commercial aviation presentation - farnborough airshow

AIRLINE MARKET OUTLOOK

Frederico Fleury Curado

Executive Vice-President, Airline Market

Farnborough 2006 Investors Meeting

July 19th, 2006

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


QAirline Market Scenario and Trends

Q Important Issues in the 30-120 Seat Segment:

§ RJ 50: an intrinsic part of the air transportation system

§ E-Jets: matching aircraft capacity to market demand

QMarket Forecast

Contents

Airline Market Scenario and

Trends


0% 1% 2% 3% 4% 5% 6% 7% 8%

China

Asia Pacific

Middle East

Africa

Russia & CIS

Europe

Latin America

USA, Canada & Caribbean

World

RPKGDP

Source: Global Insight and Embraer

Positive World Economic Scenario

2006-2025 economic scenario is sustaining Air Travel Demand growth

Projected Traffic and Economic Growth by Region (Average Annual Growth)


0

1000

2000

3000

4000

5000

6000

7000

1995

1996

1996

1998

1999

2000

2001

2002

2003

2004

2005

2006

F

2007

F

Bill

ion

(RP

K &

AS

K)

62%

64%

66%

68%

70%

72%

74%

76%

78%

80%

% (L

oad

Fac

tor)

RPK ASK Load Factor

Increased Air Travel Demand

Traffic is recovering at strong growth rates but in another environment

Source: ICAO - Contracting States - Scheduled Airlines

6.3% yoy 7.7% yoy 6.4% yoy


Revenue Environment

World yields are improving, but trend in real terms remains low

Source: ICAO (Contracting States - Scheduled Airlines), Global Insight (USA CPI Inflation) and IATA Economics

World real yields in 2005 are 28% lower than 1994 values in an

environment where LCCs pricing power is the main driver.

65

70

75

80

85

90

95

100

105

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F 2006F 2007F

Inde

x (1

994=

100)

World Nominal Yield

World Real Yield (adj. for US inflation)


Financial Net Results

Some improvement to profitability, projecting a healthier 2007

Source: IATA (Jun/06)

Europe

2005 2006F 2007F

1.6 1.3 1.4

Values in US$ Billion

2005 2006F 2007F

-0.4 -0.9 -0.6

Africa

2005 2006F 2007F

-0.1 0.1 0.2

Latin America

2005 2006F 2007F

0.2 0.1 0.3

Middle East

2005 2006F 2007F

2.1 1.7 2.0

Asia Pacific

2005 2006F 2007F

-3.2 -3.0 3.3

World

2005 2006F 2007F

-6.7 -5.2 0.0

North America


End of Cheap Jet Fuel

Lack of spare oil production capacity remains è high price trend

Source: EIA - Energy Industry Administration (Jun/06)

4550556065707580859095

Jan0

5

Mar

05

May

05

Jul0

5

Sep

05

Nov

05

Jan0

6

Mar

06

May

06

Pri

ce (U

S$/

Bar

rel)

Crude Oil

Jet Fuel

50

55

60

65

70

75

80

85

1970

1975

1980

1985

1990

1995

2000

2005

Mill

ion

s o

f Bar

rel p

er D

ay

Capacity

Demand

Current jet fuel

price 48% higher

than Jan/05

For coming years oil barrel is expected to stay atUS$60-70 level and jet fuel at US$1.70-1.90/gallon


Higher Competitive Environment

LCC will keep capturing market share from Network carriers

Source: Back Aviation and Embraer

76%

60%

19%

29%

11%

57%

31%

5%12%

2000 2005 2010E

Network LCC Regional

USA Domestic RPM Intra Europe RPK

72%65%

11% 19%

17% 16%

50%

34%

16%

2000 2005 2010E


LCC & Network Cost Convergence

Operating Result (MM)

Net Result (MM)

Operating Margin

(%)

Net Margin

(%)

Operating Result (MM)

Net Result (MM)

Operating Margin

(%)

Net Margin (%)

American $52 -$106 1,0% -2,0% -$44 -$171 -0,9% -3,6%

Continental $11 -$66 0,4% -2,2% -$173 -$186 -6,9% -7,4%

Delta -$485 -$2.069 -13,0% -55,6% -$957 -$1.071 -25,8% -28,9%

Northwest -$15 -$1.104 -0,5% -38,2% -$301 -$529 -10,8% -18,9%

United * -$168 $22.411 -3,8% - -$239 -$1.012 -6,1% -25,8%

US Airways $125 $65 4,7% 2,5% $45 -$174 6,1% -23,7%

ExpressJet $37 $24 9,2% 5,9% $39 $23 10,3% 6,2%

Skywest $83 $35 11,2% 4,6% $34 $19 10,1% 5,5%

Pinnacle $22 $13 10,4% 6,4% $20 $23 10,3% 12,0%

Republic $48 $17 18,6% 6,6% $37 $15 17,4% 7,1%

Southwest $98 $61 4,9% 3,0% $81 $59 4,9% 3,5%

JetBlue -$25 -$32 -5,1% -6,5% $25 $6 6,7% 1,6%

Alaska Group -$125 -$79 -17,0% -10,8% $27 -$81 4,2% -12,5%

AirTran -$4 -$5 -1,1% -1,1% -$9 -$8 -3,2% -2,7%

1Q 20051Q 2006N

etw

ork

LC

CR

egio

nal

Airlines

Source: Airlines (Total System: Domestic and International)

* United: Net Result includes reorganization items (the discharge of claims and liabilities primarily relates to those unsecured claims arising during thebankruptcy process. United recognized a non-cash reorganization gain of $24.4 billion in the 1Q06).


6,018routes with less than two

average daily frequency

USA & EuropeAverage Daily Frequency by RouteRoutes operated exclusively by Jet Aircraft from 91 – 175 seats up to 2000 nm

34%

41%

17%

6%2%

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

Average Daily Frequency

% o

f R

ou

tes

Source: Back Aviation (OAG 4Q05)

Opportunities for Rightsizing

Additional opportunities are still in the marketplace

Can the RJ 50

market get

sustained?


Regional Airlines – Europe

TP 19953026 routes723 aircraftAv. stage length:200 nm (370 km)

TP 20052810 routes666 aircraftAv. stage length: 231nm (428 km)

RJ 20051722 routes294 aircraftAv. stage length: 387 nm (717 km)

RJ 1995273 routes37 aircraftAv. stage length:414 nm (767 km)

Last 10 years: RJ fleet grew 700% and TP shrank by 8%

Source: Back Aviation (OAG Jan/06; RJ: ERJ 145 Family, CRJ 100/200 and 328JET)


Regional Airlines – USA

RJ 20052888 routes1358 aircraftAv. stage length: 395 nm (732 Km)

TP 2005902 routes740 aircraftAv. stage length:159 nm (295Km)

TP 19951908 routes1599 aircraftAv. stage length: 179 nm (332 Km)

RJ 1995180 routes36 aircraftAv. stage length: 391 nm (724 Km)

Last 10 years: RJ fleet grew 3600% and TP fleet shrank 54%

Source: Back Aviation (OAG Jan/06: RJ: ERJ 145 Family, CRJ 100/200/440 and 328JET)


Source: Back Aviation (T100 and OD1A: RJ: ERJ 145 Family, CRJ 100/200/440 and 328JET). 2006 FAA Report (DOT Form 41 & Form 298C)

USA Hub & Spoke System

1. RJs are responsible for 22% of all USA domestic passengers

2. RJs: 3 connecting passengers for each local passenger

Hubs are largely dependent on RJs


New Market Opportunities - USA

Source: Back Aviation (OAG 2005)

136 potential markets without any direct service

Selection Criteria:

1. Market Demand: 25-75 PDEWs without

direct flights

2. Distance Profile: 250 -- 1500 mi

3. Revenue Environment: Yield >= RJ Yield

New market opportunities

Note: RJ Yield Curve = 2005 Yields for ExpressJet and Pinnacle – 1 coupon)


New Market Opportunities – EU

Source: Back Aviation (OAG) and Embraer

0 40 80 120 160 200

2001-2005

1996-2000

Markets

Primary-Primary

Primary-Secondary

Secondary-Secondary

Point-to-Point – new routes to secondary cities/airports is increasing


Source: China Airline Traffic Statistics 2004. Only domestic routes less than1,500 nm

RJ 50 Market Opportunities – China

Most of the routes have low demand density and low frequencies.

59%of total routes have less

than 1 daily frequency and

less than

135 pax/day


Yak-40Jet – 30 seats

122 aircraftAverage Age: 31 yrs

RJ 50 Market Opportunities – Russia

Tu-134

Turboprop - 50 seats122 aircraft

Average Age: 34 yrs

Jet - 76 seats123 aircraft

Average Age: 28 yrs

Jet - 120 seats54 aircraft

Average Age: 17 yrs

30-60Seat Segment

244 aircraft33 years old

(average)

An-24

61-90Seat Segment

91-120Seat Segment

Yak-42

Old Fleet Replacement

Source: BACK (Fleet PC Feb06)


RJ 50 Parked Aircraft

Source: Back Aviation (Fleet PC 06/Jul/06)

85CRJ100/200/440USA and Canada

3ERJ145Latin America

2ERJ145

13CRJ00/200/440Europe

Parked(as of Jul/06)

Aircraft TypeRegion

5%

1%

9%

% of FleetParked

103

5

98

Parked(as of Jul/06)

Total

ERJ145

CRJ100/200/440WORLD

Aircraft TypeRegion


RJ 50 Residual Value (RV) Evolution

RV by Quarter at 12 Years Age

ERJ 145s are sustaining Residual Values

Source: MBA Avitas Airclaims, et al

0.00

1.00

2.003.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

2002

Q4

2003

Q1

2003

Q2

2003

Q3

2003

Q4

2004

Q1

2004

Q2

2004

Q3

2004

Q4

2005

Q1

2005

Q2

2005

Q3

2005

Q4

2006

Q1

2006

Q2

US

$ M

illio

n

ERJ 145CRJ-200


ERJ 145 Family

The Evolution of Regionals


ERJ 145 Product Improvements

ERJ 145LR§ 13,500 ft

(China)

ERJ 145LR/XR§ 10,000 ft

(North America, South America, Mexico, China)

ERJ 145ER/MP§ 8,500 ft

(South America, Mexico, EASA)

High Altitude OperationDesign Weights Brake Hardware

ERJ 145ER/LR/XR Models § Maintenance costs reduction§ Original 1000FC Guaranteed

New Design § ER/LR Model: 1750 FC§ XR Model: 1800 FC

Optional weight increase:

ERJ 135ER§ Since Dec2005:

MZFW = +400kg (880 lb)

ERJ 145ER§ To be available mid 2006:

MZFW = +250kg (550lb)

ERJ 145LR§ To be available mid 2006:

MTOW = +600kg (1,320lb) MZFW = +500kg (1,100lb)MLW = +500kg (1,100lb)


ERJ 145 Family Orderbook

(as of June 30, 2006)

6

6

-

-

FirmBacklog

8581,023159864Total

676839157682ERJ 145

7474-74ERJ 140

1081102108ERJ 135

DeliveriesTotalOptionsFirm Orders

The 70 to 110-seat

jet market

evolution


0

1000000

2000000

3000000

4000000

2000 2005 2000 2005 2000 2005

Num

ber

of F

light

s

20-40% 41-60% 61-80% 81-95%

USA Dom.: Further Capacity Adjustment Opportunities

Load Factor distribution for USA domestic jet flights

RJ 50 70-110 Narrow-body (120-150)

There are further opportunities in the capacity adjustment process

Source: Back Aviation (T100)


E-Jets Family - USA & Canada

28 E170

Avg. Stage Length: 454 nm (841 km)

15 E175


11 E190


17 E190


28 E170


15 E170


Source: BACK/OAG (1H06 routes ; Fleet as of June 30, 2006)

Jun/06: 114 E-Jets


Jun/06: 114 E-Jets



E-Jets Family - Europe

Jun/06: 28 E-Jets


Jun/06: 28 E-Jets


6 E170


6 E170


10 E170 + 4 E175


2 E170




E-Jets Family - Asia & Middle East

2 E170


4 E170


8 E170


Jun/06: 14 E-Jets


Jun/06: 14 E-Jets




E-Jets Operation

Longest Route3,274 km (1,768 nm ; 2,033 sm) @ 5:10 hs

Air Canada – E190

Shortest Route137 km (74 nm ; 85 sm) @ 0:37 hs

Saudi Arabian – E170

Source: BACK/OAG (2Q06)

Jouf

Arar

New York

Calgary

EquipmentAvg. Stage Length (km)

Avg. Elapsed Time (hours)

Longest Flight (km)

Shortest Flight (km)

E170 930 1:50 2,510 137E175 962 1:55 2,219 150E190 1,017 2:01 3,274 301

E-Jets 945 1:52 3,274 137


RA

SK

/ M

Capacity

Regional Airlines

Beyond the Current Models...

There is a need for a new TOOL

Network Airlines

Low Cost Carriers

E-JetsE-Jets


E-Jets Family – Efficiency to all Business Models

Regional Network Low Cost

Source: Embraer (Mar/06)


EIS Statistics – E-Jets Family

(*) Air Canada operates E175 and E190

Operators 10 Operators 3Aircraft in Service 122 Aircraft in Service 23Flight Hours 332,736 Flight Hours 21,375Flight Cycles 226,429 Flight Cycles 13,666

Operators*

Aircraft in Service

Flight HoursFlight Cycles

E170/175 E190/195

12145

354,111240,095

E170/190 Family

Source: Airlines (as of Jun 23th 2006)


The E-Jets Family

The 70 to 110-seat market evolution


E-Jets Program

Jul/06Jun/06Jan/05Feb/04EASA

FAA

ANAC (CTA)

4Q06*Sep/053Q06*Feb/04

Jun/06Aug/05Dec/04Feb/04

E195E190E175E170Certification

Follow-on Certification

E190 ETOPS

Ready for customer operational approval:

ETOPS 75 minutes: end of 2006

ETOPS 120 minutes: end of 2007

(*) to be certified

CAT IIIa Autoland E170 LCY Steep Approach

E170 à

E175 à 4Q06

E190 à 4Q07

E195 à 4Q08

C e r t i f i e d

ANAC FAA

EASA

• Kit provides a fly-by-wire function to allow the use of multi-function spoilers as lift/drag devices.

• 650 nm range

Certification: Dec/06


E-Jets Family Orderbook

36-764036EMBRAER 195

292

220

3

33

FirmBacklog

163897442455Total

33539286253EMBRAER 190

1922-22EMBRAER 175

111260116144EMBRAER 170

DeliveriesTotalOptionsFirm Orders

(as of June 30, 2006)

Market Forecast

2006-2025


Embraer Market Forecast (2006-2025)

Worldwide Jet Deliveries by Capacity Segment

18,13518,135

10,18510,185

7,9507,950

3,4503,450

2,9502,950

1,5501,550

2006 2006 -- 20252025

790790

610610

180180

8888

6565

2727

US$ BiUS$ Bi

4,6004,6003,3503,35030 30 -- 120120

1,9001,9001,5501,55091 91 -- 120120

9,3809,380

4,7804,780

1,6501,650

1,0501,050

2016 2016 -- 20252025

8,7558,75530 30 -- 180180

5,4055,405121 121 -- 180180

1,3001,30061 61 -- 9090

50050030 30 -- 6060

2006 2006 -- 20152015SegmentSegment


USA, Canada& Caribbean

7,73543%

Europe3,82521%

China1,78510%

LatinAmerica

1,3207%

Africa2531%

AsiaPacific1,86511%

Middle East3922%

Embraer Market Forecast (2006-2025)

Projected Deliveries: 18,135 jets (30-180 seats)

Russia& CIS9605%

THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAER’S WRITTEN CONSENT.70 airlines. 43 countries. 1 manufacturer. EMBRAER70 airlines. 43 countries. 1 manufacturer. EMBRAER

Thank youThank you