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Disappointing E2 Orders Could Impact Residual Values

December 10, 2018

The recent service entry of the Embraer E2 should be the occasion for celebration but at present the limited number of orders for the type and the uncertainty with respect to the takeover by Boeing provides for a measure of uncertainty with respect to current and future market values.

In contrast to some other new and re-engining programs, the development of the E190E2 was virtually trouble free and service entry was effected in April 2018 to Widerøe. The E2 is however, much more than a simple re-engining with the PW1919. The re-designed wing is accompanied by new pylons, landing gears, fly by wire and other systems. The larger PW1919 engine necessitated some of the changes. The E2 or Second Generation, aims to offer a 15-20 percent improvement in efficiency. The E195E2 features a stretch and will accommodate up to 146 seats which is comparable to the A220 (CSeries).

For the regional jet market, it is not unusual for few orders to be placed during the development phase. Only when the aircraft is in service and proving that it matches the design objectives, do more orders tend to be placed. Customers also tend to prefer delivery in the short term. The latest orders have been obtained from Helvetic Airways who ordered 12 E190E2s in September 2018 and Binter Canaria who ordered five E195E2s in November 2018. Some of the Helvetic orders will be used to replace existing E190s. Skywest has 100 E175E2s on order but these have been recently removed due to accounting issues but essentially remain in place. The orderbook for the E2 therefore totals 155 comprising 62 for the E190E2 and 93 for the E195E2. This compares with a total orderbook of 195 for the E170, 664 for the E175, 562 for the E190 and 202 for the E195. Embraer lost the JetBlue order to Airbus which represented a considerable disappointment. The potential takeover of the Embraer commercial programs by Boeing is adding some uncertainty but may eventually represent a boost to the program just as the A220 is benefitting from the Airbus takeover of the CSeries.

The values of the E2 should be enjoying a sizeable premium over the outgoing E190 and The Aircraft Value Analysis Company (AVAC www.aircraftvalues.net) indicates that the E190E2 is worth some $3 million more than the E190 at $34 million versus $31 million. This is partly because there are few orders of the E90 remaining to be delivered and because of the number entering the used market in the near term. With such a limited customer base. In terms of the future value of a 2018 delivered E190E2 the value is expected to fall to around $20 million representing a 40 percent decline in seven years. This compares with only a 30 percent fall projected for a 2018 delivered A320neo delivered over the same timeframe. More orders need to be placed for the E190E2 in particular to prevent residual values falling.

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