ANALYSIS: Will CRJ200 see new lease of life after scope clause changes?

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Last year, three North American mainline carriers adopted revised scope clauses that allow for larger regional aircraft types to be integrated into their fleets. This will augment the number of 50-seat jets that will be available for sale or leasing over the next few years, including the Bombardier CRJ100/200.

Starting this year, these Bombardier CRJ100/200s will start to be removed from service, and the influx of available aircraft on the market will increase dramatically in the next three years as these carriers receive new orders of larger aircraft types. But as the older models begin to come into the market through lease returns and retirements, analysts suggest that the aircraft will be remarketed into several different niche markets or simply parted out.

Most of the CRJ100/200 fleet resides within North America. In the beginning of the fourth quarter of 2012, there were 746 Bombardier CRJ100/200 aircraft in service, shows data compiled from Flightglobal's Ascend Online database. Ten North American carriers operated 566 of the aircraft, which amounts to about 76% of all in-service CRJ100s/200s. The second-largest region operating the aircraft type was Europe, which flew about 15% of the fleet.

Ascend data from the beginning of the fourth quarter 2012 shows that the largest CRJ100/200 operator in North America was SkyWest Airlines, with 158 aircraft, followed by Pinnacle Airlines with 140. ExpressJet had 106 CRJ100/200s in service, followed by Air Wisconsin with 71 and Jazz with 40. Out of lessors, GECAS had the majority of CRJ100s/200s, with 185 aircraft out of the 211 lessor-owned aircraft in service.

DEPLETING FLEET

New scope clause changes at Delta Air Lines and United Airlines will allow both of the carriers to trade in their regional jets in favour of larger regional aircraft. As of 21 January, there were at least 37 Bombardier CRJ100/200s being publicly marketed on Airfax.

The influx of CRJ200s back onto the market will start to manifest itself slowly this year, with more than 200 leaving the fleet by the beginning of 2016 from Delta alone. In the global fleet, about 84 aircraft have lease returns from late 2012 through early 2013, says Ascend.

Thanks to a new pilot agreement, Delta will remove 218 50-seater aircraft in its Delta Connection brand over the next two to three years. A majority are flown by Pinnacle, which will be reducing its fleet of 140 CRJ200s in favour of a fleet of 81 CRJ900s when it re-emerges from bankruptcy as a Delta subsidiary. SkyWest and ExpressJet also operate the 50-seat jets under flying agreements with Delta.

Based on Ascend's fourth quarter data, Delta's defleeting means that about 29% of the global in-service CRJ100/200s will removed from service by the beginning of 2016. About 17% of the global fleet is already in storage.

United said on a 24 January earnings call that it would not be looking at any large regional purchase commitments in 2013, but the carrier will eventually shift its fleet to larger aircraft as part of a new scope clause that allows it to increase the number of large regional jets to 255 by 2016, up from the 169 in its fleet as of January.

United has outlined in a revised fleet plan that it has 350 50-seaters in service, which includes the Q300, CRJ200 and Embraer ERJ-145. It will remove only one of those aircraft in the fourth quarter of 2013, it said. ExpressJet and SkyWest operate 82 and 14 CRJ200s respectively, with agreements that expire between 2013 and 2023.

Despite the reduction plans, the CRJ100/200 will continue to have a place in the US market through the rest of the decade, says Santos Dumont, a Dublin-based boutique aircraft leasing, management and consulting firm.

"There is going to be a certain level of demand for these in the US until the early 2020s," says Santos Dumont. "There will be a level of routes and a number of routes where a 50-seater regional jet still makes sense for [operators]."

SkyWest is in the process of removing 66 CRJ200 aircraft with Delta until 2015 to make room for new deliveries. It is adding five new Bombardier CRJ700 aircraft and 29 Bombardier CRJ900s to be delivered by June 2013. Delta finances 41 of the aircraft, with SkyWest financing the remaining airframes.

"We see 50-seat capacity being reduced over time, but being replaced with 70/76 seat capacity, dependent on majors' needs" said Mike Kraupp, chief financial officer of SkyWest Inc.

But not all of the airlines have solid plans to remove their CRJ200s at this moment. Canada's Jazz Aviation still has 26 CRJ200s in its fleet, all but one operated for Air Canada under the Air Canada Express name. The carrier has not outlined plans to retire the ones in service yet, although it has returned nine CRJ100s as part of a revised flying agreement with Air Canada to operate additional Bombardier Q400s.

Air Wisconsin flies for US Airways, which has yet to disclose any plans for renewing its regional fleet despite vague comments regarding a desire to upgauge in the future. However, more may be revealed as merger talks progress with American Airlines, which recently revised its scope clause that allows for additional large regional jets. The carrier signed an agreement with Republic Airways to fly 53 Embraer 175s in January.

INFLUENCE ON VALUES

Market values for the Bombardier CRJ100/200 can range from $1.75m to $5.3m, depending on factors such as the build year, Ascend data from the fourth quarter shows. Analysts say that several factors could put negative pressure on values, leading to fleet fragmentation and retirements that only add to the number of aircraft already parked.

"We'd say between now and 2015 [there is] downward pressure on pricing, mainly being driven by the retirements in US operators," says Santos Dumont.

Ascend says the US regional aircraft coming back onto the market has been factored into the valuations, as it is anticipating these aircraft to start coming out of regional fleets in the next few years.

Fragmentation of the CRJ100/200 fleet into different markets is a result of diminishing aircraft values, as demand in North America is weakening despite the several aircraft already advertised on the market, says Ascend. When there is an oversupply in the North American market, the airframes then become more attractive for other uses. In that case, the aircraft would move on to secondary markets like the CIS, Africa and South America, and niche use markets like corporate conversions and freighters, says Rob Morris, senior aviation analyst at Ascend.

"The conclusion would inevitably be that there are some aircraft moving into these markets but not as many as are being removed from North America," says Morris.

A number of CRJ100 and 200 aircraft were in storage during the fourth quarter of 2012, which can also negatively impact values. As of January, 166 CRJ100/200s were in storage, or about 16.5% of the global fleet, Ascend data shows.

At least 82 Bombardier CRJ200s have been parted out so far - at least 20 of which were parted out in 2012.

"There will be opportunities in the future for what I'd term opportunistic lessors, and opportunistic acquirers of the aircraft," says Santos Dumont.

MID-LIFE MAINTENANCE

Even though airlines have plans to remove the aircraft, many of the CRJ200s are just reaching the middle of their usable lives. This means that operators continuing to use the aircraft will have to undergo an intensive mid-life inspection when the aircraft reaches 40,000 cycles - a process that Bombardier is just starting to validate as the fleet ages.

"Most of the aircraft now are getting close to their mid-life," says Bombardier.

The CRJ200 has an upward limit of 80,000 cycles, while many aircraft in the fleet as a whole are just starting to enter the mid-life phase at 40,000 cycles. This will be the first time that the airframer performs a mid-life inspection on an airframe, and it hopes to receive data it can use to make the check run as efficiently as possible and ultimately reduce the maintenance costs.

Bombardier did not go into detail about the specific criteria it will be analysing as part of the validation, but says that looking at workflow and maintenance processes will be part of the process. The overall maintenance schedule and requirements for the aircraft maintenance programme are not affected by this mid-life inspection, but flexible areas like time savings and tooling savings can be achieved to help operators save on the cost of this one-time maintenance event. The validation serves as a learning process for Bombardier to optimise the way it will perform the check on additional aircraft.

"We're making sure that when the aircraft comes into the maintenance for this bigger check that we do it as efficiently as possible," says Bombardier, which operates a service centre Tucson, Arizona.

Even with predictable maintenance costs, some airlines removing the CRJ200s from the fleet all together are keen on timing the aircraft returns before having to incur substantial maintenance costs on the engines and the airframe.

SkyWest had been scheduled to take part in that validation programme in 2013, but it has been put on hold. The carrier said it planned to remove all the CRJ200s in its fleet before they would have to undergo the mid-life inspection.

"All of our aircraft from original leases are anticipated to be returned to lessors prior to the 40,000 cycle event," said Kraupp. "If by chance, we extend lease terms from original dates, we still seek to ensure we are not hitting the 40,000 cycle issue."

One other carrier started undergoing the validation process in 2012, which is still underway.

The Bombardier CRJ100/200 originally had a maintenance schedule that required lighter A checks every 300 flight hours and C checks every 3,000 hours. Bombardier then modified that schedule to extend the intervals between checks to 500 hours and 5,000 hours, respectively.

Bombardier is also offering an option on an ad-hoc basis to extend the maintenance hours on the CRJ200 by 500 hours between C checks through a special way of implementing the maintenance programme through engineering validation approved by the Federal Aviation Administration (FAA). This would allow operators to find maintenance cost-savings through the reduced frequency of checks.

NICHE MARKETS

The CRJ200 will likely find its way into several fragmented markets as they start new lives, rather than several aircraft transitioning to large fleets at once, analysts say.

One way to use the CRJ200 after its run as a passenger aircraft is to turn it into a freighter. Miami-based cargo specialist Aeronautical Engineers (AEI) has seen higher numbers of the aircraft available as a boon to remarketing it as a cargo aircraft to operators, as it will become an affordable freighter option for carriers.

AEI first unveiled plans for its large cargo door converted freighter in October, originally as just an idea to pitch to the industry to see if there was any interest. The modification includes cutting a large cargo door into the aircraft in the airframe's left side, allowing pallets of cargo and bulk material to be loaded into the aircraft.

Robert Convey, AEI's vice president of sales and marketing, says AEI received more inquiries than expected on the first day it disseminated the proposal. He says the company plans to go through with the conversion and plans to fill 20 conversion slots from four to five customers after it receives supplemental type certificate approval for the modification.

But it will take some time for the modification to come onto the market. Right now, the aircraft is targeted for certification in 2015 at the earliest, and the conversions specialist is in the process of finalising an agreement with Bombardier. Customers from Europe, Africa, Canada, Mexico and the US are showing interest in the freighter, he says.

Despite the high demand, Convey acknowledges that the CRJ200 freighter will pull in a niche audience. Demand will be concentrated among operators who want to use the aircraft for "long, thin" routes.

While demand seems strong, a CRJ200 in a freighter configuration is still a rare aircraft. Canadian MRO Cascade Aerospace started offering a freighter with the standard passenger door intact in 2007, but only five with this cargo modification are in service.

But now that the aircraft are reaching 14 to 16 years old and coming off of leases, operators are seeing more attractive opportunities for turning the aircraft into a freighter, said Rod Sheridan, vice-president, customer finance, Boeing commercial aircraft, in an October 2012 interview when the plan was first unveiled. However, it remains to be seen just how much interest the freighter will gain as certification nears.

Other possibilities for the aircraft types include operators in Latin America, Southeast Asia, Africa and the CIS, where few CRJ200s exist today analysts say. Other uses could include the corporate transportation and VIP markets.