REPORT BY CAROLE SHIFRIN IN WASHINGTON
Despite substantial layoffs and lowered delivery targets among regional jet manufacturers, the future continues to be bright for the small jets and may be even brighter still
In the aftermath of the 11 September terrorist attacks, both Bombardier and Embraer - the two leading regional jet makers - announced heavy cuts in their workforces and slashed aircraft delivery forecasts. Yet, both manufacturers remain positive about the increasing role that the regional jet (RJ) plays, in both US and world markets. There are even hints that more work could come the way of the RJ as the major US carriers reduce mainline services in the wake of the crisis.
Cuts by the aerospace companies have nevertheless been swift. Canada's Bombardier - now the world's third largest civil aircraft manufacturer after Boeing and Airbus - said it would lay off 3,800 aerospace employees, or about 10% of its workforce, by the end of the year. This figure includes workers on business jet and amphibian aircraft programmes. It also reduced the number of regional and business aircraft it expected to deliver this year to 370 - the same number of aircraft as last year, but down from the 410 previously planned. Deliveries of the popular 50-seat CRJ200, originally forecast at 135 for this fiscal year, were reduced to 120, while the target of 165 deliveries for the next fiscal year was reduced to 140.
In Brazil, Embraer announced an immediate layoff of 1,800 employees, or 14% of its workforce, and - for the second time this year - also trimmed its delivery forecasts. Instead of delivering 185 regional jets this year, the manufacturer said it planned to deliver 160. It also sharply reduced its 2002 delivery forecast - from 205 to 135 units. Embraer has already cut its delivery plan during the summer when firm orders from Chinese carriers and Brazil's Rio Sul did not materialise.
Fairchild Dornier expects less of an impact in the near term because it currently produces only four 328JETs a month. Although the company is reviewing its production schedule, it expects only that some deliveries might slip a month or two. Its follow-on 728JET programme is gearing up for first deliveries in 2003.
Market uncertainties
Both Bombardier and Embraer say their decisions were not related to aircraft order cancellations - although there have been some delivery deferrals - but more to the uncertainty surrounding the restructuring and downsizing of the major US airlines following 11 September and the growing worldwide economic downturn.
"We have no change in our order backlog. We have no cancellations," says Robert Brown, Bombardier's president and chief executive officer. But he adds that customers have told Bombardier they needed to "catch their breath" and "get reorganised." In some cases, customers asked if they could defer deliveries for a couple of weeks. Financing issues also have come into play. "The credit situations of some of our customers are different than they were before," Brown explains. "We have to find ways to go forward."
"The approach that we are taking is one of prudence," he adds, "but I'm very optimistic that our aircraft are extremely well situated to come back in the market, as it comes back, probably better than larger aircraft manufacturers."
Mauricio Botelho, Embraer's president and chief executive, has a similar view, saying the company had to act strongly to adjust operations in order to preserve its financial strength. "We are pleased to say that we did not have any firm order cancellations," he says. But some deliveries have been delayed - company officials say three to five weeks is common for those requesting delays - and as many as 60 options have not been exercised. Nevertheless, Botelho talks about the "revolution" which RJs have created and which may still has some way to run: "We believe that the current difficulties will last a short time."
Brown and Botelho have reason to be optimistic. The new breed of regional jets have built an amazing success story, accounting for stunning growth over the past decade, particularly in North America. Ten years ago, there were 20 RJs - primarily the British Aerospace BAe 146 and Fokker F28 - operated by three US regional carriers. Last year, the 580 jets in the US regional fleet accounted for 41.3% of all seats flown by the country's regional airlines, up from 14.3% just three years earlier. RJs were operated by all of the top ten regional carrier groups, as well as some smaller airlines.
It is estimated that a minimum of 125 new RJs have been added to US fleets so far this year, with many carriers taking delivery at a rate of two or three a month. Thanks to an increasing popularity among passengers, some regional carriers plan to go to all-jet fleets over the next few years. Uses for these aircraft run the gamut. They have been utilised to substitute or supplement mainline service on some routes and to replace turboprop services on others. They are also used to start services between new city-pairs or perhaps on longer routes which bypass a hub.
There is every reason to think deployment of the RJs will continue, and even increase. A month after the terrorist attacks, almost all the RJs in the US airline fleet were still being flown, although not necessarily on the same routes as before. And though some regionals cut staff and grounded turboprops, their fleet plans remain largely intact.
Following the terrorist attacks, the major airlines chose to end services on many routes and to ground large numbers of older, less efficient narrow-body jets, leaving many of those routes open to regional jet operations. In the downturn following the Gulf War 10 years ago - before the latest breed of RJs were developed - many carriers replaced mainline services with turboprop aircraft, says Warren Wilkinson, vice president of marketing for Chautauqua Airlines. Today's RJs are better suited as replacements. They are able to perform the same missions as the larger, narrow-body jets, but at more appropriate capacity levels, he notes.
"The reality is that prior to 11 September, the regional jet made a lot of sense," Wilkinson says. "And after 11 September, regional jets continue to make sense, and even more so."
Chautauqua, based in Indianapolis, operates under code-sharing relationships with US Airways, America West Airlines and American Airlines-owned TWA. Although it reduced its turboprop flying by 25% and cut its workforce by 20%, Chautauqua has maintained the regional jet flying it does for its partners, generally on the same routes as before, with just a few exceptions.
Chautauqua has not cancelled any of its RJ orders, but has "tweaked" the schedule of deliveries between two and five weeks. The airline operates 35 Embraer jets - 24 for US Airways, eight for TWA and three for America West. It will take nine more this year, and a further nine in the first half of 2002.
While Chautauqua's route system has remained relatively stable, for many others there has been significant change and more alterations could follow. This is particularly true for the carriers operating on behalf of United and Delta Air Lines. "It's changing day to day," says one regional airline executive.
In United's case, the carrier decided to retire its remaining 75 Boeing 727-200s and 24 Boeing 737-200s at the end of October, and to eliminate many of the routes those aircraft served, allocating the ones it wanted to keep in the "United family" to its regional partners. This has resulted in substantial shifts in patterns of service for Atlantic Coast Airlines, SkyWest Airlines and Air Wisconsin.
Service shifts post crisis
For example, Utah-based SkyWest will pick up some Shuttle by United routes being dropped, such as San Francisco-to-Santa Barbara. It also was slated to pick up five routes previously operated from Denver by Air Wisconsin, which is set to operate more routes from Chicago for United.
Also operating as a Delta Connection carrier, SkyWest will be adding service on existing routes from Salt Lake City to four cities on 1 November, as previously scheduled, but will no longer be starting four other planned routes on that day. Instead, SkyWest will operate three new routes from Dallas-Fort Worth.
Both SkyWest and Air Wisconsin expect their deliveries of RJs to continue. SkyWest operates 34 CRJ200s and has 11 more due to arrive before the end of this year, with another 31 scheduled for delivery in 2002. Air Wisconsin, which operates 18 BAe 146s and nine CRJ200s, has six more CRJs scheduled for delivery this year.
Atlantic Coast, which operates for both United and Delta, also is seeing its schedules fluctuate "month by month," says one official. The carrier is taking over a number of United's mainline routes from Chicago, but is discontinuing other routes from its main base at Washington Dulles. For Delta, Atlantic Coast is reallocating capacity from the Northeast to expand services at Cincinnati, while Comair - whose main base was Cincinnati - is shifting some operations to Atlanta.
Atlantic Coast operates 79 RJs and expects seven more by year-end. Next year, it plans to take delivery of 20 CRJs for its United operation and 10 more Fairchild Dornier 328JETs for its Delta operation. "Our aircraft delivery plan remains the same," says the airline. "We're building to 158 regional jets by 2003, so we're halfway there."
Flexible Mesa
The flexibility of regional jets is illustrated by the actions of Mesa Air after after the terrorist attacks. It had 11 Embraer ERJ-145s in service at Washington National for US Airways. With the airport open only to limited services, Mesa was able to work out a new agreement with US Airways, moving the aircraft to seven new cities and 10 new markets out of that carrier's Charlotte and Pittsburgh hubs, in some cases replacing the Fokker 100s US Airways is retiring. Mesa also added four new RJ routes from Phoenix on behalf of partner America West Airlines.
"As our partners continue to right-size their capacity, Mesa's low costs and smaller aircraft offer a viable option of maintaining a significant jet presence in these markets," says chief executive Jonathan Ornstein. As of early October, the carrier expected to take delivery of new RJs on order, but was still working on putting financing in place.
American Airlines affiliate American Eagle operates close to 110 Embraer jets, and expects to take two to three more a month this year, including the first two of 25 CRJ700s on order. Eagle, the world's largest regional, is starting up a number of new RJ routes, such as Chicago-to-Louisville and Boston-to-Pittsburgh, in November. "Everything is fluid," an official said. "We're growing in some markets and trimming back in others." So far, the carrier has not trimmed its RJ delivery schedule.
| Numbers flying: the RJ fleet in the US | ||
| Aircraft | Seats | In Service |
| CRJ-100/200 | 50 | 250 |
| ERJ-145 | 50 | 181 |
| Bae 146/Avro | 85 | 54 |
| ERJ-135 | 37 | 52 |
| Fokker 28 | 85 | 22 |
| 328JET | 32 | 21 |
| Data for 2000 courtesy of Regional Airline Association | ||
Continental Express is sharing in the 20% cutback by parent Continental Airlines, dropping service to five cities, reducing frequencies on many other routes and grounding all but 33 of its turboprops. But it also expects to pick up some of the services that had been operated by the 31 narrowbody jets that Continental has grounded, at least temporarily. Continental Express operates a fleet of close to 130 Embraer jets and has firm orders that will take it to 275. Although Continental Express continues to take deliveries, it has been in discussion with Embraer "in light of the significant decrease in demand."
The one unknown in the rush of majors to allow their regional code-share partners to fly their abandoned routes with RJs is the existence of the scope clauses many of them have in their labour agreements with the Air Line Pilots Association.
Pilots unhappy
United's pilots last month warned the carrier that its plan to retire its Boeing 727s and older 737s would reduce its fleet of narrowbody aircraft to below 451. This is the level the pilot contract says must be maintained if United wants its partners to operate RJs. Without APLA's consent, it said, the contract requires United to shut down its regional jet partnerships.
A United official said the issue was one of contractual interpretation that the airline would work its way through. Observers believe the airlines may argue that force majeure clauses in the agreements may permit changes under the current circumstances.
While that is sorted out, the regional manufacturers continue to plan for additional models. Bombardier plans deliveries of the CRJ700, its newest model, to American Eagle and Mesa in the next few months. Horizon was the first US regional to get the model this year. Work is also proceeding on the first production fuselage of its new 90-seat CRJ900, scheduled to enter service in early 2003.
Launch customer American Eagle also began taking delivery of the 44-seat Embraer ERJ-140 this year. Embraer's roll-out of its newest model, the 70-seat ERJ-170, was scheduled to take place at the end of October.
In Germany, Fairchild Dornier has begun component integration of its first 728JET. The 70-seat jet is scheduled for first flight next spring and entry into service in 2003.
Then follows a still-larger 928JET. BAE Systems also is moving forward with new versions of its long-running jet programme. Flight test programmes for both the Avro RJX-85 and RJX-100 aircraft have begun, with first deliveries scheduled for next year.
Although regional jet deliveries may slow some in the short term, there is every expectation that the RJ "revolution", as Embraer's Botelho calls it, will continue.
Source: Airline Business