For years, fractional ownership company NetJets has been Wichita's biggest buyer of business jets, buying up billions of dollars of Cessna and Hawker Beechcraft's sleek aircraft.
So NetJets' recent announcement that the company has placed an order with Embraer for up to 125 Phenom 300 light business jets is "unpleasant news for Wichita," said Teal Group analyst Richard Aboulafia.
"It confirms what everyone suspected — that Embraer is aggressively getting its foot into the heart of the Wichita core market," Aboulafia said. "If anyone had any doubt left, this is as loud of a wake-up call as you'll get."
Cessna and Hawker Beechcraft are having to yield market share to an aggressive new competitor in Embraer, Aboulafia said.
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"When you're in the part of the market that's imploded, and someone else is aggressively attacking your share, that's a worse-case scenario," he said.
NetJets announced the order in mid-October at the National Business Aviation Association's annual convention in Atlanta. The company placed a firm order for 50 Phenom 300 jets with an option for 75 more in a deal worth more than $1 billion.
The first 50 planes are scheduled for delivery from 2013 to 2015.
NetJets CEO David Sokol said he hopes to exercise all the options.
"We're very excited about adding the airplanes to our fleet," Sokol said during NBAA.
NetJets is the second fractional ownership company to make a major purchase of Embraer Phenom 300s.
Cleveland-based Flight Options has ordered 100 Phenom 300s with options for 50 more to be delivered over the next 10 years.
It took delivery of the first one in May.
NetJets allows customers to buy a portion of a business jet with a certain number of yearly flying hours.
Wichita companies traditionally enjoyed large orders from NetJets until the economic downturn took its toll on the industry.
NetJets currently operates 838 business jets. Of those, 343 are Cessna Citations and 158 are Hawker Beechcraft jets. It also operates Gulfstream and Dassault Falcon aircraft.
In 2005, NetJets — the nation's largest fractional ownership company — and its competitors took delivery of 19 percent of all business jets shipped that year.
That figure has now dropped to about 2 percent.
In the past year, NetJets has canceled large orders with Hawker Beechcraft, Cessna and other planemakers.
A year ago, it canceled a $2.6 billion order with Hawker Beechcraft. It's also believed that a $1.1 billion order cancellation Cessna recorded on its books around the same time was from NetJets.
In 2009, NetJets took a $711 million pretax loss, compared to pretax earnings of $213 million in 2008.
This year, however, NetJets is expected to finish with a profit. For the first nine months of 2010, pre-tax earnings totaled $158 million.
The Platinum Edition
Embraer worked with NetJets for a Phenom 300 special model "Platinum Edition," which includes certain enhancements to the aircraft and is exclusive to NetJets, Sokol said.
NetJets will roll out a "significant marketing activity" around the airplane, Sokol said.
The order was the result of a detailed 10-year fleet plan at NetJets, he said.
NetJets also will be retiring aircraft over the next decade and bringing down the variety of aircraft types in its fleet.
It's goal in the next seven or eight years is to have only two cabin types of light jets — including the Phenom 300.
The other likely will be Cessna's Citation Excel/XLS, Sokol said.
The company also has about $2.9 billion of aircraft still on order, not including the Embraer order, and is still taking delivery of planes, such as Cessna's Citation Sovereign, he said.
NetJets will make decisions on medium- and large-cabin jets in the future, Sokol said.
Before placing the order for Phenom 300s with Embraer, NetJets looked at other manufacturers' bids.
Price was a factor in its decision, Sokol said in an interview after the NBAA press conference.
But, Sokol said, "the cost alone wouldn't have won that for them."
Embraer came to NetJets and said "let's design a plane that meets what your customers want," Sokol said.
Customers have "very strong feelings about cosmetics," he said, including the amount of baggage space and in-flight entertainment.
Hawker Beechcraft CEO Bill Boisture called Embraer a "low-cost competitor" putting price pressure on the company's products.
And that "impacts our workers here," he said.