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Embraer Banks on US Sales Surge for Regional Jets

By David Pearson VILLEPINTE, France--Embraer S.A. (EMBR3.BR) will target U.S. airlines with current and re-engined versions of its E-Jets regional aircraft as growth prospects in Europe dim, the head of the Brazilian aerospace company's commercial aviation division said Tuesday. U.S. airlines will be placing big orders for narrow-bodied jets in the coming years as Embaer expects demand for 70-seat to 120-seat aircraft to take off in a country where most regional airlines fly only 50-seat jets, Paolo Cesar Silva said. Embraer, which is market leader in the 61 to 120-seat segment, will be competing for these orders with Airbus, Boeing Co (BA) and Canada's Bombardier Inc (BBD.A.T). The Brazilian manufacturer is keenly watching talks between U.S. labor unions and airlines over so-called "scope clauses" that limit the number or size of aircraft--and sometimes both--that national airlines can contract out to regional carriers, Mr. Silva said. Agreements with unions to ease up on these restrictions is likely to stimulate demand from regional carriers for larger aircraft than the 50-seaters they typically operate. Renegotiation of the scope clause at American Airlines will be part of the emergence of AMR Corp., the carrier's parent, from Chapter 11 protection from its creditors, Mr. Silva said. Other U.S. airlines are likely to follow suit. "We estimate that in the next few years there will be 400 to 500 aircraft that will have to be acquired by airlines in the U.S.," he said. In contrast, high fuel prices and Europe's prolonged economic crisis have played havoc with the region's airline industry. A number of small national and regional airlines have gone bust this year while Europe's biggest flat carriers are reining in their growth plans as they seek to cut costs and improve efficiency. So far Embraer is had any cancellations of orders, Mr. Silva said, though some customers are asking to postpone deliveries for a few months. He acknowledged, however, that Embraer's sales staff are reporting less buoyant conditions in Europe and emerging markets. "The markets in general are softer, especially in Europe given the crisis," he said. Embraer is planning to revamp its existing range of jets with new more efficient engines and possibly new wings rather than incur the higher cost of developing new aircraft from scratch, much as bigger rivals Boeing and Airbus have done with upgraded versions of their workhorse 737 and A320 single-aisle jetliners. Embraer is sticking to its decision not to enter the market for bigger jets to compete head-on with Boeing and Airbus, Mr. Silva said. The dominant markets shares and deep pockets of Boeing and Airbus, a division of European Aeronautic Defence & Space Co NV (EAD.FR), meant that Embraer's business case for such an aircraft was no longer valid, Mr. Silva said. "Maybe in the next decade we can look at it again," he said. -Write to David Pearson at david.pearson@dowjones.com

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