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Embraer Wins First Indonesia Aircraft Deal

Embraer is supplying its first aircraft to an Indonesian airline as cost-conscious Southeast Asian carriers seek smaller planes to serve the region's second-tier cities more efficiently than large aircraft.

Embraer said that Kalstar Aviation, based in Indonesia's Kalimantan province, is leasing two E-195 planes from Ireland's Aldus Aviation. Embraer has nearly 200 commercial planes in service in Asia Pacific with 20 operators.

Though small, the Kalstar deal comes as competition intensifies in the regional jet market, with Japan's Mitsubishi Aircraft entering a segment where Canada's Bombardier also operates. Last February, Embraer clinched its first major Indian deal for 50 aircraft, valued at USD$2.94 billion, from start-up Indian carrier Air Costa.

"What's happening now is that we are getting a lot of development in wealth in the secondary and tertiary cities and by definition, those cities are not large enough to support high frequencies with 737s and A320s to do that profitably," John Slattery, chief commercial officer at Embraer Commercial Aviation, told Reuters news agency.

In recent years, Southeast Asia has emerged as a hot spot for Airbus and Boeing as the likes of AirAsia and Lion Air place record orders for narrow-body aircraft such as A320s and 737s, to cater to the region's population of 600 million.

But Slattery said 80 percent of the airlines in the Asia Pacific region were unprofitable in 2014 as intense competition is forcing carriers to drop prices to fill seats.

As bigger hub airports become more crowded and demand grows for services to and between smaller second- and third-tier cities, Embraer sees a market opening up for its family of aircraft that can carry between 70 and 130 passengers.

"We are not saying we want to replace A320s, 737s, ATRs. We complement the larger narrow bodies," said Mark Dunnachie, Embraer's sales chief for commercial aviation for Asia Pacific.

Kalstar, which has a fleet of more than 10 planes including turbo-prop ATR aircraft serving places like Berau and Semarang, plans to launch new routes and frequencies with the planes, said Kalstar chief executive Andi Masyhur.