Tuesday, April 21, 2009
They’re Here, Now What?
Aircraft manufacturers count on customers to step up to more profitable products as they outgrow their current holdings. Take, for example, the customer who has previously transitioned from the Cessna Citation CJ1+ to the CJ2+ to the CJ3, and is now waiting for his CJ4—he is Cessna’s bread and butter. It’s the second, third or fourth jet down the product line that yields the profits for the manufacturer, not the entry-level product. The first is usually the loss leader to get the customer in the door. This is exactly why Cessna restarted the single-engine production line in the late ’90s—to get more people in the door to buy Citations later on. Cessna knows how to take care of its customers. As a result, in many cases, Citation customers have foregone the offerings of Cessna’s competitors to keep their ownership experience intact.
Embraer is building on this same philosophy. The company strategically announced the development of the Phenom 300 at the same time as the Phenom 100, but scheduled its certification one year after the 100’s certification. The Phenom 300 has 50% better range and 15% better speed than its little brother, but its price tag is almost 100% more (about $7 million for the 300 and $3.5 million for the 100). At the same time, there’s enough in common between the two to make the flying transition a relatively easy one with what’s currently planned to be a common type rating.
Embraer is taking a lesson right out of the Cessna playbook. Assuming Embraer, the world’s third largest aircraft manufacturer, can keep its customers satisfied through a robust customer support program, the company will more than likely convert its current Phenom 100 owners to Phenom 300 owners, netting large profits in the conversion.
Despite a few operational hiccups (to be expected for any new aircraft design), the Phenom 100 is getting great reports from its first handful of owners. Picking up a new Phenom from Brazil has proven to be a significant task within its own right, requiring about two weeks from start to finish. These proud new Phenom owners, however, aren’t complaining too much about spending a little time down in South America.
By the end of the year, Embraer expects to put out more than 100 of its Phenom 100s, significantly adding to the total VLJ operational fleet.
So what about Eclipse? Say what you will, but it’s hard to argue that the Mustang or Phenom 100 would be around today without the Eclipse.
Unfortunately, at this writing, Eclipse is undergoing a painful Chapter 7 liquidation process that’s going to leave between 1,000 and 5,000 (per bankruptcy filings) investors, vendors, customers, depositors and employees in a disastrous financial position. Eclipse’s business model required production levels on the order of 1,000 airplanes yearly for the company to turn a profit. The highest production level Eclipse ever experienced was about 20 airplanes in one month, 25% of the production level its business plan needed for the company to make a profit on the bargain-priced jets.
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