The airline industry may have been posting lower profits of late, but the slowdown is still “two to three years into the softest landing I have ever seen in 30 years,” Embraer Commercial Aviation CEO John Slattery said.

Profits are likely to continue to come down further in the next few years, Slattery said on the sidelines of the IATA AGM in Seoul. “There is potential for up to three years of a shallow downcycle.” An important longer-term question for him will be whether subsequent upturn will also be shallow. The airline industry cycle has been “uniquely different from anything in the past,” but Slattery still believes cyclicality remains.

For Embraer’s commercial aviation business, soon to be picked up by the Boeing Brazil-Commercial joint venture, lower airline earnings may actually be good news. “Demand for smaller equipment tends to be counter-cyclical,” he said. “Airlines are almost forced into a more judicious evaluation of gauge of aircraft” when times are tougher whereas they are more willing to take risks and order larger aircraft when profits are higher.

Slattery described Embraer’s “pipeline”—orders under negotiation—as “robust” although the E2 family has had limited market success with around 140 firm orders six years after the launch. Since first delivery in April 2018 five E2s have entered service with two operators, Norwegian regional airline Widerøe and Air Astana. Slattery has observed that some customers see benefits in waiting with additional orders until the joint venture agreement with Boeing has received regulatory approvals and is operating. Nonetheless, he expects additional E2 orders before the end of the year, the time the Boeing deal is expected to close.

That airlines are waiting for the Boeing/Embraer transaction to close may also affect campaigns for the Airbus A220, Slattery said. Some customers believe they are in a stronger bargaining position vis-à-vis Airbus if the alternative is stronger.

The Embraer commercial chief said he is “very pleased” with the entry-into-service of the E2. Ramp-up has been “very carefully managed” as “reputationally, entry-into-service had to be perfect.” Embraer actually decided to slow down the rate of introduction two years before first delivery to ensure it went smoothly and was able to rely on continued demand for the E175-E1 in particular to ensure production at acceptable levels. E2 output will be rising significantly in the next two to three years.

According to Embraer, the five aircraft are now at a schedule reliability rate of 98.9% and a completion rate of 99.5%. At the end of March, the fleet had accumulated 5,623 hours and 4,060 cycles with the Widerøe aircraft responsible for most of the flying.

According to Slattery, many of the goals set for entry-into-service have been exceeded, but there have been some “small learnings” in the cabin and tweaks have been identified. It will take into 2020 until everything is cleared. There are also two more flight management system software updates about to be introduced, one in June and one in September.

New customers yet to take delivery of E2s in 2019 include Azul Brazilian Airlines, Spanish regional carrier Binter Canarias, and Swiss leisure carrier Helvetic Airlines.

In the next year or two, Embraer wants to add more capabilities to the E2 including Cat III landings, steep approach and auto takeoff certification to allow the fleet to be used in more difficult conditions.

Slattery indicated that Embraer’s re-entry into the regional turboprop market—studied for some time—could come in several steps. The company, or later Boeing Brazil-Commercial, could first develop a larger turboprop that relies on some form of hybrid power generation and then later enter into the market for smaller, either fully or hybrid-electric aircraft joining several other companies including Boeing that are looking at concepts and technologies.

But Slattery warned that no decisions will be made in the short term. “Nobody is feeling under time pressure to pull the trigger. It will take a long time to surface if there is a business.” One of the sore points of the business case for a larger new turboprop is how an aircraft that would be launched at some point in the next few years can be made “future proof” through “some hybrid specification.”

Jens Flottau,