Capacity Segment

Segment 2005 - 2014 2015 – 2024 2005 - 2024

30 - 60 650 1,300 1,950
61 – 90 1,300 1,550 2,850
91 – 120 1,250 1,750 3,000

TOTAL 3,200 4,600 7,800

30 to 120-seat segment value = US$ 170 billion


Embraer Market Forecast (2005-2024)


Market Share (30-60 seat segment)
100%
93%

83%
80%

67%
60%
50% 51% 52% 52%
54% 51% 49%
50%
43%
45% 45% 46%
40% 45% 44% 44%
32% 42%

17%
20%
7%
5% 6% 4%
7% 4% 4% 4%
3%
1%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOMBARDIER AVCRAFT

Source: Embraer

100% 100%
87%

80%
72%
67%
64%
62%
53%
60%
52%
49%

40% 38%
32% 33% 36%
30%
28% 28%

13% 21%
16% 19%
20%

0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOMBARDIER FAIRCHILD DORNIER
Source: Embraer


100% 100% 100% 100%

80%
67% 73%
67%
62%
59%
60% 57% 56%

40%
32%
33%
26% 32%
26%
20% 25%
20%
16% 11%
7% 7% 7% 11%
6%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOEING (737-500/600, 717) AIRBUS
As of 2nd
Source: Embraer
Quarter 2004


60%

54% 54%

50%
45% 45% 45%
44% 45%
43% 43% 42%
40% 40% 41%
40% 39% 38%
37%
38% 36% 35%
31%
30% 28%

27%

20% 17%
20%
12%
11% 11% 10% 10%
10% 8% 9%
8% 8% 8%
3% 5% 6% 4% 3%
2% 3% 3% 3%
2% 2% 2%
0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 'May/05

EMBRAER BOMBARDIER F. DORNIER/AVCRAFT BOEING AIRBUS

Source: Embraer


Thank you !

2005 - Embraer Paris Air Show Presentation Commercial Aviation

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