ANALYSIS: Will Air Canada replace E-190s with a new aircraft deal?

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Air Canada has opted to replace its Airbus A320 fleet with the Boeing 737 Max, forging a deal with the airframer for up to 109 of the narrowbody aircraft for delivery between 2017 and 2021.

A majority of the narrowbody fleet will be replaced, but analysts say there is still a chance the carrier could sign another order for aircraft to replace some of the smallest aircraft in its fleet - the 97-seat Embraer 190.

Boeing has agreed to buy up to 20 of the 45 Embraer 190 aircraft in the fleet as part of the larger Max deal, which includes firm orders for 33 737 Max 8 and 28 Max 9 aircraft as well as 18 options and purchase rights for 30 aircraft. However, the fate of the remaining 25 aircraft still remains to be seen. The carrier has several options for replacing the lift, including purchasing an aircraft to bridge the gap between the regional operation and its narrowbody fleet.

Air Canada owns all of its 45 E-190 aircraft, Flightglobal’s Ascend Online database shows. The aircraft only average 6.4 years old, so the carrier is not trading them in because of their age.

“The reason why they replaced some of them in the [Max] deal is they had too many of the 97-seaters,” says Canaccord Genuity analyst David Tyerman.

Air Canada deploys its E-190s on a variety of routes within Canada, as well as international flights to the USA and the Caribbean.

The aircraft type flies routes like Vancouver-San Francisco, Vancouver-Los Angeles, Dallas-Toronto and Toronto-Seattle, December flight data from FlightMaps Analytics shows. The airline is also flying the regional jets on some shorter, high-traffic pairings like Toronto-Boston and Toronto-New York. It also operates the E-190 to leisure destinations like Cancun, Punta Cana, Orlando and Fort Lauderdale.

Air Canada's E-190 routes

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Source: FlightMaps Analytics

Air Canada has several options to weigh in the next few months for how it will replace the E-190s, including placement of another aircraft order. Upon announcing the Max deal, the carrier said it was considering replacing the remaining E-190s not set for purchase by Boeing with “a yet to be determined number of aircraft in the 100 to 150 seat range.”

The Bombardier CSeries 100 typically seats 110 people in a two-class configuration, while the larger 737 Max 7 typically holds 126 passengers in a dual-class layout. Air Canada's A320-200s in operation today carries 146 passengers in two classes.

In November, the carrier’s chief executive Calin Rovinescu has told investors that it would consider an intermediate product for aircraft between the regional jets and narrowbody aircraft like the A320 and 737.

“There are some advantages to having a single narrowbody fleet in the mainline operation, so we’re looking at that possibility, as well as some real advantages about having some intermediate product between the 75 seat and the 140 seat,” said Rovinescu during an investor conference, which was held before the Boeing order announcement.

The chances for a CSeries order are “very good", Walter Spraklin, RBC Capital Markets analyst tells Flightglobal. He expects that the deal would be made up of 25 orders and 20 options, with the balance of the E-190 lift being replaced by the Max.

Air Canada may also be more inclined to choose the CSeries if Toronto city councillors vote to open up Billy Bishop Toronto City airport to the aircraft type, says Canaccord's Tyerman.

“I think it’s probably an important factor,” he says.

Porter Airlines announced its plan last April to place a conditional order for the jet with hopes to fly the CS100 out of the island airport as far as Los Angeles, and both Air Canada and WestJet have signaled interest in acquiring any slots that could open up as part of the negotiations to re-assess the airport use. Air Canada uses 30 slots there today to fly Bombardier Dash 8 Q400 turboprops to Montreal with Sky Regional.

Toronto city councillors voted earlier this month to defer a decision until a February meeting, which would fall in line with the six-month timeline the carrier has outlined for making a decision.

The Toronto Port Authority has not signaled any plans to open more slots at the airport so far, and whether more would open remains to be seen. However, the authority has noted that the CS100 is the only type of jet expected to fit the strict noise requirements of the airport.

The re-engined Embraer E-190 E2 with up to 106 seats could also be in the running to replace the regional jets. Spracklin says he thinks the type is an unlikely replacement, however Canaccord's Tyerman notes that Embraer is likely still in the picture as a competitor with the jet set to hit the market in 2018.

“At the very least you would want to have them as a credible competitor to Bombardier,” he says.

By selling the 20 Embraer aircraft to Boeing, Air Canada could also decide that it has sized its fleet appropriately and could continue to operate the remaining 25 regional jets, says Tyerman.

“The other 25, they kind of fit size-wise,” he says. “They could just stick with them.”

Air Canada says it will consider leasing options to replace the E-190s as it sells them to Boeing until it takes delivery of the first Max aircraft. Therefore, it appears that a portion of the E-190 fleet could be replaced with the Max 7, the smallest variant of the aircraft type.

But doing that would leave a gap of 50 seats between the Max and the next-smaller aircraft in Air Canada’s regional fleet, the Bombardier CRJ700 operated by Jazz. Therefore, the carrier could see the advantage of a jet in the 100-seat size, says Tyerman.

Air Canada’s smallest mainline aircraft type used to be the Embraer 175, however earlier this year it transferred the 15 aircraft to Sky Regional’s fleet as part of a capacity purchase agreement. The carrier says that operating the aircraft under a lower cost structure will reduce unit costs for the aircraft type by 11%.

Restrictions in Air Canada’s pilot agreement have precluded the airline from transferring the E-190 flying to a regional partner as well. Under that agreement, regional partners can only operate aircraft up to 76 seats. That contract is amendable in 2016, however Air Canada has said that it could be changed before that through a letter of understanding that requires pilot ratification.