Credit Crisis May Help China's Small-Plane Sales, Embraer Says

By Irene Shen

Sept. 27 (Bloomberg) -- Empresa Brasileira de Aeronautica SA, the world's fourth-largest aircraft maker, said the global credit crunch is an opportunity to sell smaller planes, as airlines seek to reduce fuel cost without cutting services.

Embraer, as the aircraft maker is called, may triple 2008 sales, said its China Managing Director Guan Dongyuan. The company has delivered 41 planes to Chinese customers in eight years, with a contract backlog that will last until 2013, he said.

``Planes with 30 to 120 seats are more flexible than bigger ones at this difficult time,'' Guan said in an interview in Tianjin today. ``We'll keep stable growth in China in the coming a few years.''

Chinese airlines including China Southern Airlines Co. have been cutting services, using smaller aircraft and merging flights to cope with surging fuel costs. Jet fuel, the single-biggest expense for Chinese carriers, has climbed more than 30 percent in the past year, eroding airlines' earnings.

China's aviation industry may require up to 3,000 new planes in the next 20 years, according to Airbus SAS Chief Executive Officer Tom Enders, as the country becomes more affluent and travel restrictions are eased to let more citizens travel abroad.

About 11 percent of China's airline fleets comprise regional jets that carry between 30 passengers and up to 120 people each. That's a lower proportion compared with 42 percent in the U.S. and 33 percent in Europe, underscoring the potential market in the world's most populous nation, Guan said.

The U.S. subprime crisis may crimp consumption and hurt the global economy including China, causing the Chinese growth pace to slow to between 9 percent and 9.5 percent from last year's 11.9 percent, the Chinese bank regulator today.

``We haven't seen any cancellation in orders here,'' said Guan. ``In a financial crisis like this, a smaller plane is actually a solution for carriers who want to keep their slots and flight frequency unchanged.''

Embraer sold five EMB-190 jets to China's Kun Peng Airlines for $187.5 million in July.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net