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Embraer's Contract with Honeywell

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Embraer S.A. (ERJ - Free Report) , an aircraft manufacturer, entered into a life time contract with Honeywell International Inc. (HON - Free Report) , a diversified technology and manufacturing company. Per the deal, Honeywell will provide avionics systems to be used inside Embraer’s second generation of E-jets, scheduled to enter service in 2018. The total contract value is estimated to be $2.8 billion.

Embraer is looking for suppliers for its new E-jets to be able to offer an enhanced and efficient version of the product. For this purpose, it also selected Pratt and Whitney Canada International Inc. last month, to deliver engines for the jets. 

Honeywell’s avionics systems, in general, are designed to include display, navigation and communication systems in the cockpit of the jet, making the flight safer, more accurate and efficient, for the pilots and the crew. However, its Primus Epic 2 integrated avionics system to be used in Embraer’s second generation E-Jets comes with added features like synthetic vision and advanced flight management, which ensure safety while flying even in poor visibility.

According to Foxbusiness, Honeywell was facing strong competitive bids from Garmin Ltd. (GRMN - Free Report) for the contract. Moreover, Honeywell also faces constant complaints from Embraer as well as Boeing Co. (BA - Free Report) , related to late deliveries as well as software issues. Therefore, it was most essential for Honeywell to win the contract.

In spite of late deliveries, Embraer purportedly stuck to Honeywell because of the new features to be added to the Primus Epic avionics system. In an effort to revolutionize its commercial jets, the company has been adding features to its new jets, which will also enable lowering the maintenance costs, fuel usage as well as reducing emissions and external noise. The new jet will also be sporting dual Head-up Displays (HUD), with the supplier to be chosen later this year.

The introduction of the new generation jets, with advanced features is expected to make Embraer the leader in the 70 to 120 seat airline market. The company has its operations in around 42 countries. Embraer currently holds a Zacks Rank #3 (Hold).

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