Monday, 14 January 2008

One-on-one: Embraer VP Sergio Chiessi Talks Shop

Embraer vice-president market intelligence – airline market Sergio Chiessi says the company is moving closer to a launch decision for its C-390 tactical transport jet, a program that could be officially kick-started this year. For more on that, check out this link.

However, during my interview with Chiessi, the Embraer executive had loads more to say about the company’s 2007 delivery accomplishment – a record 169 aircraft – and how it will achieve up to 215 deliveries in 2008. Here is a slightly abridged version of the interview in Q & A format.

Question: Embraer cites adaptations to its industrial processes for the 30% increase in deliveries in 2007. Can you give me any further specifics, such as how many new employees were hired in 2007; what exact production processes received a third shift; as well as any details about the lean manufacturing concept?

Answer: In terms of new employees hired in 2007, the total number is 4,500 - not just here in the San Jose Dos Compos plant in Brazil but at other plants. All of these people didn’t get up to speed immediately. You have to train. [Within] three to six months you have people getting wages but not involved in real production so we have an initial period of training and after that we have supervised it very closely for more experienced employees. In reality the learning curve increased along the year. We are quite assured they [the new employees] will enter 2008 almost with their full capabilities.

We did implement a third shift. We don’t have the third shift implemented in all activities of the plant here, but [we implemented it in] final assembly of 170/190, the mating of wings and fuselages. The painting shop also got a third shift [as did] composites. Those are in a rough way the areas of the production where we implemented the third shift.

One other thing that helped us a lot and we expect is going to help even more in 2008 and 2009 is the lean manufacturing processes that we started implementing in the second half of the year. It is giving very sound results. The lean is something that you start doing it and you don’t stop. We are in very early stages of lean manufacturing techniques but we already have been able to achieve very interesting improvements so people down here are very excited and there are many lean projects under analysis and under implementation.

Question: The robust forecast for 2008 will no doubt reflect the improvements made in 2007. Are any additional changes/improvements planned this year to accomplish the 215-strong delivery goal? Additional employees, etc? What still needs to be accomplished in this area?

Answer: We do believe that it will help us to achieve a 215 aircraft target. You have to consider that some 10 to 15 of those 215 will be Phenoms (very light jets) … Final assembly of the Phenom is much faster, not easier, but faster.

We hired the people along the year and we extend a lot of effort into training so the results showed up a little bit in the third quarter of 2007, much more strongly in the fourth quarter and of course we will see those results along 2008 but we don’t have plans to increase additionally the working force. We believe that with the learning curve and the lean implementation in additional areas, we do believe we can accomplish the 215 without additional manpower. We finished the cycle of hiring. We don’t have plans unless for replacing of some people due to regular turnover. We don’t’ have any plans to increase the working force in 2008.

Question:Can you give a sector breakdown for the 215 aircraft delivery goal for 2008? How many will be in the commercial sector, business aviation sector, etc?

Answer: We don’t do this normally because the finance analysts - they are following every company listed on the stock exchange and we believe it is not wise to open up these numbers. However, what I can tell you … the production rate of 12 to 14 (commercial regional jets) will be maintained per month in 2008.

Question: According to the backlog figures, the strongest seller thus far is the E-190, followed by the E-175. How do you see things playing out for the E-170 and E-195 in 2008? Do you anticipate a similar picture in terms of popularity of the types?

Answer: Of course predicting exactly the breakdown [for] each of the members of the family is impossible. For instance, when we launched the program in 1999, the scope clauses in the United States were at 50 seats and there was a big question mark as to where the scope clauses would go five to ten years after 1999. Now we are able to understand that they go to 75 to 76 (seats). That’s why the 175 is preferred against the 170. [With regard to the] 190 - due to the fact that a lot of the narrowbodies worldwide are flying with flights with full load factor, the 190 (the 100 seater) is getting a strong preference from the marketplace but I personally don’t break down this family in really four different products. To my understanding, and I’ve been in the airline business on the airline side for more than 25 years before coming to Embraer, I see this family with two products. One product is the 170/175 and the second project is 190/195 so. At 32in pitch we have just eight seat difference between the 170 and 175, so by all means I do understand that 170/175 is one product.

Question: Should the CSeries be launched by Bombardier this year, will Embraer counter with a larger type or does the 108-seat E-195 fit this space nicely.

Answer: If Bombardier launches, I understand that … from what they have been telling the press in conferences, they will launch the 110 [seater] first which is smaller, which makes sense and later on they will stretch to the 130. So the 110 is quite equivalent passenger capacity to the 195, and it can be substituted by the 190 in some applications. So, what we see is that we have been doing from the very beginning from the first day of entry into service, we have been putting our engineering towards improving the product and certifying additional capabilities of those aircraft. [We are] continually enhancing the product and we will keep doing this and if they [Bombardier] come with an entry into service in 2013 or 2014 we believe that with the customer base that we have conquered … we believe we can resist the competition with Bombardier.

Of course we respect them as a competitor. We understand that they are evolving slowly with the CSeries, but we are not afraid. We don’t intend to increase the capacity of the 195 trying to be more competitive against them.

Question: Do you have any final comments about Embraer’s prospects?

Answer: I would say two important things from our perspective. We are entering 2008 with almost $19 billion firm backlog, which is really an outstanding result. If we factor revenues in 2007, we have more than three years of production ahead of us, 3.5 years of production so this is quite important for us. It shows the amount of confidence the marketplace has in our products.

The second point in 2008 is the certification and the start and entry into service of the Phenoms. It is a fantastic program. We achieved more than 700 firm orders of the Phenoms even before the entry into service. The entry into service will be the second half of this year. So those are the most remarkable things.

Another important activity for 2008 is the customer service network extension. This is related not only to commercial aviation but also executive aviation expansion for Embraer.

(Photo from Embraer image gallery:

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