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Embraer’s competitive advantage

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What gave E2 its competitive advantage?

Embraer’s (ERJ) E2 family of jets is built using the Pratt & Whitney (UTX) powered turbofan engine, better avionics provided by Honeywell (HON), and refreshed wings. All of these are part of the Industrial Select Sector SPDR (XLI). The jet claims double-digit fuel saving, reduced emission and noise, and lower maintenance cost. Bombardier (BDRBF) also claims similar cost savings, but Embraer’s technology is more advanced.

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Competing with Embraer in the similar space is Bombardier’s CSeries. Embraer’s competitive advantage over Bombardier is due to the development cost of the jets. The E2 jets were built on an investment budget of $1.7 billion, which is much lower than Bombardier’s CSeries development cost of $4.4 billion.

The E2 jet steals the show

Despite having an advantage of being launched five years ahead, Bombardier’s CSeries could not take off in time. The CSeries plane was originally expected to enter service in 2013, but it was pushed forward to the second half of 2015 due to some technical issues. This led to Bombardier using excess cash for development. Bombardier also ended up losing market orders from various companies.

In contrast, Embraer’s E2 jet received a warm reception on its launch, and the company bagged orders for 215 aircraft from seven customers, grabbing more than half the $5 billion worth of deals that were signed at the Paris Air Show when Bombardier couldn’t sign any deals for its CSeries.

Embraer has a backlog of more than 200 firm orders and 200 options or purchase rights for its E2. Bombardier has secured 203 firm orders and 310 options or purchase rights for the CSeries since the program was launched in 2008. The E-Jet has consistently outsold Bombardier’s CRJ family of regional jets since it entered service a decade ago and continues to improve Embraer’s prospects in the commercial aviation segment. Of course, Embraer will have to be constantly watching Bombardier to ensure that Bombardier doesn’t successfully take back the market share by sorting out what it messed up.

In our next article, we’ll look at how these advantages have helped strengthen Embraer.

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