Threat of used 50-seat RJ glut dissipates as new homes found

Washington DC
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It has been almost 18 months since the collapse of Independence Air threatened to depress the regional jet market with a glut of used 50-seaters. But as the Regional Airline Association annual conference gets underway this week in Memphis, Tennessee, the threat appears to have dissipated, thanks to a concerted effort by several companies with vested interests.

Almost 150 50-seat jets have entered the used market in the past two years, and all but a handful are either in service with new tail colours or about to be refurbished for new operators. All but 26 of the 135 or so Bombardier CRJs on the market have been accounted for and the Brazilian air force has taken most of the 11 Embraer ERJs available.

According to data provided by Flight’s ACAS database only six or so aircraft have been scrapped for parts and, notably, almost all the Bombardiers have been placed at airlines - an eventuality that even the manufacturer did not expect when it first addressed the issue of creating new markets for its jets.

“The outstanding economics and performance of previously owned CRJ200s makes them vital assets for regional airlines,” says Bombardier Regional Aircraft VP of asset management Ron Sheridan. “The clear picture is that not only new but established markets still benefit from the use of this type of aircraft and will continue to do so.”

A six-member support team established by Bombardier has had some marked success in introducing the 50-seat regional jet to potentially strong markets such as Mexico - where Aerolineas Mesoamericanas or ALMA has now committed to 11 of the type - and Nigeria, but the key factor has been a continued demand among carriers in North America, the one market that created - and was thought to have killed - the 50-seat jet sector.

Among these was a key deal with Chautauqua Airlines, an Embraer regional jet operator that is introducing 24 CRJ200s to fulfil a feeder contract with Continental Airlines. The return of 15 CRJ200s to Northwest Airlines as part of an order for CRJ900s also helped reduce the parked fleet, as did the launch of Mesa Air Group’s Hawaiian start-up Go, which has taken five previously owned Bombardier 50-seaters for its operation.

These US deals are also interesting as they all involved airlines that have purchased or are in talks to acquire larger Bombardier regional jets. And according to Sheridan this strategy should work with the newer operators. “The CRJ200 is a great introduction to our product line. Once we have proven the worth of one type, airlines will see the value of the larger models too.”

But the success has not been global. Attempts by Bombardier to place used 50-seat jets in China and India have so far failed, and no deals are expected soon. One problem could be the concerted effort by Embraer to place new 50-seat ERJs into China through its Harbin joint venture. “China has a great potential for new aircraft, there is no demand for [used] jets in that environment,” says the Brazilian manufacturer’s director, asset management Paulo Estevão.

India, both manufacturers note, is a harder market to break into for any 50-seat jet, regardless of its age, in part because operators see more profitable use for narrowbody airliners and larger regional jets.

But even a recent indication by Embraer that its Chinese venture might eventually export new 50-seat jets does little to dampen the potential for the used market. Corporate conversions have accounted for 10% of the CRJ secondary market deals, Sheridan says, respectable number that could easily be maintained or expanded in markets such as Russia, and a cargo conversion kit launched last year has already been used to modify two CRJ200s for Sweden’s West Air.

“These are signs that things can develop. It is not just placing passenger aircraft with passenger airlines,” Sheridan says. And Embraer somewhat agrees. “We don’t see these two sectors, especially cargo conversion, as having any meaningful effect for a number of years. But in say 10 years we could see a bit more activity,” says Estevão.

Yet the apparent attractiveness of the secondary market has yet to entice more investors, notably lessors, despite efforts by Bombardier. “The 50-seat market just isn’t of interest,” says John McMahon, chief of Irish start-up Genesis Lease, a company with close ties to GECAS and the owner of two Embraer E-Jets. “We really want to look at the larger end of the regional jet sector.”