Monday 25 June 2018

Jet boss plots successful route from Shannon to Sao Paulo

The high-flying aviation chief tells John Mulligan that he feels ‘blessed’ to be working at Brazil’s Embraer as it prepares to launch its $1.7bn development programme of next-generation aircraft after making the ‘unusual’ switch from the aircraft leasing industry to jet manufacture

Embraer’s John Slattery says he is focused on current challenges
Embraer’s John Slattery says he is focused on current challenges

When he was growing up, Shannon Airport was "the coolest thing" near John Slattery's hometown in Ennis, in Co Clare.

It was where he and his brother, Domhnal, discovered a fascination with aviation that became a lifelong involvement in the global industry.

For years, both followed a similar trajectory, making their marks in the international aircraft leasing business.

But a few years ago, they arrived at a fork in the road.

John jumped at a chance in 2011 to become the head of customer finance and asset management at Brazilian jetmaker Embraer, while Domhnal ploughed ahead with co-founding Avolon, now the world's third-biggest aircraft lessor. John says he and his brother "had a conversation" about him joining Avolon, but that he instead opted for Embraer.

John Slattery (49) says it was an "unusual" path for him to take, moving to an aircraft maker from leasing.

"As a European to join a Brazilian aircraft maker - there are a lot of anomalies with this," he says. "But the reason I joined was the cultural fit. Domhnal and I are obsessed about values and culture. With Embraer, there was 100pc alignment on the values and the cultural fit."

To date, Domhnal (50) has been the most high-profile of the duo, especially in mainstream media. He has previously reminisced about how when delivering vegetables with his father to Shannon Airport as a youngster, the kerosene seeped into his veins.

Over coffee at Dublin Airport, his younger brother sets the record straight.

"Domhnal tells the story, but I was there too," he says with a grin. "We used to go on alternate Saturdays actually, that was the deal. Shannon really was just ahead of the curve back then. There's a lot of lads that we grew up with who are in aviation today. It's a little unusual maybe that Domhnal and I are in the same industry, but I'm very grateful to him because that's how I got my start in aviation."

But while his brother may have helped him find his feet in the sector, John Slattery has ploughed his own furrow.

Having once worked with Domhnal's International Aviation Management firm, which was sold in 2001 to Royal Bank of Scotland (RBS), John worked afterwards with RBS Aviation Capital, and was based in New York, where he headed operations for the Americas. He also joined the bank's North America board.

"We grew the third-largest aircraft leasing company in the world in 36 or 40 months," John recalls. "In your career, that won't happen too often. In Domhnal's career it's happened twice."

RBS sold its aircraft leasing business in 2012 to Japan's Sumitomo Mitsui Financial Group for $7.3bn. It was renamed SMBC Aviation Capital and remains headquartered in Dublin, run by Peter Barrett.

Slattery left RBS in 2007, branching out with some of his own projects before eventually landing at Embraer. He moved to Brazil two-and-a-half years ago, and lives near Embraer's corporate headquarters in Sao Paulo with his wife (who happens to be Brazilian) and two kids.

"I work at the plant, and for me it's a dream come true," he says, adding that the job also changed the dynamic of the relationship with his brother, at least to some extent.

"You rarely see Domhnal and I now together in a business environment," he says. "We do cross paths, but when we get together it's behind closed doors. We don't talk about business, which people find a little unusual. It can get full of conflicts, so it's just easier if we don't.

"The days of singing on stage together at industry events are long gone," he says.

Last year, Slattery was named head of Embraer's commercial aviation unit. It's the biggest division, generating nearly 57pc of the group's $6.2bn (€5.3bn) revenue in 2016. Embraer, listed on the stock exchange in New York, made a $206m (€175.4m) operating profit last year.

Embraer's commercial aviation business makes single-aisle jets, dominating the global market for aircraft with between 70 and 130 seats. In terms of capacity, they sit below single-aisle jets such as Boeing's 737 and Airbus's A320 families.

In 2016, Embraer made 108 commercial jet deliveries. It's also a significant private jet manufacturer and makes defence aircraft, with the Brazilian government being its primary customer on that side of the business.

At the end of June this year, Embraer's firm order backlog was valued at $18.5bn (€15.7bn). It expects to deliver between 97 and 102 commercial aircraft in 2017, and between 105 and 125 executive jets.

Embraer's main competitor is Canadian company Bombardier. Its commercial aviation unit generated revenue of $2.6bn last year, and delivered 86 jets.

There are smaller rivals too, including Japan's Mitsubishi and Russia's Sukhoi, but Embraer significantly outsells its rivals.

Embraer, which employs more than 18,000 people, is spending $1.7bn developing its next generation of commercial jets, the E2 family (an evolution of its current E175, E190 and E195 aircraft). Using state-of-the art avionics, Embraer has already drummed up significant interest and orders.

Norwegian airline Wideroe will be the launch customer for the E190-E2, which has up to 114 seats. That will see the jet come into service around spring next year. The 80-seater E175-E2 is due in 2021, while Brazilian carrier Azul will debut the up to 144-seater E195-E2 in 2019.

"We launched the E2 (jet family) at Le Bourget Airport [at the Paris Airshow] in June 2013, with 365 commitments that day and we continue to add to that," says Slattery. "On aggregate, we've about 750 commitments today for the E2."

And surprisingly for a major aircraft development programme, Slattery points out that it is, so far, below budget, on schedule, while the jets are lighter than previously anticipated (which will further reduce fuel burn).

"The three key pillars of a successful programme are to be on time, on budget and on spec. We have matched or beaten each of the three for the E2 programme," says Slattery. "That gives our customer base a lot of confidence."

He insists there's a specific reason that Embraer has been able to successfully deliver the aircraft programme.

"Since 2000, we have developed and certified more aircraft across the group of companies in Embraer than any other OEM (original equipment manufacturer) in the world."

Embraer jets are used all over the world, with American Airlines, United, Jetblue, Flybe, Air France-KLM and British Airways being just some of the operators. Almost 1,400 original E-class jets have been delivered by Embraer.

The Brazilian firm also chased Pat Byrne's Dublin-based CityJet as a client, with the carrier having instead opted for the Sukhoi Superjet as well as Bombardier CRJ900 jets for its group fleet. "We were in the mix," Slattery confirms, before alluding to Bombardier's current difficulties.

In a preliminary ruling, US International Trade Commission has just slapped a 220pc tariff on imports of the Canadian aircraft maker's jets into the US, after Boeing lodged a complaint that its tiny rival had allegedly received government subsidies. Those subsidies, argued Boeing, allowed Bombardier to sell its C-Series jets in the United States at significantly less than their list price, undercutting Boeing's 737. Bombardier has denied the allegations and can appeal the initial ruling.

"One of the things we're tasked with at Embraer is generating a sustainable return for our shareholders," says Slattery. "We're a public company. We're always available to structure aggressive deals, but at the end of the day I have a responsibility to the bottom line, not just the revenue line, and to try and ensure we have a sustainable business.

"Profitability and cash flow are very important to us," he adds, arguing that all manufacturers want is a level playing field.

Brazil has also taken a complaint to the World Trade Organisation against Canada, in relation to alleged subsidies provided to Bombardier. That complaints panel opened last week.

Embraer, founded in 1969, hasn't been squeaky clean itself though. It agreed to a $205m settlement last year following a probe by the US Securities and Exchange Commission and the US Department of Justice (DOJ).

Announcing the settlement, the DOJ said that Embraer had paid bribes between 2008 and 2011 - before Slattery even joined the aircraft maker - to a number of government officials and other agents in Saudi Arabia, Mozambique, India and the Dominican Republic in order to secure government contracts.

Slattery says that over the next 20 years, the global market for 70-130 seater jets will be about 6,400 units. Asia as a whole, including China, will soak up about 27pc of those aircraft, he predicts. China is already an important market for Embraer.

"It's a critical area for us. North America and western continental Europe will account for 50pc of our business in the next 20 years," says Slattery, adding that wealth expansion in India, China and the wider south-east Asia will help propel the growth of air travel.

Slattery says that there is "some cause for concern" at the number of young airlines in Asia making "massive bets" with big jet orders.

"But when you reverse-engineer the projections they have used against their local market, and the passenger growth that's being assumed, you see that the orders that they have made will be comfortably deployed in their local markets," he says.

Slattery makes sure he always flies commercial airlines when travelling for work, rather than using one of Embraer's private Phenom jets. That way, from time to time, he gets to talk to pilots of the group's commercial jets to see what they think of them.

That insight will serve him well if he ever becomes group chief executive at Embraer - something that surely must be at the back of his mind. The incumbent, Paulo Cesar Silva, who took on the role last year, is now 63.

Slattery, who was in Ireland last week to speak to MBA students at the University of Limerick (he's an adjunct professor there), insists that he's focused on doing his job for now, and won't say if the top job is in his longer-term sights.

"The future will be what the future will be. I'm focused on big challenges and a big mandate that I have to address," he says. "I'm surrounded by rock stars who are the best in the world at what they do. They're all very humble, which is one of the secret sauces of Embraer."

So is being Irish. "Aviation and travel is in our blood," says Slattery of the significant Irish executive presence in global aviation. "People like to do business with us. The doors open a little easier."

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