LOT signs on for Embraer planes

By Karol Chlipalski

Despite its ongoing financial problems, LOT Polish Airlines is again extending and reshaping its fleet and strengthening its ties with Brazilian aircraft maker Embraer to prepare for increased competition from other airlines.

The two companies have signed a final contract for LOT's purchase of 10 new Embraer 170 aircraft worth about €200 million, with an option for a further 11 aircraft. The airline will finance new aircraft from operational and finance leasing, said LOT spokesman Leszek Chorzewski.

The first four planes will be delivered in early 2004, and the other six are to be delivered in 2005. The new planes will bring LOT's total number of aircraft in service to 61, of which 14 are ERJ 145s - older models also designed and built by the Brazilian aircraft maker.

"LOT belongs to our most important clients considering the number of purchased planes," said an Embraer spokesperson in Paris.

With LOT's purchase of the Embraers, the national carrier, which will become a full-member of the Star Alliance on Oct. 26, will start concentrating mostly on short and medium-distance routes. Likewise, LOT will consider abandoning its transatlantic connections to the United States, according to a company source.

"The acquisition of the Embraers proves LOT is aiming at becoming a regional airline, focusing on short distance flights," said Elżbieta Marciszewska from the Warsaw School of Economics. She critized the policy, saying that within the Star Alliance LOT would serve mostly as a feeder for other airlines that would fly passengers to more distant and more profitable destinations.

"This is a pity, (since) connections once abandoned are difficult to reestablish," Marciszewska said.

The purchases come at a time when LOT needs to undertake additional cost-cutting measures to stay afloat, especially with the onset of the country's EU membership, when the air transport market will be fully open to competition.

Even though LOT's net profit amounted to €25.6 million (zł. 109.3 million) on revenue of €632 million (zł. 2.7 billion) in 2002, the national carrier must still undergo deep restructuring.

Zbigniew Rydzkowski, a transportation professor at Gdańsk University, contends that LOT has not seen any profit on its operations since 1997, and that its net profit in 2002 resulted from the fact that some of its aircraft were resold to their leasing companies.

Meanwhile, LOT has also been selected by Embraer for supply base and line maintenance services for ERJ 145 jets at its service center at Okęcie International Airport, which will support both its own Embraer fleet as well as become an alternative base for other operators.

Besides LOT, other major carriers in Europe, including Swiss, Alitalia, British Airways, City Express and Portugalia, use ERJ 145 jets. Most of the continent's 164 total Embraers will likely be serviced in Okęcie hangars.

LOT's Chorzewski pointed out that establishing its own service center for Embraers will allow the company to considerably reduce the cost of performing maintenance on its planes, although he could not estimate how much money LOT would save.

Chorzewski added that the Embraer 170, a medium-sized, twin-engine aircraft that belongs to the Brazilian producer's newly designed Embraer family, would also help optimize LOT's fleet.

"These aircraft, thanks to their transporting capacity, generate less costs, so they will replace bigger Boeing 737s on the connections (where) we usually are unable to fill the aircraft," Chorzewski said. "We do not exclude establishing in the near future new connections which up to now have not been profitable; but thanks to use of Embraer 170s, they will now become profitable."

The first Embraer 170 aircraft will be delivered to Swiss International Air Lines this month, though the model still awaits final certification, which is to take place in mid-2003. The new models can seat 70, 78, 98 or 108 passengers and have a range of 4,000 kilometers.

With its new airplane, Embraer fills a niche that up to now existed only with planes that seated 60-100 passengers and had a range similar to bigger aircraft. The smallest Boeing 737 used in Europe, for example, can accommodate 108 passengers, while LOT's planes, including the ATR model, have insufficient ranges for small passenger loads.

Embraer already has 94 confirmed orders for new aircraft from worldwide carriers, while a further 139 orders are pending, thereby making the Brazilian company one of the top global producers of mid-sized civil aircraft in the world.