Brazil's Embraer inks $400 mln service contract with Azul, Trip

Thu Feb 7, 2013 12:39pm EST

* Pool program with Brazil carriers is Embraer's biggest yet

* Services income to help offset declining E-Jet production

* Embraer plans to double service revenue share in five yrs

SAO PAULO, Feb 7 (Reuters) - Embraer SA, the world's largest maker of regional jets, said on Thursday it signed a $400 million service contract with Brazilian airlines Azul and Trip, bolstering service revenue to offset its slowing commercial assembly line.

Under the deal, the largest of its kind that Embraer has yet signed, the planemaker will stock and distribute spare parts for one of its biggest clients, expanding a five-year-old agreement through 2020.

The so-called pool program, which covers 56 percent of Embraer's regional E-Jets, is meant to lower up-front inventory costs for the 33 participating airlines while guaranteeing steady revenue for the manufacturer.

Embraer is cutting E-Jet production by as much as 15 percent this year, sapping revenue from its core business after three years of weak demand for new aircraft.

But the company plans to double the share of services in its regional jet revenue within five years, Luiz Hamilton Lima, vice president of commercial aviation services, said in an October interview. Service revenues only made up about 10 percent of commercial jet revenue in 2010 and 2011.

Regional carriers Trip and Azul Linhas AĆ©reas Brasileiras merged in May to form Brazil's third-largest airline group. Together they will have 97 E-Jets covered under the pool program by 2020.

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