Small regional jet market faces rapid "decompression"

Operators, manufacturers and suppliers are being warned that the 50-seat regional jet market in the USA and possibly other regions is on the verge of a rapid "decompression" that will have a major effect on aircraft values as well as the regional airline business itself.

Bombardier and Embraer recognise the dramatic slowdown, with some order cancellations, deferrals and backlog reductions. Speaking at the Speednews corporate and regional conference in Palm Springs, California, Bombardier marketing and airline analysis vice-president Barry MacKinnon said "there has been a reduction in CRJ200 deliveries and in 2005 it will be the first year that CRJ700/900 deliveries will overtake them".

Embraer sees the effect as a "softening", but believes American Eagle's unprecedented cancellation of 18 ERJ-145 orders is not indicative of longer-term problems. Market intelligence director Orlando Neto says: "The 50-seat aircraft sales sector forecast is down from 1,000 to 650, but in the long term it is still a healthy market. From now on we see more orderly growth, but we don't see it going out of production. In fact we anticipate continuing production until the end of the decade, and that's the timing for starting a new technology replacement for the ERJ-145."

Velocity Group partner Douglas Abbey says the shift to the larger 75-seat regionals is faster than expected, adding to the "anti-50-seat sentiment, which we see continuing to grow because of airport congestion, comfort, long-term economics and low-cost carrier chief executives". Abbey asks if the American ERJ-145 cancellation is a "harbinger" of things to come in the "rapid decompression of the 50-seat market, which has few orders from North American carriers".

Rolls-Royce director of market planning and analysis Michael Miller says "regional jet backlogs are taking a dive". He says 30- to 50-seater orders are in the 250 range, or roughly at 1997 levels and falling fast. "The trouble at the 50-seat level is caused by fuel prices, which are up 30-50%. Monthly lease payments are also going up 33-35%, passenger yield is down 20% and the break-even load factor is 20% higher. So you have something that needed 45% load factor in the old days now needing an extra 20% just to break even. It's a devastating problem for the 50-seat market, so the backlog reduction is no coincidence. We are stuck with this, at least in the mid-term," he adds.



Source: Flight International