High Flyer Interview: Embraer's John Slattery (President & CEO) and Luis Carlos Affonso (COO)

LONDON — A few weeks before the 2016 Farnborough Airshow, John Slattery was appointed president and CEO of the Commercial Aviation division of Embraer. Slattery joined Embraer in March 2011 as Vice President of Customer Finance and Asset Manager, and subsequently promoted to the business unit’s Chief Commercial Officer. Under his tenure, Slattery drove successful sales campaigns of the current E-Jet and E-Jet E2 family aircraft.Slattery and Embraer's Chief Operating Officer, Luis Carlos Affonso, spoke to Airways about the evolution of the E-Jet E2 program, the current state of the market for regional jets and how the airframer is dealing with competitors.

Airways: Could you Update us on the Flight Test Program and Entry into Service?

John Slattery: Our program hasn't changed from the guidance that Luis Carlos Affonso stated three years ago, when we launched the program.To date, the E190-E2 will enter into service in the first half of 2018, the E195-E2 in the first half of 2019, and the E175-E2 for the first half of 2020.This remains unchanged, which in itself is somewhat unusual in our business to have this integrity since we launched the program. We are confident about that.For sure, we have had the benefit of a very ready program management team, which has allowed us to do our first flight earlier than expected. This means that as this moment we are ahead of schedule.I guess that this will allow us to offer a more mature aircraft at the entry into service. Thanks to that, Luis and his team will ensure that our aircraft is fully mature, and that's what our customers are looking for.We give them the guidance of the first half of 2018 and we will meet that guidance, and will meet what we expect from the aircraft, that is online with the design specifications and maturity.

Mr. Affonso, I understand that the E-Jets E1 and E2 and quite similar. Are test programs for both aircraft types somewhat similar?

Luis Carlos Affonso: Yes, the E2 is a very innovative product in the sense that we have introduced many new features, new technologies, wing, engines. It’s the same size of the E1 and the test campaign is similar too, although the products are very different.About the test program, it's going on very well. As of July 9, we had already flown 62 hours. As John mentions, our schedule called for a first flight in the second half of 2016. We were able to fly in May and a second prototype is flying.The airplanes are flying very reliably, thus allowing to put our bet on long flights, which is very important for the productivity of the Flight Test Campaign.In the first flight, we had the autopilot engaged. That’s really unusual, by far the best first flight we did with the Embraer, maybe the best in the industry.

You climbed to high altitudes and accelerated to high speeds, something rather unusual for a first flight.

Yes, we managed to climb high and reach maximum speed in our first flight. This shows the confidence on the aircraft. We also retracted the landing gear!So far so good. The test flight campaign so far and the aircraft are very mature.

When did you decide to bring the aircraft to Farnborough?

This was planned, but we didn't want to announce it, as it depended on the evolution of the flight test program. If it behaved well, we could log the number of hours enough that would allow us to cross the Atlantic with a very low risk. As you say, the final decision was made maybe a week before the show.

Mr. Slattery, do you see any evidence of an aircraft order bubble that has popped, slowing down Airbus and Boeing over the last couple of years?

John Slattery: I think the airline community around the world and the market is now a lot more sensitive when managing jets and props, than have been in previous cycles. What you are seeing now is more like a soft landing. We must mention that we are coming off from extended years of record orders from Boeing and Airbus, so it's no surprising to see the slowdown in the market.In terms of size equipment and number of seats, Embraer, again, on the last couple of years, has enjoyed a record of orders and deliveries. Our deliveries, which are more relevant than the orders, are when you collect the majority of the revenue.Embraer’s deliveries this year are going to be harder than last year, and last year was harder than the previous, so I believe it has been very thoughtful in managing the gap between the E1 and E2, which is particularly important to any new launch generation equipment.We effectively see a very specific profile in the sky line between the E1 and the entry into service of the E2, which is a great testament to the market and the team.We are continuously seeing a demand from customers for both E1 and E2. Airlines have requirements still for the next number of years until the end of the decade.The E2 of course will be launched at the first half of 2018, but we still have E1s to be delivered till the end of the decade. Then, due to commonality between the E1 and E2, many customers will continue taking delivery with the E1, so the pilots can go with similar training on the E1 and the E2. That’s three days training in total, and no high level has similar devices required to use. That’s says a lot.Perhaps some of the other larger airframers are being exaggerated on what perhaps they would like, but this has been similar to the marketplace that would have been expected after requiring a number of years of extended ordering by the airlines. Now the airlines are absorbing the wanders that they’ve taken.We continue to work hard this year, and next year, so it’s a completely different market.

Do you know who will be the launch costumer at this point?

We have a very good idea about who will be our launch costumer. I would hope to make that announcement before the end of the fourth quarter of this year.

Which aircraft do you consider the 'sweet spot' for the market in the Embraer family?

That’s a great question! When Luis Carlos Affonso and his team designed the airplanes, we came up with a unique concept when the E1 was developed, which was wide size, the economics we have between the E170 and the E195.We’ve brought that to a different level with the new generation, specifically around the wings. The wings for each of the three family members are unique to each aircraft, so we perfectly match the size to the economics that each aircraft can generate, and on that basis it’s less obvious to us that there’s natural sweet spot because we optimized each airplane for their particular missions.You don’t have the classic stretch or shrink economics that perhaps other airframers might experience in their programs.If I was to think about where the preponderance of orders might come out, in order to address the question, we’re seeing a lot of demand for the E175, due to the seat/mile economics that are competitive with the large and narrow bodies that were still having up to 25% production on the trip cost.It makes those that larger 195-E2 a very competitive aircraft, particularly for the LCC community, as they look to address new opportunities beyond the routes that they’re upgrading with the E175. They want to go to cosmopolitan areas. They need to operate those if they want to be practical with smaller and profitable equipment. In conclusion, I think the E2 family aircraft is going to be very attractive.Because of the improvement of the economics of that airplane and the capabilities we’ve been able to focus on one aircraft, the E2, we are supposed to have two aircraft. I believe we’re going to see several fleet upgrades that are flying current technologies, and in some cases the performance of the E175-E2 is going to be very viable as a commercial aircraft for them: it flies faster and higher, it's more comfortable, and the regional markets want better economics, so you get more trips, more cycles - the economics of the ship are attractive.Then we have the core member of the family, the E190, and the environmental footprint is very broad at the moment. When we launched the aircraft program, we had our advisory on board, and we asked our costumers what the right size for each airplane should be. We didn’t say “here’s the new building, what do you think? In different ways, we asked them: how we should we think?And I’ll tell you that we, Embraer, thought, perhaps we’ll stretch the E190, and it was our costumer base that came back and said, “We want to have 100+ seat aircraft.” So if we were going to stretch, stretch the E195. Maybe it gave us another row of seats, perfectly sized at the 100 seats.We now have a complete family where the cabin and the cockpit is common across the three aircraft. Pilots can operate both types through the morning to the afternoon, for the E175 to the E195. I think it’s not clear exactly to me where the sweet spot is because Luis gave us an aircraft with three sweet spots.They’re perfectly right sized and the concept we now talk about is fleet smart, so it’s a fleet smart solution that airlines are considering. They’re not making compromises with any member of the family.

Talking a little bit about the competition, finally gaining momentum, the (Bombardier) CSeries program is slightly surpassing the E2 in terms of orders, as of today. How does Embraer respond to that?

Well let’s look that in context. I believe Bombardier has probably been working on the CSeries for 8 years now. We launched our aircraft program with authorization to offer from our board of directors, roughly three years ago, from today, so in the course of three years with accumulated 267 orders, we might increase that today a little bit.When you look at the trajectory of our sales process in three years it’s quite astonishing. I’m also confident that Embraer comfortably break through 300 orders this year for the E2 and I think that will begin that five years ahead of Bombardier.Moreover, the integrity of the counterparts we have in our order book are sound, so the company airlines that are committed to the E2 continue with the commitment.I won’t talk about other's experience in that from but, our airlines are committed. We don’t have airlines that are looking to exit the orders they’ve already made. We’re joining the teams of support for more activity and orders, wide across the costumer fundings. They’ve booked more and I’m confident we will too, and will be five years ahead in that perspective.

Does the E2 platform allow a stretch to compete with the 100 to 115 passenger category, like the CS300?

The E195-E2 is slightly smaller than the CS300, but it has about the same number of seats than the CS300, while having around 10% better cost per trip, so it’s a very competitive airplane against the CS300.We believe that CS300 is too close to Boeing and Airbus.We talk about fleet smart, so we believe we have a smart separation from the bigger airplanes, so the airlines can have a narrow body and a jet.

Mr. Affonso, we’re aware that Embraer is experiencing some of the similar issues with the Pratt-Whitney Geared Turbofan engine as other customers. Are they the same start of erroneous issues that, for example the A320neo has been experiencing, or your engine is performing well?

Luis Carlos Affonso: Our engine is smaller, it’s the same core but smaller than the new engine, so we have the same problems but lesser extends.This hasn’t affected our flight test campaign, because of course we do two flights a day, so we can wait for the time between flights for our test campaign, and because we’re not the first applicators of the engines we'll have those issues resolved before our entry to service.

When I visited the factory last month in São Jose dos Campos, your colleagues noted that Embraer aims to reach the 100 aircraft per year production goal. When you mix the two technologies (E1 vs. E2), is that going to slow down the process?

Well we’ve already delivered 100 aircraft per year. We’re going to keep it steady at 100 this year as well. We’ve already comfortably reached that milestone and are confident that the production of the E1 and E2 will remain untouched for a period of time.

So, Mr. Slattery, your target is to stay at 100 aircraft per year?

John Slattery: That’s not my target. I’d like to grow production of the E2, and I expect that the guidance that we’re getting from the market is that the production of the E2 will grow. I can’t give guidance as to the company.

Thanks for your time, gentlemen. Do expect to see a full story on our visit to your factory in Brazil and our experience here in Farnborough soon.

John Slattery: Thank you! Looking forward to seeing the final result.Luis Carlos Affonso: We hope you enjoyed your visit to Brazil!