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16 Dec, 2002

PB Air Helps Boost Embraer’s Foothold in Asia

Domestic Thai airline PB Air is to become the second in Asia to start operating the Brazilian-made aircraft, the Embraer ERJ 145, two of which are due to arrive in Thailand on Dec 23rd and go into service on Christmas day.

The aircraft will replace PB Air’s existing Fokker F28 equipment on its routenet which today includes 8 domestic cities and Luang Prabang, Laos. Airline President Capt Jothin Pamon-Montri said permission had been received to start operating to Danang, Vietnam, via Ubon Ratchathani, as of mid-January, subject to the regulatory changes being made in the Thai-Vietnamese aviation agreement.

The F-28s, which were bought by PB Air, are being sold to a leasing company from which the new ERJ-145s are being dry-leased. The ERJ-145s are 50-seat, twin-jet engine aircraft which burn an average of one tonne of fuel per hour, as against the 2.2 tonnes burned by the 27-year-old F-28s, saving PB Air about four million baht a month in fuel costs alone.

The arrival of the ERJ-145s will mark yet another Asian success for the Brazilian company whose only other regional client is Sichuan Airlines in China, which operates five ERJ-145s. Embraer has delivered more than 600 of this model since starting production in December 1996, but nearly all in Europe, Latin and North America.

Last December 2, Embraer signed an agreement to build an assembly unit in China through a joint venture with Harbin Aircraft Industry (Group) Co., Ltd. and Hafei Aviation Industry Co., Ltd. This is Embraer’s first industrial initiative outside Brazil to manufacture the ERJ 135/140/145 family of aircraft.

Named Harbin Embraer Aircraft Industry Company Ltd., it will be located in Harbin, capital of Heilongjiang province. The equity investment in the joint venture will be US$ 25 million. The 24,000 sq. m. production unit will create jobs for up to 220 people with the first aircraft set to roll out by December 2003.

The company will also handle sales and after-sale support for the ERJ aircraft family.

Embraer’s 20-year forecast envisages 640 aircraft deliveries in China and 490 in other Asia-Pacific markets. Together, however, that will only equate to 13% of the projected aircraft deliveries worldwide.

Academician of China’s Academy of Engineering, Dr. Zhang Yanzhong, who is also president of the Chinese partner in the joint venture, hailed it as another successful model of South-South Cooperation (Technical Cooperation among Developing Countries – TCDC). The regional aircraft market is now totally in the hands of the Big Two manufacturers, Airbus and Boeing, but the potential for the Sino-Brazilian venture is huge given the emerging market among Asia-Pacific airlines as they take advantage of increased liberalisation of the aviation structure.

Embraer has also set up a wholly-owned subsidiary, ECC Leasing Co. Ltd, to manage and remarket a portfolio of aircraft that Embraer may acquire through trade-ins and repurchase obligations as well as to provide remarketing services for third parties in connection with its sales campaign.

Embraer first set up a representative office in Beijing in 2000 and followed it up by establishing a joint venture with China Aviation Supplies Import and Export Corp to inventory and distribute more than 6,000 spare parts and components. The facility is electronically connected to other storage centers in Brazil, Australia, England, France and USA.

Located in São Paulo, Brazil, Embraer has a total workforce of 12,161 people and is the country’s second largest export earning company. As of September 30, 2002 its backlog for firm orders amounted to US$ 9.6 billion, with US$ 13 billion in options.

Capt Jothin said the new aircraft would boost the expansion plans of PB Air which is projecting ending this year with 130,000 passengers, up from an average of only 30,000 passengers carried in each 2000 and 2001.

He attributed this huge increase to the gradual pullout of THAI Airways from its money-losing domestic routes and handing them over to emerging airlines like PB Air. Since this handover began in November 2001, passengers on PB Air flights have risen from 8,189 in January 2002 to 13,288 in November 2002. The projection for December 2002 is 14,000 passengers.

From its hub in Bangkok, the airline is flying to Nakhon Sri Thammarat, Sakhon Nakhon, Nakhon Phanom, Krabi, Lampang, Petchabun and Roi-et. All these flights are code-shares with THAI which has a block allocation of 10 seats per flight and has requested 15 seats for next year.

On some of these sectors, like Sakhon Nakhon and Nakhon Phanom, THAI is still operating its own flights but has informed PB Air of its decision to pullout from both as of January 15, 2003.

Capt Jothin said the airline has developed its own Internet-based reservation system which is being used by 110 travel agents in Thailand. The system, which can print out tickets on plain A4 paper, saves the airline millions of baht that it would otherwise have to pay to THAI or other major global distribution systems.

With a payroll of about 120 people, PB Air has operating costs of about 26 million baht a month. He said contacts have been initiated with the Ministry of Transport and Communications to see if THAI can take up some shareholding in the airline. This will allow THAI, too, to make money from the growth of smaller airlines once they begin to turn a profit.

Expansion in the Mekong region is a major goal. PB Air is already competing with Bangkok Airways on the Luang Prabang route and expects this to heat up when it starts operating to Danang, Vietnam. He said Lampang is presently PB Air’s best performing route and Petchabun, the worst, but that was the package deal under which the airline had to take over THAI’s domestic routes, a mix of both the good and bad.

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