2004 - Charleston Regional Jets Conference

Frederico Fleury CuradoExecutive Vice President

Civil Aircraft

Airline Market

Trends and

Outlook

Investors Conference – Regional JetsGECAS & CITIGROUP

19-21th May,2004

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

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.

Forward Looking Statement


2003 FLEET IN SERVICE15,613 AIRCRAFT

NorthAmerica

37%

NorthAmerica

37%

Europe

22%Europe

22%

Latin America & Caribbean

7%

Latin America & Caribbean

7%

Africa & Middle East

7%

Africa & Middle East

7%

Asia/ Pacific

21%

Asia/ Pacific

21%

China

6%China

6%

Scheduled airline services - Capacity share % by region

Source: OAG (Jan/2004), Fleet PC (Dec/2003)

2442Regional

3339Single Aisle

634Twin Aisle

578Regional

631Single Aisle

85Twin Aisle

329Regional

509Single Aisle

327Twin Aisle

783Regional

893Single Aisle

1043Twin Aisle

113Regional

481Single Aisle

88Twin Aisle

1256Regional

1516Single Aisle

566Twin Aisle

Regional80993363Total Fleet 8664Single AisleTwin Aisle Regional73692743Total Fleet 5501Single AisleTwin Aisle

Global Airline Market Today

OBS.: Regional considered up to 100 seats


Scheduled airline services (aircraft from 19 up to 120 seats):Capacity share % by region

NorthAmerica54%

NorthAmerica54%

Latin America

& Caribbean

6%

Latin America

& Caribbean

6%

Europe

26%Europe

26%China

2%China

2%Africa &

Middle East

4%

Africa &Middle East

4%Asia/

Pacific

8%

Asia/Pacific

8%

Source: OAG (Jan/2004), Fleet PC (Dec/2003)

Airline Market Today – Up to 120 Seats

80993363Total Fleet Single AisleTwin Aisle 36832979Total Fleet Regional JetTurboprop

811Jet

691Turboprop

1913Jet

934Turboprop

342Jet

422Turboprop

233Jet

243Turboprop

311Jet

532Turboprop

73Jet

64Turboprop

2003 FLEET IN SERVICE6,662 AIRCRAFT


Regional Airlines

Major Airlines

RASK

/

M

Capacity

Low Cost Carriers

Current Airline Business Model


0

200

400

600

800

1,000

1,200

1,400

1,600

2000 2001 2002 2003E 2004F 2005F 2013F

Majors Low Costs Regionals

US Domestic RPM (Billion)

...

Source: WATS, Embraer

Traffic Recovering Slowly


60

80

100

120

140

160

180

200

Jan-0

0

Apr-00

Jul-0

0

Oct-0

0

Jan-0

1

Apr-01

Jul-0

1

Oct-0

1

Jan-0

2

Apr-02

Jul-0

2

Oct-0

2

Jan-0

3

Apr-03

Jul-0

3

Oct-0

3

Jan-0

4

Majors Low Cost Regional

Source: EMBRAER

US Domestic ASM Evolution (Index 100)

Shifting Capacity Among Business Models


Share of US Domestic RPM

US Airline Industry Evolution

85%78%

69%

52%

3% 5% 8%19%12%

17%22%

29%

0%

20%

40%

60%

80%

100%

1995 2000 2003E 2013F


...

Source: WATS, Embraer


Share of Intra-European RPKs

Source: AEA, ERA, ATI, Embraer

Low Fares: easyJet + Go + Ryanair + VirginExpress + Buzz + DBA

85%77%

68%

48%

14% 16% 19% 21%1%

6%13%

31%

0%

20%

40%

60%

80%

100%

1995 2000 2003E 2013F


...

European Airline Industry Evolution


Source: Back Fleet pc

Sales orders pattern is changing

Airbus & Boeing - Orders by Year

162251

43133

48

301271

479530

511

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2000 2001 2002 2003

LOW COST OTHERS


0

10

20

30

40

50

60

2001 2002 2003

ASM - (Billion)

50%

55%

60%

65%

70%

75%

2001 2002 2003

Load Factor

US Regional Airlines Statistics

Source: EMBRAER


Europe Regional Airlines Statistics

Source: EMBRAER

10

20

30

40

50

60

70

80

90

2001 2002 2003

ASK - (Billion)

50%

55%

60%

65%

2001 2002 2003

Load Factor


0

40

80

120

160

200

2001 2002 2003

ASM - (Billion)

50%

55%

60%

65%

70%

75%

80%

2001 2002 2003

Load Factor

US Low Cost Carriers Statistics

Source: EMBRAER


0

10

20

30

40

50

2001 2002 2003

ASK - (Billion)

50%

55%

60%

65%

70%

75%

80%

85%

2001 2002 2003

Load Factor

Europe Low Cost Carriers Statistics

Source: EMBRAER


400

420

440

460

480

500

520

2001 2002 200350%

55%

60%

65%

70%

75%

80%

2001 2002 2003

ASM - (Billion) Load Factor

US Airline Industry – Majors


Europe Airline Industry – Majors

255

265

275

285

295

2001 2002 2003

ASK - (Billion)

50%

55%

60%

65%

70%

2001 2002 2003

Load Factor


Source:

10

11

12

13

14

15

16

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Yie

ld (

US

¢/R

PM

)

1998 1999 2000 2001 2002 2003

US Domestic Yields Showing Little Progress


Source: Back Form41

2000 – 2003 (Sep)

-12000

-10000

-8000

-6000

-4000

-2000

0

2000

4000

6000

2000 2001 2002 2003

US

$ (m

illio

n)

Major Low Cost Regional

US Airline Industry Operating Results


Source: SEC and Company Reports

Airlines - Some Operating Results

US$ Million

Oper. Income

Oper. Margin

Oper. Income

Oper. Margin

American (1,129.0) -6.5% (3,313.0) -20.7% 65.9%United (1,360.0) -9.9% (2,837.0) -19.9% 52.1%Southwest 483.0 8.1% 417.0 7.6% 15.8%JetBlue 168.8 16.9% 105.0 16.5% 60.8%ExpressJet 182.0 13.9% 101.0 13.6% 80.2%Skywest 108.5 12.2% 119.6 15.4% -9.3%Air France 533.0 3.4% 353.9 2.6% 50.6%British Airways 371.2 2.8% 678.8 5.3% -45.3%Iberia 182.8 3.5% 236.7 5.3% -22.7%Ryanair (Apr/02-Mar/03) 332.0 31.3% 171.1 26.1% 94.0%

2002Airlines

2003 Oper. Income% (YoY)


Current down cycle more a fundamental correction than just a cycle

• Yields will remain low as long as LCC’s continue to set the bar in the

market

• For the 1st time in history RPM showed three consecutive years of

negative evolution

• Major airlines with significant value depreciation and attempting to re-

invent themselves

• Shift in capacity among business models, from majors to LCC’s and

regionals (largely used as defensive weapons by the majors)

• Growth of point-to-point services vis-à-vis hub and spoke

• Untapped 70-110 seats typical E-Jets markets will help to significantly

intensify the competitive scenario

A Cyclical Industry, but …


When markets are strong…

RJs expand catchment areas by adding more spokes to carrier hubsin addition to:

• supplementing mainline jet capacity

• increasing route frequency

• opening new “long & thin” routeswith small, low-risk capacity

• introducing secondary-to-secondary market service (EU)

Regional Jets – Still a Dynamic Tool


• rightsizing aircraft capacity with demand

• maintaining high route-frequency

RJs help to defend an airline’s competitive market position by:

… and when markets are weak

• preserving network integrity and overall market presence

• replacing unprofitable mainline jet capacity service

Regional Jets - A Dynamic Tool


Jan 2004 – 2224 Routes


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

Regional Jets Network - USA




Source: Back OAG (ERJ-145/140/135, CRJ-100/200, 328Jet routes)_Feb2004

Regional Jets Network - Europe


Jan 1995 – 2,908 routes

Jan 2004 – 1,580 routes

Turboprop Networks – USA


Jan 1995 – 1918 routes

Jan 2004 – 1898 routes

Source: BACK OAG_Feb2004

Turboprop Networks - Europe


Source: Back – OAG Data, Feb2004

RouteEquipment M80 100 ERJ M80 ERJ M80 100 ERJ

92 32 0 93 0 88 32 0

0 116 66 0 151 27 120 5

0 0 187 0 160 0 0 185

Jan

03Ja

n 04

SYR-ORD BUF-ORDROC-ORD

Jan

02

Narrowbody Jets Replacement (Rightsizing)

Number of monthly frequencies


Turboprop Retirement

Source: Back – OAG Data, Feb2004

RouteEquipment SF3 ERJ SF3 ERJ SF3 ERJ

182 0 231 0 110 108

139 0 144 31 137 27

0 87 0 140 0 126

Jan

04

BOS-ISP BOS-BGR BOS-PHL

Jan

01

Jan

02


EqpDays of

OperationDeparture Origin Arrival Destination

Duration (min)

ER4 xSaSu 8:20 MAN 9:15 EDI 55ER4 xSaSu 11:55 MAN 12:45 EDI 50ER4 xSaSu 14:40 MAN 15:30 EDI 50ER4 xSaSu 17:30 MAN 18:25 EDI 55ER4 xSa 20:20 MAN 21:10 EDI 50ER4 xSaSu 07:00 MAN 7:55 EDI 55ER4 xSaSu 08:55 MAN 09:50 EDI 55ER4 xSaSu 12:15 MAN 13:15 EDI 60ER4 xSaSu 17:00 MAN 18:00 EDI 60ER4 xSaSu 19:55 MAN 20:50 EDI 55ER4 xSaSu 07:00 MAN 08:00 EDI 60ER4 xSaSu 08:55 MAN 09:50 EDI 55ER4 xSaSu 12:05 MAN 13:00 EDI 55ER4 xSaSu 17:00 MAN 17:55 EDI 55ER4 xSaSu 19:55 MAN 20:50 EDI 55

Janu

ary

20

02Ja

nuar

y 20

03Ja

nuar

y 20

04

Source: Back – OAG,Feb 2004

High Frequency Services


EqpDays of

OperationDeparture Origin Arrival Destination

Range (Km)

M80 daily 07:00 DUS 08:35 MXP 644ER4 daily 11:45 DUS 13:20 MXP 644ER4 daily 16:10 DUS 17:45 MXP 644ER4 daily 20:35 DUS 22:10 MXP 644

319 daily 07:00 DUS 08:30 MXP 644319 daily 11:45 DUS 13:15 MXP 644ER4 daily 17:30 DUS 19:05 MXP 644ER4 xSa 19:45 DUS 21:20 MXP 644

319 daily 07:10 DUS 08:45 MXP 644319 daily 12:10 DUS 13:45 MXP 644319 daily 17:30 DUS 19:05 MXP 644ER4 xSa 19:45 DUS 21:20 MXP 644

Jan

uar

y 20

02Ja

nu

ary

2003

Jan

uar

y 20

04

Source: Back – OAG Data, Feb 2004

Routes Development


37 Seats

44 Seats

50 Seats

50 Seats (2,000 nm range)

Responding to Market Needs


Roll-out Ceremony

First Chinese made ERJ-145

Dec 16th, 2003


480 59 33 21 15 14 8 5 3129

61% 16%

… 550 ROUTES (70%) are under 120PDEW

PDEW

China - PDEW vs. Frequency

Daily Frequency

FROM 786 DOMESTIC ROUTES …


• Improved Service

• Profitable Load Factor

Low LFLow Frequency

Low Freq.Medium High LF

RJ provides the right solution for the thin Traffic Routes A

dd

Fre

qu

ency

Rightsizing

Y2002 - 550 Domestic Routes with PDEW < 120Frequency /day

LF

China – Opportunities for RJ


189

152

20

17

FirmBacklog

7241,375462913Total

5451,137440697ERJ 145

741142094ERJ 140

1051242122ERJ 135

DeliveriesTotalOptionsFirm(as of 1st quarter 2004)

ERJ 145 Family Orderbook


• Labor Relationships• Partnership shareholders / management / employees

• Competitive compensation systems / higher productivity

• Fare Structure• Simplified fare structures

• Low fares stimulating demand

• High load factors

• Cost Leadership• Low operating costs (labor, overhead and distribution costs are the key factors)

• Lean, agile structure and operations

• Highly flexible and dynamic route structure• Intense focus on O&D traffic opportunities

• Aggressive new market development (E-Jets the next frontier)

• High aircraft daily utilization / low TAT’s

• Agressive yield management

The Challenge posed by the Low Cost Carriers


Source: BACK OAG Feb/2004

1995 - Southwest, Airtran and Frontier 2004 - Southwest, Airtran, Frontier, Jetblue, America West, Alaska, ATA, Spirit



Low Cost Carriers Network - USA


Source: BACK OAG (Ryanair, easyjet, Buzz and GO)



Low Cost Carriers Network - Europe


Markets between 150 and 500 PDEW (USA)1,098 markets

These 1,098 marketsare predominantly

served by either B737/ A320 or 50 seat jets

B 757/737 A319/320/321

50 seat Jets

105 PDEW = 50 seater x 70% LF x 3 Frequencies

500 PDEW = 240 seater x 70% LF x 3 Frequencies

Source : DOT OD1A Data Q2 2002

LCC Moving Downwards in Capacity


1,098 markets

105 PDEW

500 PDEWupper boundary for a B737/757 or A320/321

lower boundary for a 50 seater

28%

Over 500 markets are better suited for a 70-

110 seat aircraft48%

24%

315 PDEWlower boundary for a B737 or A319/320

150 PDEWupper boundary for a 50 seater

Source : DOT OD1A Data Q2 2002

LCC Moving Downwards in Capacity


Market Opportunities - Australia

125 markets

More than half of the markets above 25 PDEW could bemore efficiently served with 70-100 Seaters

Almost 70 markets are better suited for a 70-100 seat

aircraft

53%

25 PDEW

8300 PDEW

315 PDEW

50 PDEW

30% 37 markets are suited for 35-50 seaters

16%20 markets are suited for a

mixed fleet operation


• Reorganization under or out of Chapter 11 protection

• Revision of labour contracts

• Reduction of fleet types

• Renegotiation of old leases

• Turboprop retirement

• Deferral of new (big) aircraft deliveries

• Downsizing of several routes to smaller equipment

• Intensification of the use of regional aircraft as defensive tools

• Some LCC initiatives

Majors are reacting – focus in cost reduction


4 8 13 13 8 7 5 2 220150

5

10

15

20

25

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

%

35% of flights depart with loads more appropriate for 90-110 seat

aircraft

25% of flights depart with loads more appropriate for a 70-90 seat

aircraft More than half of the domestic flights in the US are better

suited for 70-110 seat aircraft. Excess capacity translates into empty seats, higher operating

costs and unprofitability

Source: Back (US DOT T100)

Opportunity for Right Size – Aircraft Capacity


0

5

10

15

20

25

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

%

2000200120022003

Source: Back (US DOT T100)

Demand x capacity mismatch not a new phenomenon


58%

27%

10%4%

1%

0 - 0,5 0,5 - <2 2 - < 5 5 - <10 >=10

Average Daily Frequency

Cit

y P

air

s

Rightsizing and Frequency IncreaseAverage Daily Frequency by City-pair (World)Routes operated exclusively by Jet Aircraft from 91 – 175 seats up to 2000 nm

Source: OAG (Feb/2004)

9392 city pairs with less than 2 average daily frequency

Market Opportunities - Global


RJs Natural Growth . . . . . . Majors Airlines aircraft rightsizing and services enhancement.

E- Jets

Regional Jet Model

Major Airline Model

RASK

/

M

Capacity

Low CostModelE-JetsE-Jets

Beyond the Current Model...Expand LCC air services to secondary cities . . .

There is a need for a new TOOL


• Natural evolution of 50 seat market

• Tapping an existing gap

• Enhancing services (frequency)

• Low risk for demand stimulation

• Improving network deployment (capacity and range)

• New markets opportunities (long and thin routes)

• Replacing old narrowbodies

• Blurring the line between regional and mainline operations

Regional Jet Model Major Airline Model

Low CostModel

E-JetsE-Jets

The Next Step in the Industry


“Maximize Profits by Right-sizing your Fleet

in the Untapped 70-110 Seat Market”

1. Use the right aircraft family for the mission:

• Minimize spill

• Maximize yield and load factors

• Improve network deployment

2. Provide mainline service operating aircraft with mainline characteristics at RJ operating costs and flexibility:

• Minimized DOC through use of new technology and family concept

• Optimized comfort, range and performance

• 21st century economics to match 21st century yield trends

The Rule of 70-110

Visit

www.ruleof70to110.com


Engineering Ergonomics Economics Efficiency

Mainline, Mid-Size or Regional?


Seat Capacity

120

160

40

80

Stage Length (nm)

200 400 600 800 1000 1200 1400 . . .

30 Seat Tprops

50 SeatERJ 145

Narrow Body Large Aircraft

37 - 44 Seat ERJ 135/140

EMBRAER 170/190 Family

E xperience

E ntertainment

E asy

E nhance

E xpress

E verywhere

E xcellence

E xceptional

E nvironment

E mbraer

Engineering Ergonomics Economics Efficiency

Introducing the E- Jets


Feb 9th, 2004

EMBRAER 190 RollOut Ceremony


EMBRAER 190 First Flight – 12th March, 2004

Taking off . . .. . . Smooth Flight . . .

. . . Landing


EMBRAER 170/190 Family Orderbook

250

15

110

125

FirmBacklog

8600342258 (*)Total

-453015EMBRAER 195

-260150110EMBRAER 190

8295162133EMBRAER 170

DeliveriesTotalOptionsFirm(as of 1st quarter 2004)

(*) Does not include Air Canada’s 45 firm + 45 options order for EMBRAER 190’s

Airline Market

Forecast


World (30-120 seat segment): 8,450 jets (US$180 billion)

World Deliveries by Segment - Jets

4,750

1,700

1,600

1,450

2014 - 2023

8,450

2,950

2,900

2,600

2004 - 2023

3,700 (*)TOTAL

1,25091 – 120

1,30061 – 90

1,15030 - 60

2004 - 2013Segment

Market Forecast 2004-2023

(*) Open demand àà approximately 2,900 a/c


AsiaPacific

4806%

AsiaPacific

4806%

China

635

8%

China

635

8%

USA, Canada& Caribbean

4,740

56%

USA, Canada& Caribbean

4,740

56%

30 - 120 Seats: 8,450 Jets

Europe,

Middle East

& Africa

1,970

23%

Europe,

Middle East

& Africa

1,970

23%Latin

America &Caribbean

625

7%

LatinAmerica &Caribbean

625

7%

Market Forecast 2004-2023


Documents

2004 - Charleston Regional Jets Conference