Embraer Market Outlook 2014

Market Outlook
2014-2033
A Decade of Change
Ten years ago, the first Embraer E-Jet entered revenue service. It was a
momentous occasion for the company and an equally important milestone for our
industry. Since then, more than 1,000 E-Jets have been delivered to airlines on
every continent. Whether they are opening new markets, replacing older aircraft,
helping airlines find the right balance of frequency and capacity, or bringing
affordable air travel to first time flyers, E-Jets will continue to offer carriers new
opportunities to grow and prosper.
E-Jets are true agents of change. In just one decade, E-Jets have helped establish
the 70 to 130-seat jet segment as a permanent component of commercial aviation,
filling the gap between smaller regional jets and larger narrow-body transports.
The trends detailed in this market outlook highlight those regions of the world
where we expect new demand for 70 to 130-seat aircraft over the next twenty
years.
Change is also coming to emerging markets where personal disposable income is
growing and a new middle class is fueling demand for air travel. For the first time,
the volume of annual airline passenger movements in Asia is forecast to surpass
that of the USA. That shift in demand will, in turn, open more opportunities for
aircraft in the 70 to 130-seat jet segment.
I look forward to what the next decade will bring.
Paulo Cesar de Souza e Silva

President & CEO,
Commercial Aviation
July 2014
03
Executive Summary
Over the past 40 years, worldwide air transport activity has been characterized
by strong growth rates. Despite ruptures in the system, air travel has proven to
be resilient to external shocks and always returns to its usual growth levels.
The main drivers that will support growth in the demand for air travel are:
economic recovery in the USA and Europe; economic strengthening of
emerging markets; a surge in urban middle class purchase power; regulatory
liberalization and competition.
Embraer foresees 4.8% year-over-year revenue passenger kilometer (RPK)
growth over the next 20 years. The Middle East will be the fastest-growing
region, with average annual growth of 7.1% followed by China, 6.8%; Latin
America, 6.0%; Asia Pacific, 5.4%; Africa, 5.3%; and the Commonwealth of
Independent States (CIS), 5.2% over the next two decades. Developed
economies will grow less due to the maturity of their markets: Europe, 3.9%;
and North America, 2.7%. World air transport demand will increase 2.6 times by
2033, reaching 13.6 trillion RPKs for all commercial aircraft segments.
By 2033, Asia Pacific and China will be the largest markets, accounting for 40%
of world RPKs. Europe and North America will generate 36% of total demand.
RPK and GDP Growth Rates

2013
2033
CIS
North America
2014 -2033 CAGR
Europe
2014 -2033 CAGR
2014 -2033 CAGR
RPK: 2.7%
GDP: 2.5%
RPK: 3.9%
GDP: 1.9%
RPK: 5.2%
GDP: 3.2%
China
2014 -2033 CAGR
RPK: 6.8%
GDP: 5.5%
Middle East
2014 -2033 CAGR
Latin America
2014 -2033 CAGR
RPK: 6.0%
GDP: 3.8%
Africa
RPK: 7.1%
GDP: 3.9%
2014 -2033 CAGR
RPK: 5.3%
GDP: 4.6%
Asia Pacific
2014 -2033 CAGR
RPK: 5.4%
GDP: 3.4%
05
Executive Summary
70 to 130-Seat Jet Segment
Embraer foresees world demand for 6,250 new jets in the 70 to 130-seat segment
over the next 20 years, representing a total market value of US$ 300 billion.
By 2033, 44% of the projected deliveries will be added to support market growth and
the remaining 56% to replace ageing equipment.
By 2033, 2,300 70 to 90-seat jets will be delivered worldwide to sustain hub-andspoke efficiency as those aircraft have the capability to link many lower-density
markets to major hubs and to develop regional aviation in emerging countries.
The 90 to 130-seat jet segment provides the opportunity to complement current
narrow-body operations and to develop new markets with lower risk. Some 3,950
jets in the 90 to 130-seat jet segment will be delivered over the coming 20 years.
Turboprops
Short-haul operation will drive a worldwide demand for 2,050 turboprops with a
capacity of 70 seats or more by 2033. Of these, 30% will support market growth and
70% will replace ageing aircraft.
For mid and long-haul operations, jet aircraft will continue to be more attractive
because overall operational efficiency and schedule compatibility with narrow-body
jets.
130 to 210-Seat Jet Segment

By 2033, 18,500 narrow-body aircraft will be delivered worldwide, 50% of which will
replace ageing aircraft. Jets at the top end of the capacity spectrum will continue to
dominate future demand, with an increasing focus on the largest aircraft.
7
06
70 to 90-Seat Jets
CIS
80
3%
North
America
Europe
300
1,250
13%
55%
China
Middle
East
70
300
13%
3%
Africa
70
Latin
America
3%
Asia
Pacific
140
6%
90
4%
World
2,300
7
07
90 to 130-Seat Jets
CIS
300
8%
North
America
Europe
840
760
21%
19%
China
Middle
East
180
720
18%
5%
Africa
160
Latin
America
4%
Asia
Pacific
380
10%
610
15%
World
3,950
08
70 to 130-Seat Jets
CIS
380
6%
North
America
Europe
1,140
2,010
18%
32%
China
Middle
East
250
1,020
17%
4%
Africa
230
Latin
America
4%
Asia
Pacific
520
8%
700
11%
World
6,250
09
Turboprops
(70 or More Seats)
CIS
70
3%
North
America
Europe
510
350
25%
17%
China
Middle
East
30
40
2%
2%
Africa
110
Latin
America
5%
Asia
Pacific
680
33%
260
13%
World
2,050
10
Narrow-bodies
(130 to 210-Seat Jets)
CIS
740
4%
North
America
Europe
3,980
4,410
22%
23%
China
Middle
East
1,070
2,750
15%
6%
Africa
410
Latin
America
2%
Asia
Pacific
3,720
20%
1,420
8%
World
18,500
11
Global Trends
Global Trends
Economic Scenario
Global GDP is expected to rise 3.2% annually over the next 20 years. Emerging
economies are projected to grow 5.0% per year while advanced economies will
average 2.0% in the same period.
The fastest-growing regions will be China with 5.5%; Africa, 4.6%; the Middle East,
3.9%; and Latin America, 3.8%. North America and Europe are projected to grow
2.5% and 1.9% annually, respectively.
Main Trends
Robust economic recovery (2013: 1.9%; 2014: 2.5%)
United States
Strong consumer, business, housing and trade fronts
Eurozone economic recovery (2013: -0.4%; 2014: 1.1%)
Europe
Spain, Portugal and Ireland improving

Improved competitivenessin the Eastern countries
Emerging
Markets
Rising imports in USA, the Eurozone and Japan will boost

external demand
Rising disposable income willencourage spending
There are potential downside risks to the future economic scenario, including: a
faltering U.S. economy resulting from monetary and fiscal tightening; reintensification of the financial turmoil in the Eurozone; overheating of China's
economy leading to austerity measures and credit restrictions; unresolved
infrastructure bottlenecks in emerging markets; and conflicts leading to a major
disruption in oil exports.
Emerging Urban Middle Class

More than half of the world's population lives in urban areas. It is expected that half
of the people in Asia Pacific and China will live in urban areas by 2020. Half of all
Africans will live in urban cities by 2035.
A surge in purchasing power of the global urban middle class correlates to
significant wealth redistribution. Urbanization and a wealthier population will further
boost global demand for transportation.
14
Global Trends
Air Transport Liberalization
In most regions, market access is still concentrated in links between large cities.
Liberalization benefits are still to be realized in low and mid-density markets which
are integral in developing connectivity with non-trunk routes.
Competition
Fierce competition is leading to business model convergence with a focus on cost
reduction and additional sources of revenue. In that sense, differentiation of
services to attract business passengers and expansion into lower density markets
are options for further development.
Air transport growth has been directly linked to low cost carrier expansion. Nearly
30% of current worldwide capacity generated by flights up to 2,000 nm are offered
by LCCs, two times higher than the level of 2000. In ASEAN and SAARC, LCCs
account for nearly 50%, and in Europe 40% of capacity. However, the LCC model
has been showing some signs of maturity fewer high-density markets are being
added. LCCs may need to consider new strategies by accessing lower-density
markets to sustain growth.
Network carriers are restructuring their businesses to compete with the LCCs in
intra-regional point-to-point operations. In the hub-and-spoke system, regional
airlines have been essential in providing network capillarity that global connectivity
requires.
Environment
According to IHS Global Insight, rising shale oil production in the United States,
softer demand growth from emerging economies and continued strength in nonOPEC supply are factors that will sustain crude oil prices in the US$ 80-100 per bbl
range over the next few years.
New aircraft and engine technologies will offer greater fuel efficiency, emissions
mitigation and noise reduction which will facilitate the replacement of old-generation
aircraft.
By 2050, the industry has committed to reduce its net carbon footprint to 50% below
the 2005 level. The use of alternative fuels, carbon-neutral biofuels, specifically, will
help the aviation industry meet its targets.
15
15
11
Regional Overview
Africa
Africa is the second most populous continent on earth with an estimated 1 billion
people in 2013 spread across a vast area with a poor ground infrastructure. The
economy is rapidly advancing with wealthier people and more stable governance.
The continent has the fastest growing middle class in the world. Domestic demand is
increasing and there is reduced reliance on commodity exports. The socioeconomic changes are leading to a projected GDP growth of 4.6% annually over the
next 20 years.
Economy
Real GDP: 4.6%
Growth: 2014-2033 CAGR
Air Transport Demand

RPK: 5.3%
Fleet
Intra-regional trade and nontraditional industries, such as financial services and

tourism, are also growing rapidly. Air transport connectivity is critical for African
growth and development. Economic expansion and regional integration will be the
main drivers of air transport demand which is estimated to grow 5.3% per year by
2033.
African air carriers have not taken full advantage of liberalization within the continent
which has led to foreign airlines increasing their market presence. Local carriers
need improved network connectivity in order to attract more passengers and
stimulate intra-regional integration.
Africa's air travel demand profile is comprised mainly of low and mid-density
markets. Some 93% of city pairs have traffic volumes of up to 300 daily passengers.
Nearly 55% of intra-regional markets do not have direct flights and around 65% of all
non-stop markets within the region are served with fewer than one daily frequency.
Despite historical traffic growth, the number of markets served has decreased.
Traffic is concentrated among the largest cities. African airlines provided direct
services in some 900 markets in 2000. They now link fewer than 800. During the
same period, the average aircraft size increased from 101 to 118 seats.
2013: 600
2033: 980
New Deliveries
750
Chart 1
Africa Market Profile
Aircraft up to 200 seats
Daily Frequency
Market Density (PDEW)

< 300
> 300
<1
7%
1-2
>3
12%
24%
64%
93%
Source: Sabre (2013)
Casablanca, Morocco
18
Africa
Although the majority of intra-regional markets are low and mid-density, the current
fleet in service is comprised of large capacity aircraft. Around 65% of the aircraft in
the single-aisle jet fleet has more than 130 seats which creates an imbalance
between aircraft capacity and market demand. Nearly 200,000 intra-Africa flights
with 130 to 180-seat jets (75% of the total) depart to African destinations with an
average of fewer than 120 passengers. The mismatch between capacity and
demand represents an opportunity for 70 to 130-seat jet aircraft to address the
network deficiency. With right-sized aircraft, such as the E-Jets family, African
carriers would be able to offer a better combination of capacity and frequency in low
and mid-density markets.
Chart 2
Passengers per Departure (130 to 180-Seat Jets)
60
205,000 Flights
(75% of total)
Flights (000)
50
40
30
20
10
60
70
80
90
100
110
120
130
140
150
> 150
Passengers per Departure
Source: Sabre (2013, up to 2,000 nm)
Airlines on the continent have recognized the benefits of replacing ageing fleets with
new-technology aircraft. The share of new aircraft added to their fleets has more
than doubled in the last five years (around 30% of all deliveries). Further opportunity
lies in replacement of the over 170 jet aircraft with fewer than 130 seats 80% of
the current fleet in service that is older than 10 years (Ascend data).
Casablanca, Morocco
19
Africa
70 to 130-Seat Jets
By 2033, 230 new aircraft will be delivered. The 70 to 130-seat jet fleet will increase
from 110 units in 2013 to 250 by 2033. 57% of these units will support growth and
43% will replace older-generation aircraft (including 50-seat jets).
Turboprops (70 or More Seats)

Some 110 new turboprops will be delivered. The in-service turboprop fleet is
projected to increase from 80 to 150 aircraft by 2033. 36% will support market
growth and 64% will replace old aircraft (including 30 to 50-seat turboprops).
Narrow-bodies (130 to 210-Seat Jets)

In this segment, 410 new aircraft will be delivered: 49% to replace old aircraft and
51% to sustain growth. The narrow-body commercial jet fleet will grow from 290 to
500 aircraft by 2033.
Projected New Deliveries

Seat Capacity Segment
Fleet in Service
2014 -2033
2013
2033
Jet 70-90
70
40
70
Jet 90-130
160
70
180
Jet 70-130
230
110
250
TP 70+
110
80
150
Jet 130-210
410
290
500
Casablanca, Morocco
20
Asia Pacific
The economic outlook in Asia Pacific remains robust over the long term, anchored
by the steady rise in domestic demand, and will contribute to the regions projected
annual GDP growth of 3.4% over the next 20 years.
Changing demographic patterns led by a rapid urbanization will further increase
household incomes, discretionary spending and the propensity to travel. A positive
economic outlook and intra-regional liberalization will drive Asia Pacific air transport
demand to increase 5.4% annually by 2033.
Economy
As the region becomes more liberalized and trunk routes mature, airlines will be
further encouraged to look to secondary markets as the next frontier of expansion.
Those city pairs will require 70 to 130-seat aircraft to sustain carrier growth.
Real GDP: 3.4%

RPK: 5.4%
Asia Pacific intra-regional flying is comprised mostly of low and mid-density

markets. Some 72% of city pairs have volumes of up to 300 daily passengers. In
contrast, around 90% of single-aisle jets are configured with more than 130 seats.
Additionally, there is an order backlog of more than 2,000 narrow-body aircraft for
scheduled airlines, 92% of all single-aisle jets on order. There is a mismatch
between aircraft capacity and market demand, a sizeable number of 130 to 180-seat
jet flights depart with fewer than 120 passengers. The imbalance between market
density and aircraft size limits an airline's ability to add frequency and improve
service quality in existing markets.
Some 60% of intra-regional markets have no nonstop flights and only half of all city
pairs have same-day return travel schedules.
Fleet
2013: 2,480
2033: 5,420
New Deliveries
Chart 3
Asia Pacific Market Profile
4,920

< 300
> 300
Daily Frequency
<1
1-2
>3
24%
28%
50%
72%
26%
Tokyo, Japan
21
Asia Pacific
The LCC model in Asia Pacific is showing some signs of saturation a slower pace
of year-over-year expansion and a higher rate of service cancellations in less dense
markets. In some cases, demand stimulation has not been sufficient to sustain highcapacity narrow-body operations. In 2004, LCCs opened 13 markets for each
market they cancelled. In 2013, that ratio decreased to only two markets opened for
every one cancelled. Some 80% of all markets cancelled by LCCs in 2013 had traffic
volumes of up to 300 daily passengers each way. In order to maintain their growth
rates, LCCs could consider aircraft with 90 to 130-seat capacity. Those jets could
effectively allow the carriers to access a wider range of markets, not only the
highest-density.
Chart 4
LCC Markets Served
CAGR 2004-2010:
33%
Number of Markets
600
CAGR 2011-2013:
10%
500
400
300
200
100
2004
2005
2006
2007
2008
2009
2010
2011 2012
2013
Source: Sabre
The region's existing fleet is ageing. According to Ascend, around 120 jets with up to
130 seats (38% of the total) are now older than 10 years and will need to be replaced
over the next 20 years. Australia, Indonesia and Japan have a sizeable fleet of
Fokker 100s, Boeing 717s and B737-500s that will be retired during the forecast
period.
In addition, around 45% of intra-regional turboprop capacity, measured by available
seat-kilometers, is deployed on routes longer than 250 nm. Those city pairs are
often better-suited to jet operations that increase overall network productivity and
have greater passenger appeal.
Tokyo, Japan
22
Asia Pacific
70 to 130-Seat Jets


In this segment, 3,720 new aircraft will be delivered: 41% to replace old aircraft and
59% to sustain growth. The narrow-body commercial jet fleet will grow from 1,750 to
3,950 aircraft by 2033.

2014 -2033
Fleet in Service
2013
2033
Jet 70-90
140
40
150
Jet 90-130
380
130
400
Jet 70-130
520
170
550
TP 70+
680
290
750
3,720
1,750
3,950
Jet 130-210
Tokyo, Japan
23
China
The long-term outlook for China remains strong as continued gains in productivity
and investment will sustain a 5.5% annual economic growth over the next 20 years.
China will become the largest economy in 2014 (in Purchasing Power Parity),
according to the World Bank.
Economic growth, urbanization and a noticeable rise in the country's middle class
are the pillars that will make China one of the fastest-growing markets in the world.
Air transport demand will grow 6.8% over the next 20 years.
Economy
Real GDP: 5.5%
A growing economy and stronger demand for air transport will generate a need to
improve air services. Although China's east coast markets account for 70% of
passenger movements in the region, their share is becoming smaller according to
the CAAC. China's domestic expansion will see more focus on western cities where
infrastructure is readily available and economic output is growing. China's "Go
West" strategy, designed to develop the economies of the west, remains the
government's top priority.
Regional aviation will not be limited to regional airports. The development and
expansion of large gateways hubs will also spur regional aviation growth as these
hubs will require feeder routes to be linked to them.

RPK: 6.8%
Fleet
2013: 1,860
2033: 3,870
New Deliveries
3,810
Government policies, through allocation of slots, control of terminals, and lower fees
will spur LCC expansion from its current limited penetration. In addition, 25 of 30
provinces have start-up airlines in development that will likely benefit from
government policies.
There are also government initiatives to reduce taxation on regional aircraft since
most of the nation's routes are low and mid-density. Some 80% of markets have up
to 300 daily passengers yet around 55% of all markets do not offer options for same
day return travel.
Chart 5
China Market Profile

< 300
Daily Frequency
> 300
<1
1-2
>3
19%
20%
55%
26%
80%
Source: Innovata, Airport-IS (2013)
Shanghai, China
24
China
China's civil aircraft fleet is almost exclusively comprised of narrow-bodies which
are not optimal for serving low and mid-density markets. Although the geography is
vast and there is a growing need for greater air transport connectivity, the country's
regional fleet accounts for only 7% of all single-aisle jets in service. In the mature
markets of the USA and Europe, up to 130-seat jets make up 38% and 22% of the
single-aisle jet fleets, respectively.
Share of Fleet in Service (%)
Chart 6
Fleet Composition
62%
78%
Narrow-bodies
93%
Up to 130-Seat Jets
38%
22%
7%
China
Europe
USA
Source: Ascend (2013)
The importance of regional aviation to China's socio-economic development is

recognized by the Chinese government. One of its top priorities is to encourage
airlines to optimize the efficiency of their fleets by increasing the number of regional
jets. This is consistent with the central government's drive to reduce regulation as
the Chinese market evolves which, in turn, should further stimulate airlines to review
their fleets.
Shanghai, China
25
China
70 to 130-Seat Jets
By 2033, 1,020 new aircraft will be delivered. The 70 to 130-seat jet fleet will
increase from 90 units in 2013 to 1,020 by 2033. 87% of these units will support
growth and 13% will replace older-generation aircraft (including 50-seat jets).

projected to increase from 0 to 40 aircraft by 2033. 75% will support market growth
and 25% will replace old aircraft (including 30 to 50-seat turboprops).

40% to sustain growth. The narrow-body commercial jet fleet will grow from 1,700
to 2,790 aircraft by 2033.

Fleet in Service
2014 -2033
2013
2033
Jet 70-90
300
10
300
Jet 90-130
720
80
720
1,020
90
1,020
40
40
2,750
1,700
2,790
Jet 70-130
TP 70+
Jet 130-210
Shanghai, China
26
CIS
The CIS region is forecast to follow the world average economic growth rate of 3.2%
over the next 20 years. This is mainly due to resilience of consumption from a strong
labor market, rapid wage growth and moderate inflation. Although solid, economic
growth will be well below the 5.1% average between 2000-2012 because of weaker
demand for commodities resulting from the economic slowdown.
Oil and gas revenues accounted for 52% of federal budget revenues and over 70%
of total exports in 2013. Economic growth continues to be driven by energy exports
although the region is seeking to diversify its economy, in which aviation will play a
key role.
Economy
Real GDP: 3.2%
Embraer projects that air transport demand in the CIS, measured by RPKs, will
increase 5.2% annually over the coming 20 years. A growing middle class with
greater consumer purchasing power combined with liberalization of air transport will
be the main contributors to regional development and integration.

RPK: 5.2%
The profile of the current CIS fleet in service is dominated by old technology and
inefficient aircraft which suggests strong demand for equipment replacement. The
region is home to one of the oldest fleets in the world. The average age of the singleaisle jet fleet is 13 years with 470 units 65% of the fleet in service older than 10
years. Some models need urgent replacement, particularly aircraft types with
smaller seating capacity. The average age of jets with up to 130 seats is now over 16
years with 82% of the fleet in service 225 units older than 10 years.
Fleet
Chart 7
Fleet Age Profile
New Deliveries
1,190
Share of Fleet in Service (%)
2013: 920
2033: 1,420
26%
54%
49%
15+ years
5-15 years
0-5 years
31%
15%
Up to 130-Seat Jets
25%
Narrow-bodies
Source: Ascend (2013)
Moscow, Russia
27
CIS
The CIS has plenty of room to improve operational efficiency and profitability within
the air transport sector since the region is mostly comprised of low and mid-density
markets. Some 91% of intra-regional markets have volumes of up to 300 daily
passengers, yet large-capacity jets dominate carrier fleets. Approximately 70% of
in-service and on-order single-aisle jets 720 aircraft are narrow-bodies. Not
surprisingly, around 60% of intra-regional markets have no nonstop flights. Seventyfive percent of all non-stop city pairs markets are served with fewer than one daily
flight. Weak connectivity is directly related to market density and the high capacity
profile of the fleet.
The discrepancy between market density and optimal aircraft size limits an airline's
ability to find the most profitable combination of capacity and frequency to serve low
and mid-density markets. In 2013, nearly 240,000 intra-CIS flights flown by 130 to
180-seat jets (72% of all movements) departed, on average, with fewer than 120
passengers. Those loads suggest that the flights could have been more profitably
flown with 70 to 130-seat aircraft.
Chart 8
Passengers per Departure (130-180 Seat Jets)
120
Flights (000)
100
240,000 Flights
(72% of total)
80
60
40
20
60
70
80
90
100
110
120
130
140
150
> 150
Moscow, Russia
28
CIS
70 to 130-Seat Jets


In this segment, 740 new aircraft will be delivered: 58% to replace old aircraft and

Fleet in Service
2014 -2033
2013
2033
Jet 70-90
80
30
90
Jet 90-130
300
160
320
Jet 70-130
380
190
410
TP 70+
70
30
90
Jet 130-210
740
460
770
Moscow, Russia
29
Europe
After a prolonged recession, the Eurozone economy is growing again but full
recovery is not expected before 2016. Western Europe will gradually recover with
countries in the north leading those in the south. Eastern Europe will benefit from an
improved Eurozone economy. In this scenario, the region's economy is projected to
grow 1.9% annually over the next 20 years.
European airlines are still vulnerable due to some weak home markets in the
Eurozone however improving fundamentals and growth in air travel indicate the
region is recovering.
Economy
Real GDP: 1.9%
In air transport, restructuring efforts are continuing. Network carriers have been
impacted by LCC expansion within Europe and by Middle Eastern carriers
competing for long-haul international traffic.
Hub efficiency is critically important to network carriers that rely on connecting traffic
and 70 to 130-seat jet aircraft play a key role feeding those hubs. E-Jets, for
example, provide global and intra-region connectivity with capacity that is conducive
to regular frequencies at Europe's most important hubs. Around 60% of E-Jet
passengers travelling to/from Paris CDG, Amsterdam, Frankfurt and Munich are
connecting.

RPK: 3.9%
Fleet
2013: 3,500
2033: 6,570
In addition to hub feeding, there are opportunities to address over capacity in intraEuropean markets served by 130 to 180-seat jets by network carriers. In 2013,
nearly 1.2 million flights (76% of all movements) departed, on average, with fewer
than 120 passengers. Flights with those loads are best suited for aircraft with fewer
than 130 seats.
Chart 9
(130-180 Seat Jets, Network Carriers Only)
New Deliveries
300
Flights (000)
5,630
1.2 mi Flights
(76% of total)
250
200
150
100
50
60
70
80
90
100
110
120
130
140
150 > 150

Paris, France
31
30
Europe
Countries in Western Europe provide a broader range of air travel services
compared to Eastern European countries where air transport is less mature. This
discrepancy is changing. Poland, Bulgaria, Montenegro, Lithuania and Estonia are
discovering the potential of 70 to 130-seat jet aircraft to build domestic and intraregional network connectivity. E-Jets are linking the largest cities in those countries
with small and medium communities and also connecting them with western
countries.
Sustained LCC expansion in Europe is weakening. The LCC model grew
considerably in 2010 but it has shown signs of maturity since then. Traffic stimulation
by LCCs in some new markets has not been enough to justify operation of high
capacity narrow-body jets. In 2007, LCCs opened 9.5 markets for each market they
cancelled. Half of all markets opened were mid-density (50-300 daily passengers).
In 2013, LCCs opened only 1.5 markets for each market cancelled. Some 85% of all
markets cancelled were low-density (10-50 daily passengers). Smaller 90 to 130seat aircraft could provide sustainable growth for LCCs in low and mid-density
markets and in off-peak hours.
Chart 10
LCC Markets Served
CAGR 2004-2010:
32%
Number of Markets
3,000
CAGR 2011-2013:
9%
2,500
2,000
1,500
1,000
500
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: Sabre
In Europe, nearly 320 jet aircraft with up to 130 seats are older than 10 years (48% of
the fleet in service). Western Europe has the majority of the region's ageing aircraft
that will need to be replaced in the next 20 years.
Paris, France
31
31
Europe
70 to 130-Seat Jets
Turboprops (70 Seats or More)



Fleet in Service
2014 -2033
2013
2033
Jet 70-90
300
230
320
Jet 90-130
840
350
880
1,140
580
1,200
510
230
540
3,980
2,380
4,800
Jet 70-130
TP 70+
Jet 130-210
Paris, France
31
32
Latin America
The region will report solid economic annual growth of 3.8% over the next 20 years
based on a favorable external environment, political and macroeconomic stability,
and more equitable income distribution. Per capita GDP will increase by 2.9%
annually from US$ 9,050 to US$ 15,960 in the next two decades.
Economy
Real GDP: 3.8%

RPK: 6.0%
Fleet
2013: 1,390
2033: 2,840
New Deliveries
While China's top ten cities contribute less than 25% of the nation's GDP, the ten
largest Latin American cities generate more than 40% of the region's GDP. That
geographical concentration is changing. According to the McKinsey Global Institute,
65% of Latin America's economic growth will come from small and middleweight
cities by 2025. That in turn, will lead to greater regional integration and air travel
expansion. Consequently, investment in infrastructure is key to continued growth of
the airline industry. Among other investments, the Brazilian government announced
a plan to expand regional aviation with the goal of having 95% of the population
living within a 100 km range of an airport.
There has been considerable consolidation among Latin American airlines but more
is expected. Fleet optimization is key. As secondary markets are poised to lead the
demand for new air travel, carriers will continue to acquire newer and more efficient
aircraft to serve low and mid-density markets and to maintain network connectivity.
The annual growth in demand for air transport has been robust over the last five
years at 7.0%. The trend is expected to continue over the next 20 years, when the
market will grow 6.0% annually.
Economic growth and investments are leading to regional integration. While in the
USA there are 1,890 regional aircraft serving 1,780 markets, Brazil (with its similar
geographic area), has only 180 regional aircraft serving 350 markets. Because it is a
highly developed country, USA GDP per capita will still be three times higher than
Brazil's in 2033 yet there is tremendous potential for growth in Latin America.
Countries with the largest air travel markets, namely Brazil, Mexico, Chile, Peru and
Colombia, have an average of 0.36 enplanements per capita, 5.6 times fewer than
the USA.
2,380
Chart 11
Regional Air Transport Brazil x USA
Source: OAG (2013; Brazil: 30-130 seats; USA: 30-90 seats)
Rio de Janeiro, Brazil
33
Latin America
The profile of the Latin America jet fleet is skewed to single-aisle transports.
Seventy percent of the fleet in service (790 units) is composed of narrow-body jets.
Moreover, 94% of the current order backlog in the region (510 units) is for aircraft
with more than 130 seats. Even though jet aircraft up to 130 seats represent nearly
40% of the narrow-body fleet in service, the number of new markets opened by
both categories of aircraft since 2008 is the same.
Chart 12
Market Penetration
790
739
712
Up to 130-Seat Jets
320
Narrow-bodies
Fleet in Service
December 2013
Markets Opened
2008-2013
Source: Ascend, OAG
Despite the dominance of larger aircraft, Latin America is mostly composed of low
and mid-density markets 80% have traffic volumes up to 300 daily passengers.
This imbalance of capacity and demand can create inefficiency. Large jets tend to be
deployed on routes where there is sufficient demand to justify the capacity yet the
same aircraft cannot offer frequent service in secondary markets. In 2013, over 50%
of all intra-regional markets has one or fewer daily flights using narrow-body jets.
Carriers responded to the capacity/demand mismatch and financial losses by
reducing frequency and withdrawing from markets. This adversely affected network
connectivity and exposed them to new competitors.
Aside from the development of low and mid-density markets, the opportunity to add
more frequencies in existing markets is limited because of the high number of largecapacity jets in carrier fleets. An efficient regional integration requires both smaller
aircraft and a fleet that is flexible to serve a range of missions. Jets in the 70 to 130seat segment can effectively improve connectivity in low and mid-density markets
and complement narrow-body flights during off-peak hours on trunk routes. Overall,
the aircraft serve to improve operating efficiency and profitability.
34
Latin America
70 to 130-Seat Jets



Fleet in Service
2014 -2033
2013
2033
Jet 70-90
90
30
100
Jet 90-130
610
250
650
Jet 70-130
700
280
750
TP 70+
260
90
260
1,420
820
1,700
Jet 130-210
35
Middle East
The Middle East is a region of contrasts. Some countries have fast growing GDP
while others are distressed with continuing geopolitical conflict and social unrest.
Several countries, especially in the Gulf region, are strengthening their tourism
industries to diversify their economies. GDP for the region is projected to grow 3.9%
annually over the next 20 years.
Economy
The efforts have had a domino effect by bringing visitors to the region, boosting
business and fostering air transport. The unique geographic position allowed
carriers to build global networks via the efficient transfer of passengers at their hubs.
The remarkable 11.4% traffic growth in 2013, according to IATA, identified the region
as one of the fastest-growing markets in the world, a trend that is expected to
continue. Embraer forecasts 7.1% annual RPK growth for the next 20 years.
Real GDP: 3.9%

RPK: 7.1%
Middle Eastern intra-regional air travel markets are most of low and mid-density
demand. Some 84% have volumes of up to 300 passengers daily. With a strong and
efficient regional network, carriers will be able to keep growing their intercontinental
traffic profitably.
The Middle East fleet is mostly comprised of large-capacity aircraft. Narrow and
wide-bodies account for 87% of the current fleet in service. Given the high
proportion of aircraft with more than 130 seats, it is not surprising that nearly 60% of
all non-stop intra-regional markets within the region are served with fewer than one
daily frequency.
Fleet
2013: 510
2033: 1,250
New Deliveries
1,350
Chart 13
Middle East Market Profile
< 300
Daily Frequency
> 300
<1
1-2
>3
16%
19%
24%
57%
84%
Dubai, United Arab Emirates
36
Middle East
An efficient traffic feed system is essential to serve local and connecting passengers
at global hubs. There is still room to improve links between Middle Eastern cities.
Despite the strong traffic growth, the number of markets served in the region has
been stable over the last few years. In 2009, airlines in the Middle East served 580
intra-regional markets compared to 600 in 2013. During those four years, 470
aircraft were delivered to carriers in the region. More than 90% of those deliveries
were for aircraft with more than 150 seats. Consequently, the average aircraft size
rose from 187 to 195 seats, limiting airlines' ability to expand within the region.
Available seat-kilometers for intra-regional 70 to 130-seat jet operations increased
10% annually in the last five years. Aircraft in that capacity category have been
crucial in improving connectivity with more flights for local traffic and more options
for intercontinental connections at hubs.
Chart 14
Middle East Intra-Regional Network
Up to 130-Seat Jets
2000
2013
Source: OAG
In 2013, half of all intra-regional flights operated by 130 to 180-seat jets (220,000
departures) had passenger loads better suited for aircraft with fewer than 130 seats.
The mismatch between aircraft capacity and market demand creates an opportunity
for 70 to 130-seat jets to capacity utilization. The continued imbalance limits an
airline's ability to open new markets and add frequencies in current markets.
37
Middle East
70 to 130-Seat Jets



Fleet in Service
2014 -2033
2013
2033
Jet 70-90
70
40
70
Jet 90-130
180
60
180
Jet 70-130
250
10
250
TP 70+
30
10
30
1,070
390
970
Jet 130-210
38
North America
The North American economy is picking up. The region's economic outlook has
improved with signs of stronger job growth, gains in personal income and an
improving housing market. These will contribute to GDP growth of 2.5% annually
over the next 20 years.
As the most mature market worldwide, air transport demand presents a RPK/GDP
ratio close to one. Embraer expects North American demand for air transport to grow
2.7% per year until 2033.
Economy
Real GDP: 2.5%

RPK: 2.7%
Declining yields and increased costs led the industry through a series of
restructuring efforts in the past decade. Aiming for greater efficiency, the USA airline
industry consolidated around four large carrier groups that now account for more
than 85% of offered capacity. Consolidation is allowing airlines to manage capacity
by reducing redundancies and enhancing synergies which, in turn, translates into
cost reductions, improved pricing power and revised passenger demand through
main hubs.
This trend is driving hub-feeder services toward the use of larger aircraft. Jet
productivity has been essential to sustain efficient network connectivity since 70%
of regional jet flights are longer than 500 km. Some 600 50-seat jets will be replaced
by 76-seat jets in the short term and the remaining 450 units later this decade and
early into the next one. Additionally, there are 600 J80s (70/76-seat jets) in service
with an average age of 7 years that will require replacement in the second decade of
the forecast.
Fleet
2013: 5,710
2033: 7,280
Chart 15
Retirement Profile
Regional Jets
J50
New Deliveries
J80
600
Number of Aircraft
6,770
500
400
300
200
100
0
2014-2018
2019-2023
2024-2028
2029-2033
Source: Ascend, Embraer
Over the coming years, there will be some relief to the expected shortage of pilots as
regional airlines replace their 50-seat jets with a fewer number of 76-seat jets.
New York, United States
39
North America
Regional carriers also play an important role in the capacity management of existing
narrow-body mainline operations. Shuttle business markets, like Boston-LaGuardia
and San Francisco-Los Angeles, are the perfect match for the 70 to 90-seat
segment that combines the comfort of a mainline aircraft with better economics than
50-seat jets.
Better seat inventory control allows a continuous search for superior yields and
efficiency. But there is still room for improvement. Some 68% of network carrier
intra-regional narrow-body flights depart with fewer than 120 passengers. Those
loads are more appropriate for 90 to 130-seat jet aircraft. Additionally, airlines can
complement prime-time narrow-body flights with jets up to 130 seats in non-peak
hours to match aircraft capacity to normal variations in demand during the day.
Chart 16
(130-180 Seat Jets, Network Carriers Only)
1,200
2.4 mi Flights
(68% of total)
Flights (000)
1,000
800
600
400
200
60
70
80
90
100
110
120
130
140
150
> 150

The region will also require new aircraft deliveries in the 90 to 130-seat jet segment
to replace the current ageing fleet. Approximately 140 aircraft are older than 10
years and will need to be replaced in the next 20 years.
40
North America
70 to 130-Seat Jets

projected to increase from 150 to 360 aircraft by 2033. All new deliveries will replace
old aircraft (including 30 to 50-seat turboprops).


Fleet in Service
2014 -2033
2013
2033
Jet 70-90
1,250
650
1,280
Jet 90-130
760
300
770
2,010
950
2,050
350
150
360
4,410
3,230
4,850
Jet 70-130
TP 70+
Jet 130-210
41
Definitions
Definitions
Definitions
70+ Seat Turboprops
70 to 90-Seat Jets
ATR-72
Q400
Ilyushin Il-114
EMBRAER 170, 175

CRJ700, 900
Antonov An-148
BAe ATP
TU-134
BAe 146-100, -200,
AVRO-RJ70, -RJ85
Fokker F28, F70
DC9-10, -20
EMBRAER 175-E2
ARJ-21
Mitsubishi MRJ90
90 to 130 -Seat Jets
130 to 210 -Seat Jets
EMBRAER 190, 195

CRJ1000
Superjet 100
A318
B737-600
A319, A320, A321

B737-700, -800, -900
Fokker F100
BAe 146-300, AVRO-RJ100
DC9-30, -40
B717, 727-100, 737 -100, -200, -500
MD87
YAK-42, BAC-111
B707, 757, 727-200, 737 -300,

-400
DC9-50
MD-80, -81, -82, -83, -88, -90
Tupolev TU-154, -204
Ilyushin IL-62
A320neo Family
B737 MAX Family
CS300
EMBRAER 190-E2, 195 -E2

CS100
44
Definitions
Regional Definitions
North America (USA and Canada)
Latin America and the Caribbean (includes Mexico)
Europe (includes Israel and Turkey)
Russia/CIS
Africa (excludes Egypt)
Middle East (includes Egypt)
Asia Pacific
China (includes Hong Kong, Macau and Mongolia)
Sources
Global Insight
The Economist
World Bank
OECD, McKinsey Global Institute
ICAO, IATA, A4A, CAAs
Eurocontrol
Ascend
Sabre
Airport-IS
OAG
Innovata
Embraer Market Intelligence
Airlines
45
45
45
Contact Information
We welcome your feedback and comments to:
market.strategy@embraer.com.br
The Market Outlook Commercial Aircraft Forecast (10th Edition)
is also available online at:
www.embraercommercialaviation.com
47
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Market Outlook

Paulo Cesar de Souza e Silva

RPK and GDP Growth Rates

2014 -2033 CAGR

2014 -2033 CAGR

2014 -2033 CAGR

2014 -2033 CAGR

130 to 210-Seat Jet Segment

Spain, Portugal and Ireland improving

Rising imports in USA, the Eurozone and Japan will boost

Emerging Urban Middle Class

Growth: 2014-2033 CAGR

Air Transport Demand

Growth: 2014-2033 CAGR

Intra-regional trade and nontraditional industries, such as financial services and

Aircraft up to 200 seats

Market Density (PDEW)

Source: Sabre (2013)

Passengers per Departure

Source: Sabre (2013, up to 2,000 nm)

Turboprops (70 or More Seats)

Narrow-bodies (130 to 210-Seat Jets)

Projected New Deliveries

Real GDP: 3.4%

Growth: 2014-2033 CAGR

Air Transport Demand

Growth: 2014-2033 CAGR

Asia Pacific intra-regional flying is comprised mostly of low and mid-density

Market Density (PDEW)

Source: Sabre (2013)

Turboprops (70 or More Seats)

Narrow-bodies (130 to 210-Seat Jets)

Projected New Deliveries

Growth: 2014-2033 CAGR

Air Transport Demand

Growth: 2014-2033 CAGR

Aircraft up to 200 seats

Market Density (PDEW)

Source: Innovata, Airport-IS (2013)

Share of Fleet in Service (%)

Source: Ascend (2013)

The importance of regional aviation to China's socio-economic development is

Turboprops (70 or More Seats)

Narrow-bodies (130 to 210-Seat Jets)

Projected New Deliveries

Growth: 2014-2033 CAGR

Air Transport Demand

Growth: 2014-2033 CAGR

Share of Fleet in Service (%)

Passengers per Departure

Source: Sabre (2013, up to 2,000 nm)

Turboprops (70 or More Seats)

Narrow-bodies (130 to 210-Seat Jets)

Projected New Deliveries

Growth: 2014-2033 CAGR

Air Transport Demand

Growth: 2014-2033 CAGR

Aircraft up to 200 seats

150 > 150