Boeing Frontiers
July 2003
Volume 02, Issue 03
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Industry Wrap

Small jet makers compete for jumbo orders

Bombardier CRJ-900The messages are still mixed, but Bombardier of Canada and Brazil's Embraer, the world's leading makers of regional jets, have started to scent a pickup in demand, and the competition is sharpening in a renewed battle for orders, according to the Financial Times.

Big contracts placed in recent weeks first by US Airways and then by JetBlue, the fast-growing New York-based low-cost carrier, have ended the orders drought and suggest that the regional jetmakers could be two of the biggest beneficiaries of the far-reaching restructuring under way in the global aviation industry.

For the moment, however, the two are also still dealing with current problems, as they fight to escape the mire of recession.

Embraer annnounced in June yet another reduction in its aircraft delivery forecast for the year, down from 132 to 110, the third cut in only six months, in the face of continuing problems at some of its airline customers, Financial Times said. And Bombardier is warning of yet more job cuts, chiefly at its Belfast, Northern Ireland, plant, unless it can force through more flexible labor contracts including a pay freeze for next year as part of its efforts to cut costs.

But at least there is now some light at the end of the long tunnel of recession.

As the major U.S. airlines seek to push through a drastic reorganization of their operations to overcome three years of record losses, they are looking to regional jets, typically offering between 40 and 90 seats, as one of the vital components to allow them to cut capacity while maintaining a market presence on routes that have been clearly loss-making for their bigger jets, the Financial Times reports.

The US Airways order shared by Bombardier and Embraer for 170 regional jets, worth $4.3 billion at list prices before discounts, came only weeks after the seventh-largest U.S. airline emerged from Chapter 11 protection from its creditors. US Airways was the first of several bankrupt North American carriers to restructure.

David Siegel, US Airways chief executive, said in the report the move to regional jets is "a key element in our business restructuring plan" that will allow it to take larger jets off routes "with poor to marginal performance."

The US Airways case is "the first big hit on the scope clause issue," said Mauricio Botelho, Embraer chief executive, in an interview with Financial Times at the Paris Air Show. "Today they can fly close to 450 regional jets of up to 76 seats; before it was only up to 70 with no more than 50 seats. This will let US Airways have the biggest regional jet fleet in the United States. Other airlines will have to react in the same way or lose market share."

Last month's surprise order from JetBlue, for 100 Embraer ERJ-190 100-seat jets, has also suddenly opened up a completely new dimension for the sector.

It is the first time in the United States that a low-cost carrier has deviated from the hitherto highly successful business model, first pioneered by Southwest Airlines, of concentrating on densely-used city pair routes, to embark on a strategy of also trying to bring the low-fare concept to thinner regional city routes with intrinsically lower passenger demand.


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