Gunter Endres LONDON The steep rise in demand for regional jets is confronting manufacturers with new challenges.
The regional jet revolution continued apace last year, with the new breed of RJs chalking up their highest order tally to date. Yet the first great wave of RJ orders may be about to subside, at least in the USA. As it does, the focus switches to how manufacturers will now deliver on the massive order backlog and to where the revolution goes from here, both in terms of aircraft seating size and new geographical markets.
There is no denying that 2000 was another spectacular year for the RJ, with new orders signed for 778 aircraft. That marked a new sales record (up from 529 in 1999) taking the combined world RJ backlog close to 1,300 aircraft. It also confirmed the victory of jets over turboprops. While the RJ boomed, turboprop orders were down to 79 aircraft, the lowest point for nearly 30 years, and their backlog now makes up under 10%of the regional aircraft total.
Nor is their any doubt that the regional carriers have continued to thrive on their new diet of jet service on longer and denser routes. This year's Airline Business Top 100 ranking of regionals (see pages 62-64) suggests growth of over 8%in passenger numbers last year, led by the main US and European players.
In the race between the big RJ manufacturers, the laurels last year went to Embraer. The Brazilian company emerged with over 440 new orders for the year - almost twice the volume of arch Canadian rival Bombardier.It also allowed Embraer to sneak a lead on the current order backlog, with almost half of the RJ total. Bombardier, though, has a head start on deliveries and can probably count on a large volume of options being converted into firm orders. The Canadian manufacturer also maintains a strong turboprop business. In short, the battle looks fairly evenly matched.
Yet, unlike the mainline aircraft business, the regional jet market has still not settled into a two-horse race. Fairchild Dornier has nearly 200 orders to its name, although its intake last year dropped away significantly, down to 83 aircraft - or to 69 units after cancellations were taken into account. In part, the slump was as the result of Fairchild Dornier's termination of the proposed 44-seat 428JET. In any case, the company's overall backlog stands at a significant 194 aircraft.
Meanwhile, BAE Systems apparently remains content to play a supporting role, chiefly serving existing customers of its four-engined 70-110-seat Avro RJ family and predecessor BAe 146. The numbers have deliberately stayed modest after the group's bad experience with regional aircraft in the early 1990s, but there has been investment in the form of the upgraded RJX. That finally got underway in March with a $600m deal with British European for up to 20 RJX-100s. Even within this niche, BAE Systems is having to contend with competition from the Boeing 717 and Airbus A318 models, blurring the distinction between regional and mainline.
If orders boomed, then it was the US Carriers who again led the charge, with some massive deals including ones from American Eagle, Continental Express and Delta Connection. Together, North America accounted for close to 60%of new business. Mesa Airlines has since followed with the announcement of a $1.2 billion deal with Bombardier for 40 CRJ700/900 aircraft plus 40 options. It is expected also to place orders for another 19 ERJ-145s. However, that could well mark the last of the giant US orders as attention begins to shift to Europe.
The signs are that European orders will not be of the same magnitude, and are likely to centre on the larger aircraft types rarely allowed by union scope clause agreements in the US market. In any case, Europe's regionals have traditionally operated at higher capacities. The European fleet currently averages 67 seats per aircraft against 37 in the USA.
According to forecasts from Embraer, North American airlines will continue to dominate the market in the 30-60-seat range over the next decade, taking two-thirds of orders, against 18% for Europe. It is in the 60- to 90-seat category that Europe will take the lead, with 49% of orders against 26% in North America. Both Fairchild Dornier and Bombardier agree basically on this point.
Once the initial replacement of turboprops by jets has been completed, RJs will have to rely on old-fashioned traffic growth. The result is expected to be a slowdown in deliveries, possibly after five years when the present backlog has been eliminated. But according to Embraer, the growth phenomenon is not simply a shift from turboprops to jets. The Brazilian maker estimates that only 9% of demand is accounted for turboprop replacement, while another 12% represents turboprop complement. It suggests that in the rush for jets, the obituaries for the turboprop have been written somewhat prematurely. Never-theless, there is a consensus that new turboprop aircraft will continue to make up less than 10% of regional aircraft deliveries over the next decade, and almost all of these will be in the 50 to 90-seat market, now inhabited only by ATR and Bombardier.
The steep rise in demand may have put the RJ on more level footing with mainline manufacturers, but it has also confronted manufacturers with new challenges, both in meeting production schedules and in establishing the after-sales service routinely expected of their mainline cousins. It has been a steep learning curve for all.
The large influx of orders for both the small 37- to 50-seat end of the Embraer range and for the recently announced 70-seat ERJ-170 has forced the Brazilian manufacturer to ramp up production at its plant at Sïo José dos Campos near Sïo Paulo. From the start of this year, production has been increased from 14 to 16 units a month. A further increase to 20 a month is planned from the beginning of 2002, and a new facility for the ERJ-170 has been built on the site. The order backlog would fill the assembly line for the next three years, but slots are still available for new customers.
Embraer believes that Asia-Pacific holds promise and plans to increase its market share in the region, currently around 10%. It has opened new offices in China and Singapore to complement its Australian sales and customer support facility in Melbourne.
Construction is in progress on a new, $150 million plant at Gaviâo Peixoto, some 370km (230 miles) northwest of Sïo José dos Campos, which is due for completion in October next year. Embraer plans to focus production there on military versions of the EMB-145 and the ERJ-135-based Legacy corporate jet which starts deliveries in September.
Bombardier, too, is having to ramp up production of the CRJ family. Room has been made on the final assembly lines in Montréal Dorval by moving out other aircraft. And a second CRJ production line, being constructed at Montréal Mirabel, is due for completion this summer. It will be dedicated to the new 70- to 90-seat CRJ700 and CRJ900. The moves were spurred by receipt of the massive Delta deal for up to 500 orders and options. As a result, Bombardier will build at a rate of 12 aircraft per month by the third quarter, up from nine a year ago. Bombardier quotes earliest delivery for the CRJ at one year from order. Production of the Dash 8 Q turboprop series remains at the Toronto headquarters, together with sales and support.
With its in-service fleet exceeding 1,000 regional aircraft, Bombardier has had to invest in support. It is also planning to add a new spares facility in Beijing to supplement Singapore, and to meet demand from an increasing market presence in China and Japan.
Fairchild Dornier's production plans are only marginally less ambitious. It is committed to delivering almost 200 aircraft before 2006 from its final assembly line at Oberpfaffenhofen near Munich. It produces four 328JETs a month, but will ramp up to 15 aircraft when the 728JET comes on line in mid-2003. Ground will be broken shortly on new assembly and completions buildings at the site, with the 728JET due to move to the new facility from the fifth aircraft, along with the proposed 928JET.
The company says that slots are available for almost immediate delivery to new 328JET customers, and for the 728JET from the end of 2003 in between deliveries to Lufthansa CityLine and leasing giant General Electric Capital Aircraft Leasing (GECAS). Fairchild Dornier has delivered the last Metro 23 turboprop from its US assembly line at San Antonio, which now concentrates on wing production for the 328JET. Production of the Metro/Merlin range came to 1,053 aircraft.
New products emerge
While orders for the 30- to 50-seat jets stay robust, a slow shift towards larger types has begun with the entry into service of the first Bombardier CRJ700 on 18 February this year. As with the original 50-seat jet, Bombardier has again taken the lead as airlines take a step up in capacity, either as a stand-alone operation or as a complement to the smaller jets in their fleets. Significantly, the first airline to put the new 70-seat aircraft into service was French carrier Brit Air, already a CRJ200 operator. It was the launch customer for the CRJ700, having placed a firm order in February 1997 for four aircraft, since increased to 12.
The newest aircraft from the Bombardier stable, the 86-seat CRJ900, also took to the air for the first time in February on a test flight from Montréal's Mirabel International Airport. The aircraft, which was formally launched at the Farnborough air show last July, is a minimum stretch derivative of the CRJ700 and retains broad commonality. The first prototype, a converted CRJ700 airframe, will be joined in the 13-month flight-test programme by an all-new CRJ900 in production configuration, due to fly later this year. Initial customer deliveries are due to begin in the first quarter of 2003. Including the most recent Mesa deal, firm orders for the CRJ900 today stand at 30 aircraft.
Embraer has some catching up to do with its larger RJ offering. First metal on the 70-seat ERJ-170 was cut in July last year, and work is on schedule for first flight this year. Deliveries to launch customer Crossair will start in December 2002. The ERJ-170 is the first of a new family, which also includes the 98-seat ERJ-190-100 and 108-seat ERJ-190-200 models. Although the wing has been moderately increased on the two larger models, all three basic versions feature the same fuselage cross-section, two underwing General Electric CF34 turbofan engines and winglets (a late addition for improved performance).
In-service date for the ERJ-190-200 is planned for June 2004, with the ERJ-190-100 following a year later. Since Crossair's launch order for 30 ERJ-170s and 30 ERJ-190s, Embraer has secured a further 50 orders from GECAS and 10 from Regional Airlines of France. That takes the total to 120.
At the other end of the scale, Embraer successfully flew the ERJ-140 in June last year and first deliveries are planned for the second half of this year. With a simple stretch, the ERJ-140 seats 44 passengers, slotting neatly above the fast-selling 37-seat ERJ-135 and below the 50-seat ERJ-145. All are built on the same production line. Embraer now has orders for 133 ERJ-140s, with all but three of those from the giant American Eagle order.
|Regional jet aircraft orders/deliveries - 2000|
|Seats||Deliveries||2000 Orders||Backlog||1999 Deliveries||Orders|
|Notes: *728JET figure excludes 28 Envoys 7s.|
|Turboprop aircraft orders/deliveries - 2000|
|Total all regional aircraft||421||857||1,420||338||641|
|NOTE: **Discontinued turboprop deliveries in 1999 include out-of-production aircraft 1 x BAEJ41, 3 x Saab 340 and 7 x Saab 2000 SOURCE: Manufacturers/Flight International/Airclaims CASE|
Higher capacity focus
Fairchild Dornier is now clearly focussing its efforts on the higher end of the seating range. It abandoned plans for the 428JET last August, but is pushing ahead with the 728JET and the proposed 928JET, for which it released design details at Farnborough. Unlike the Bombardier and Embraer offerings, however, the US-German company insists that its latest family member is not just a "simple stretch" of the 728JET, but is "optimised" as an economic 100-seater. It has a slightly larger wing, growth engine and the largest cabin on offer. The company booked its first order for the programme in June last year when Bavaria Aircraft Leasing signed firm orders for four aircraft and options on two more. The 928JET is scheduled to test fly in late 2003, and enter into service in early 2005.
Meanwhile, final assembly has begun at Oberpfaffenhofen of the 70- to 85-seat 728JET, launched in May 1998 and also powered by the CF34 turbofan. The present development schedule calls for a first flight early next year and service entry in July 2003. The 728JET family, which would also include the 55-seat 528JET if Fairchild Dornier proceeds with this "shrink", is claimed to be the only product line that offers complete commonality over a broad range of aircraft seating from 55 to 110 passengers. Including a launch order from Lufthansa CityLine for 60 aircraft and another 50 from GECAS, the programme now has 114 orders in hand, excluding 28 Envoy corporate jet versions. There are also another 162 options in hand.
BAE Systems continues to defend its small but long-standing niche with upgrades to the Avro RJ family, itself an upgrade of the original BAe 146. The company believes that there is still a market for its large, quiet jets, helped by a handful of notable scope clause exceptions in the USA, and its extra range and short take-off and landing ability which make it attractive in Europe.
The latest version, the Avro RJX with advanced Honeywell AS977 engines, flew for the first in April with a view to certification early next year and service entry with British European next April. British Airways subsidiary CityFlyer Express also has six options but the only other firm customer to date is Druk Air, the flag-carrier of Bhutan, which will take delivery of two aircraft by early 2002. As with the existing Avro RJ series, the updated RJX is available in three versions of 70-, 85- and 100-seat capacities, going to a maximum of 112 passengers in 6-abreast.
As the new jets flood into the market, so the regional carriers themselves continue to boom, especially in the US market which spearheaded the RJ. According to latest figures from the Federal Aviation Administration, total passenger boardings in the USA, including Alaska and foreign territories, were up 7.1% last year to 79.6 million. And added by the extra range now being flown, the volume of traffic miles grew by 18.2%. The industry also posted solid financial results. Operating revenues were up by 12.6% to $8 billion and operating profits amounted to $546 million - representing a respectable 7% margin.
At the same time, consolidation continues. The number of US regionals stood at 90 by year-end 2000, down a couple from the year before. Going back a couple of decades to 1980, the FAA could count 250 individual commuter and regional airlines. That has been whittled down, primarily by a string of post-deregulation acquisitions by the major network carriers. The top five express groupings in the service of those majors now account for almost half of US regional enplanements, and the top 10 for over 75% (see table above).
Across the Atlantic, figures from the European Regions Airline Association (ERA) show that growth in Europe was on a par last year, with passenger boardings up 6% to 72.1 million. Passenger kilometres grew by only 2.3%, though. The European market still includes a greater number of individual carriers, with the ERA's top five members accounting for only 30% of overall passengers. (Note that these figures include the likes of Deutsche BA and Meridiana, which do not strictly fly regional aircraft and so do not appear in the Top 100 ranking). Consolidation is taking hold, however. The number of true independents is being thinned by a wave of franchise deals and outright acquisitions, such as the British Airways purchase of CityFlyer and British Regional Airlines. And the lead five franchise groupings in Europe now also roughly account for over half of traffic.
Elsewhere around the world, regional markets generally remain less mature, but manufacturers are beginning to make inroads in Asia-Pacific, which many believe will be the next lucrative marketplace for aircraft sales.
In a recent speech, Fairchild Dornier executive vice president Barry Eccleston neatly summed up the progress of the regional revolution, citing four distinct phases. Phase 1 was the initial entry of the 50-seat jet and is now mature. Phase 2 is the entry of the micro-jets and is just beginning. Phase 3 is the advent of the new generation 70-seat jets in Europe and is evolving. The final chapter is to bridge the gap between regionals and majors, to give seamless passenger service and new direct routings. That, he argues, is only "a few short years away".
|Regional airlines performance comparison - 2000|
|Europe 2000 change||USA 2000 change|
|Passenger traffic||RPK billion||39.2||2.3%||35.9||18.2%|
|Seat capacity||ASK billion||66.8||2.3%||60.8||15.6%|
|Load factor||per cent||58.7%||2.5%||59.0%||1.4%|
|Average seating||per aircraft||67||0.0%||37.5||4.2%|
|Average trip length||kilometre||530||2.1%||451||7.6%|
|NOTE: RPK = revenue passenger kilometre ASK = available seat kilometre 1 mile = 1.609km Source ERA. US figures from FAA fiscal year analysis from DoT Form 298-C/Form 41.|
|Top 10 corporate US groupings -2000|
|Rank||Grouping||Emplanements million share|
|5||US Airways Express||6.7||8.4%|
|6||Alaska Air Group||5.1||6.4%|
|7||Mesa Air Group||4.5||5.6%|
|Total US (FAA analysis)||79.6||100.0%|