Rapid Recovery Of Aviation In Africa Is Essential
Cesar Pereira was recently appointed Vice President of Europe, Middle East and Africa (EMEA) for Embraer Commercial Aviation, and will be based in Amsterdam. Cesar is moving from Singapore where he had been Vice President of Embraer Commercial Aviation for Asia Pacific. In the midst of arranging his family’s move to Amsterdam, Cesar took some time out to give us his thoughts on commercial aviation in Africa.
Q: How would you assess the impact of the COVID-19 on the aviation industry in Africa so far, and how has Embraer responded in the pandemic?
A: The impact has been huge. Passenger numbers are down around 50-60% in most places on the continent, but up to 70% down in others. The good news is that the sector in Africa did show some resilience – aircraft continued to fly, delivering essential goods and ensuring medical workers and supplies were available throughout the continent. However, the task ahead is considerable, African aviation was set for major growth, with passenger numbers expected to double in the next 20 years. The rapid recovery of aviation in Africa is essential in helping to mitigate the economic fallout from the pandemic, and to build a solid future.
Irrespective of whether the reduced demand is transient or structural, the airline industry is inherently cyclical and its volatility poses a risk.
We are seeing the market value flexibility above all. Lower capacity aircraft like Embraer E-Jets are ideal in providing flexibility in a weak-demand environment. Fewer seats, improved yields, and lower trip costs, produce better bottom-line results compared to larger jets. Moreover, E-Jets allow carriers to restore service to more cities faster and develop connectivity to flow passengers across their networks.
As the headwinds ease, airlines with right-sized aircraft will also recover faster and stronger.
Q: Now the industry is striving to restart in Africa, how do you think African Airlines can restart sustainably, given the load of idle aircraft and maintenance needed to sustain safety?
A: The recovery of aviation is critical for Africa. Aviation doesn’t just connect people, it nurtures regional integration, creates jobs and enables trade. According to IATA, African aviation directly supports 6.2 million jobs and contributes $56bn to the continent’s GDP.
For many African airlines, and airlines globally, a sustainable restart willbegin with a full reset and assessment of the airline’s position. With demand in Africa likely to recover back to 2019 levels by 2024/2025, right sizing capacity and fleets will be essential for sustainability. From Embraer’s perspective, we see the 70-150 seat aircraft market as the most sustainable for intra-Africa operations, better matching the market demands in the region for thinner routes, and with the impact of covid-19 on travel demand, larger gauge capacity aircraft are just riskier commercially and financially.
As the new scenario suggests that pricing has a very limited effect on demand, this new normal would push airlines to consider a new tactical approach: Keep the aircraft size and reduce service levels, or right-size operations with a 70 to 150-seat aircraft. A smaller aircraft will be seen as an “insurance” to help airlines navigate the ever-changing environment. The new normal might also drive greater opportunities for airlines to further develop point-to-point networks by opening up connections between more cities. Just look at my home country of Brazil, Azul has seen unprecedented success in the market with this strategy.
Q: Embrear recently signed for aircraft in Africa, with all airlines now needing every support; how do you hope to support Embraer operators in Africa?
A: Aircraft support is essential. These assets need to be in the skies earning revenue, not on the ground costing money. Embraer has significant presence on the continent and a service and support operation that already helps to maintain the 189 Embraer aircraft operating in Africa with 54 airlines in 27 countries.
Embraer has E-Jet maintenance service centers in Nairobi (Kenya Airways) and Cairo (Egyptair) and six ERJ and EMB maintenance services across the continent. Embraer’s E-Jet simulator is located in Johannesburg, South Africa.
Embraer Services and Support offers an extensive portfolio of solutions with the necessary flexibility for each customer’s needs, irrespective of fleet type or size. Our world class services and support team have been guiding our existing customers in the region closely during the pandemic. We have also made sure our E-Jet simulator in Johannesburg has remained open for training. In parallel, we have provided continuous studies and dynamic market analysis to customers and industry stakeholders in Africa to provide perspective on recovery scenarios in the region.
Q: Africa’s regional market needs be restarted to drive interconnectivity and economic activities, and aviation institutions have called for financial support to African airlines by their governments; what is your position in this regard?
A: It will take time for demand to recover. Governments and regulators have an important role to play in supporting the industry’s recovery. How this is done will depend on different variables and what is appropriate for the market, the operator, and governments. Governments have access to multiple levers that can be pulled to support the industry, from direct financial support, policy amendments, loan guarantees, and tax relief.
The creation of the Single African Air Transport Market (SAATM) was an important step in improving the future for aviation in Africa. However, the implementation of SAATM has not been without difficulties. There is much that governments and regulators can do to support and to add rigour to SAATM so that it does become a key enabler for growth. Embraer supports the SAATM initiative and works closely with IATA, AFRAA, and other industry stakeholders to help make SAATM a reality.
Financing is a challenge, especially in today’s ‘new normal’. At Embraer we have strong partnerships with ECAs – including AfrExim, African Development Bank, BNDES -, and local African Banks to structure financing solutions for our customers.
Q: How has COVID-19 affected your expansion among African airlines, what would you say is the major challenge you will be facing penetrating further in the African market in the near-term?
A: Africa, has been an increasingly important market for Embraer – there are now nearly 200 Embraer aircraft operating on the continent. In addition to the robust and very active secondary market, we have recently announced deals in Africa including our newest jet – the E2, the most environmentally friendly family of jets in the segment with the best operating economics.
The pandemic presents many challenges to the industry: passenger concerns, liquidity, demand, quarantines – the list goes on. However, it’s essential that carriers restore their networks as soon as they can in order to generate critical cross-feed. Most markets aren’t sustainable with just point-to-point traffic – they need connecting passengers to supplement local demand.
At Embraer we have over 50 years of experience in the commercial aviation market and we can say with experience that when demand is strong, smaller aircraft are used to add frequencies to grow secondary markets. When demand slumps, those airplanes help protect those same markets by maintaining service. Suspending flights to a city weakens the attractiveness of a network.
Q: The industry was looking forward to the partnership between Embraer and Boeing; would you say the industry has lost a potential value-addition, and is Embraer looking to such high-level partnership going forward?
A: The improper termination of the agreement by Boeing was disappointing. The agreement would have been a positive move for both companies, but not fundamental. In commercial aviation, our business remains strong and we are leaders in the regional jet market, with over 60% of the global market share and our aircraft are the newest and most efficient family of jets on the market.
We are open to discussing partnerships aimed at specific projects, whether for product development, or involving engineering services. Across the broader company, we are also considering opportunities in high-tech segments related to our business, such as cybersecurity, air traffic control and satellites, in addition to expanding the provision of services to other manufacturers, which we call agnostic services.
Q: What is your projection for Embraer’s business in Africa over the next 3-5 years, and would you say you have learnt any lessons from the COVID-19 impact on the industry?
A: I’m confident our business will continue to grow across Africa, though perhaps initially not quite as rapidly as expected. We also have an excellent experienced team across Africa, including Gad Wavomba and Francisco ‘Chico’ Moraes our Sales Directors, who continue to build great partnerships with our customers in Africa.
Africa has long been a market with low frequencies and long thin routes. As airlines start to ramp up their operations, our family of aircraft is perfectly positioned to right size routes previously operated by narrow-bodies, while keeping frequencies and adjusting capacity to new levels.
With the high level of support Embraer is able to deliver on the continent, and the success our customers have with the aircraft, while there is certainly some turbulence, the fundamentals still look good for growth in Africa.