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AIRLINE MARKET OUTLOOK Frederico Fleury Curado Executive Vice-President, Airline Market Farnborough 2006 Investors Meeting July 19 th , 2006

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  • 1. AIRLINE MARKET OUTLOOKFrederico Fleury CuradoExecutive Vice-President, Airline Market Farnborough 2006 Investors Meeting July 19th, 2006
  • 2. Forward Looking StatementThis presentation includes forward-looking statements or statements about events orcircumstances which have not occurred. We have based these forward-looking statementslargely on our current expectations and projections about future events and financial trendsaffecting our business and our future financial performance. These forward-lookingstatements are subject to risks, uncertainties and assumptions, including, among otherthings: general economic, political and business conditions, both in Brazil and in ourmarket.The words believes, may, will, estimates, continues, anticipates, intends,expects and similar words are intended to identify forward-looking statements. Weundertake no obligations to update publicly or revise any forward-looking statementsbecause of new information, future events or other factors. In light of these risks anduncertainties, the forward-looking events and circumstances discussed in this presentationmight not occur. Our actual results could differ substantially from those anticipated in ourforward-looking statements. THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 3. ContentsQ Airline Market Scenario and TrendsQ 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 demandQ Market Forecast THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 4. Airline MarketScenario and Trends
  • 5. Positive World Economic Scenario2006-2025 economic scenario is sustaining Air Travel Demand growth Projected Traffic and Economic Growth by Region (Average Annual Growth) World USA, Canada & Caribbean Latin America Europe RPK Russia & CIS GDP Africa Middle East Asia Pacific China 0% 1% 2% 3% 4% 5% 6% 7% 8%Source: Global Insight and Embraer THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 6. Increased Air Travel DemandTraffic is recovering at strong growth rates but in another environment 7000 80% RPK ASK Load Factor 78% 6000 76% Billion (RPK & ASK) 5000 % (Load Factor) 74% 4000 72% 3000 70% 68% 2000 66% 1000 64% 0 62% 1995 1996 1996 1998 1999 2000 2001 2002 2003 2004 2005 2006F 2007F 6.3% yoy 7.7% yoy 6.4% yoySource: ICAO - Contracting States - Scheduled Airlines THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 7. Revenue EnvironmentWorld yields are improving, but trend in real terms remains low 105 100 95 Index (1994=100) 90 85 80 75 World Nominal Yield 70 World Real Yield (adj. for US inflation) 65 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005F 2006F 2007F World real yields in 2005 are 28% lower than 1994 values in an environment where LCCs pricing power is the main driver.Source: ICAO (Contracting States - Scheduled Airlines), Global Insight (USA CPI Inflation) and IATA Economics THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 8. Financial Net ResultsSome improvement to profitability, projecting a healthier 2007 North America Europe -6.7 -5.2 0.0 World 1.6 1.3 1.4 -3.2 -3.0 3.3 2005 2006F 2007F Middle East 2005 2006F 2007F 0.2 0.1 0.3 2005 2006F 2007F 2005 2006F 2007F Asia Pacific Latin America 2.1 1.7 2.0 Africa -0.1 0.1 0.2 -0.4 -0.9 -0.6 2005 2006F 2007F 2005 2006F 2007F 2005 2006F 2007FSource: IATA (Jun/06) Values in US$ Billion THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 9. End of Cheap Jet FuelLack of spare oil production capacity remains high price trend 85 95 Capacity 90 Crude Oil 80 Demand Jet Fuel Millions of Barrel per Day 85 75 Price (US$/Barrel) 80 70 75 70 65 65 60 60 Current jet fuel 55 55 price 48% higher 50 than Jan/05 50 45 May05 May06 Jul05 Mar05 Mar06 Jan05 Jan06 Sep05 Nov05 1970 1975 1980 1985 1990 1995 2000 2005 For coming years oil barrel is expected to stay at US$60-70 level and jet fuel at US$1.70-1.90/gallonSource: EIA - Energy Industry Administration (Jun/06) THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 10. Higher Competitive EnvironmentLCC will keep capturing market share from Network carriers USA Domestic RPM Intra Europe RPK 5% 11% 12% 17% 16% 16% 19% 29% 11% 31% 19% 34% 76% 72% 60% 65% 57% 50% 2000 2005 2010E 2000 2005 2010E Network LCC RegionalSource: Back Aviation and Embraer THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 11. LCC & Network Cost Convergence 1Q 2006 1Q 2005 Airlines Operating Operating Net Operating Operating Net Result Net Result Net Margin Result Margin Margin Result Margin (MM) (MM) (%) (MM) (%) (%) (MM) (%) 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% Network 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% Regional 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% LCC 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% * United: Net Result includes reorganization items (the discharge of claims and liabilities primarily relates to those unsecured claims arising during the bankruptcy process. United recognized a non-cash reorganization gain of $24.4 billion in the 1Q06).Source: Airlines (Total System: Domestic and International) THE INFORMATION CONTAINED HEREIN IS THE PROPERTY OF EMBRAER AND SHALL NOT BE COPIED OR USED WITHOUT EMBRAERS WRITTEN CONSENT.
  • 12. Opportunities for RightsizingAdditional opportunities are still in the marketplace 6,018 routes with less than two average daily frequency 41% USA & Europe Average Daily Frequency by Route Routes operated exclusively by Jet Aircraft 34% from 91 175 seats up to 2000 nm % of Routes 17% 6% 2% 0 - 0,5 0,5 -