At The Gate: Winning the regional game
For the first half of 2011, Bombardier Aerospace badly trailed its main
rivals in regional aircraft orders, which could potentially result in a
reduction of aircraft production.
September 23, 2011 By Brian Dunn
For the first half of 2011, Bombardier Aerospace badly trailed its main rivals in regional aircraft orders, which could potentially result in a reduction of aircraft production.
From January through June, Europe’s ATR received orders for 88 of its 42-seat and 72-seat turboprops, while Embraer had buyers for 62 of its 70- to 122-seat E-Jets. By comparison, Bombardier checked in with only seven orders for its 65- to 88-seat CRJ and just two Q400 turboprops. The one spot of good news is that orders for Bombardier’s 110- to 145-seat CSeries are starting to pick up steam after a slow start.
Analyst Cameron Doerksen of National Bank Financial in Montreal agrees there’s been a bit of a lull for the Q400 compared to ATR, which has done quite well, but thinks it’s more of a timing issue rather than a lack of demand for the Q400.
“I think it’s a short-term issue and orders should pick up later in the year, as I still believe there’s a lot of interest in the Q400. It’s aimed at a different market than the ATR. It’s more of a jet replacement aircraft compared to the ATR.”
As for the Bombardier CRJ, Doerksen sees it as a niche product with more demand for the CRJ1000 coming from outside North America, while the CRJ900 is more suited for North American airlines.
“They have an order backlog for a couple of years, but Bombardier will need more demand to maintain current production rates after that. Some contracts (between major airlines and their regional carriers) are due for renewal which could result in potential new orders.”
Analyst Richard Aboulafia of the Teal Group in Fairfax, Va., can’t figure out why orders for the Q400 are so low. “It’s a good product and should be doing much better when you look at how well the ATR is doing.”
One possible explanation is that the Q400 is a bigger and more costly aircraft and consumes more fuel than the ATR, which may not appeal to a lot of customers at current oil prices, especially in developing countries. Then there are the problems the Q400 has had with its landing gear. “There have been some serious concerns about their after-sales product support which could affect their reputation,” suggests Aboulafia.
In July, Transport Canada issued an Airworthiness Directive to Q400 operators to immediately inspect their aircraft “for cracked barrel nuts found at the front spar locations of the wing to fuselage attachment joints.” It added that “failure of the barrel nuts could compromise the structural integrity of the wing to fuselage attachments.”
Bombardier earlier announced some 100 jobs at its Downsview plant in Toronto where assembly of the Q400 will be affected due to reduced orders. “We’re trying to find work for them in other areas of our operations,” says Bombardier spokesperson Haley Dunne.
As for the CRJ, Aboulafia doesn’t see much future for the aircraft. “They’re losing market share in a shrinking market and I think that’s one of the reasons why Bombardier decided to launch the CSeries.” He also pointed out that Embraer’s E-Jets have a better resale value than the CRJ.
Naturally, Bombardier has a different take on its CRJ. “The regional market is more challenging now, but we still have faith in the aircraft,” says Dunne. “It is still the most popular regional jet on the market, with over 1,600 of them in service.”
In terms of the CSeries, it was never a serious contender for the 460 aircraft order placed by American Airlines which is being split between Airbus and Boeing. “American didn’t really have much of a requirement for an aircraft of that size,” Aboulafia offers. “What’s more important for the CSeries’ future is whether they will get any orders from Delta Airlines, which should be announced by the end of the year.”
In July, RBC Dominion Securities downgraded Bombardier over growing concerns the company faces the challenge of successfully getting the CSeries off the ground while finding new customers for the aircraft.
Bombardier intends to make in-flight connectivity standard on the CSeries because passengers have come to expect such a solution, the company says. Although Bombardier believes the future of in-flight entertainment is in connecting passengers’ own personal electronic devices, it plans to make embedded in-flight entertainment systems available in its CSeries catalogue. Bombardier, meanwhile, has already selected Panasonic to provide the baseline cabin management system for the CSeries. An optional feature will allow airlines to display flight information such as gate and connection information without investing in a full in-flight entertainment system.