The soaring oil price has refuelled the turboprop aircraft market after years in the doldrums, with airlines increasingly focused on slashing operating costs
When Bill Lear linked with Canadair in 1976 to produce a revolutionary widebody business jet, few could have anticipated the revolution of a different kind that would result 20 years later in the regional sector.
The transformation by Canadair owner Bombardier of the Lear-conceived Challenger business jet into the 50-seat Canadair Regional Jet (CRJ), which entered service in November 1992, created a paradigm shift in the regional airliner market that almost battered the turboprop manufacturing business into oblivion.
Until Canadair’s 50-seat CRJ burst on to the market in the early 1990s, the turboprop airliner business typically accounted for well over 200 shipments a year. Contrast that to the low-water mark of 2003 when the two remaining manufacturers – ATR and Bombardier – delivered just 30 turboprops against 250 regional jets (with 80 seats or fewer) and the impact of the new jets is evident.
The emergence of regional jets prompted an industry restructuring that led to the exit of two long-standing regional airliner giants – BAe and Fokker – while Saab was forced to leave the market after its new-generation 50-seat high-speed turboprop, the 2000, was unable to compete with the regional jets.
But now, over a decade since the jet revolution began, with around 2,000 small regional jets (the 30- to 50-seat category) delivered all over the world by Bombardier, Dornier and Embraer, the worm is beginning to turn: the market for turboprops is back with a vengeance. As the industry gathers in Gothenburg this week for the annual European Regions Airline Association general assembly, there is likely to be much discussion about the turboprop revival as fuel prices soar.
“Market demand appears to be satisfied now for new 50-seat jets,” says Barry MacKinnon, Bombardier Regional Aircraft vice-president marketing and airline analysis.
Steve West, director of major CRJ operator SkyWest Airlines, put it more bluntly at last month’s Cargo Facts 2005 conference in Seattle, saying: “We’ve reached saturation point with the 50-seat CRJ.”
The sudden change in heart towards the small regional jets is reflected in their diminishing orderbooks, which combined stands at just over 100 aircraft, a fraction of the level it was at a few years ago.
Production cuts
Orders have dried up as airlines look to larger jets with 70 seats or more, prompting Bombardier to cut CRJ200/440 production from over 50 a year to 18 next year. Embraer’s ERJ-145 family output has also declined, while the few Dornier 328Jets being delivered are mostly in non-airline configurations.
What were the drivers that made the small regional jet such a huge success for almost 15 years, but now leaves them facing an uncertain future?
“There were a tremendous number of turboprop orders when demand peaked in the 1980s. There were well over 200 turboprops being produced by all manufacturers each year,” says Bombardier’s MacKinnon. “The market was well supplied with turboprops, probably almost as many as it needed,” he adds.
MacKinnon says the CRJ’s appeal to turboprop operators came from its two obvious benefits – greater speed and comfort. “Its higher speed expanded the operating radius for regional airlines from their hubs,” he says, giving the strategy of Delta Air Lines feeder Comair as an example. “It was able to double its operating radius and the number of markets covered increased exponentially, as the circumference of a circle is 2πr.”
Bombardier Regional Aircraft’s head of turboprop market strategy and airline analysis John Brady points out that “the turboprops back then were pre-NVS [noise and vibration reduction system], so there was a dramatic difference between the turboprop and the jet in cabin noise and vibration”.
MacKinnon adds that Bombardier quickly realised this gulf in the level of cabin comfort between turboprops and jets was “seriously limiting our prospects for our Dash 8 family, so we introduced the Ultra Electronics NVS and a new cabin and rebranded it the Q Series – for ‘quiet’”.
Another factor contributing to the demise of the turboprop was an increasing negative perception in the US market. “For years the majority of the turboprop fleet consisted of 19-seaters typically lacking flight attendants and galley service, which contributed to a lot of stereotyping about poor comfort,” says MacKinnon.
Added to this, in the USA there had been a growing perception that turboprops were less safe than jets, which culminated with the high-profile crash of an American Eagle ATR 72 at Roselawn, Indiana, due to icing, while holding to land at Chicago O’Hare in October 1994. The accident killed all 68 people on board.
This accident acted as a lightning rod to focus the US public’s attention on turboprop safety, but Brady points out that this was a misconception: “Few of the turboprop accidents happened during a precision approach to a major airport. It wasn’t a problem with the type of aircraft per se, but the environment it was working in.”
Despite being based upon a misconception, this safety concern dealt a direct blow to turboprop operators’ bottom line. “Bombardier found out that a lot of corporate travel policies for Fortune 500 companies had opt-outs allowing travellers to take a different service if it meant that they could avoid flying on a turboprop connection flight,” says MacKinnon.
What followed was an onslaught from which only two turboprop airliner players emerged – ATR and Bombardier – as orders for propeller-driven aircraft ground to a halt.
“The low point was 2002 when there were only 26 gross orders for us and ATR,” says MacKinnon. “There was a great deal of uncertainty about the future of the market, and our management was asking questions about whether turboprop production was sustainable.”
Bombardier belief
But Bombardier, which had ombaa foot in both camps with its Q Series and CRJ families, persisted in its belief that the turboprop had a future, says MacKinnon, because of the need for replacements and due to the emergence of new markets that could be tackled by its high-speed Dash 8 Q400 – evidenced by the success of the type at UK regional low-fare carrier Flybe.
The regional jet revolution has had its biggest impact in North America where the sector represents almost two-thirds of all departures in the 15- to 90-seat category (see graphic). The jet’s next biggest market is Europe, but there it accounts for less than 50% of departures.
“The regional jet has proved more suitable to the US market as it has a larger catchment area where there are long route sectors or the aircraft can be used to bypass hubs,” says ATR senior vice-president commercial John Moore. He adds that the relatively lower impact of success of 50-seat jets in Europe is because “there are not as many markets where it can make money – this is partly a geographic issue and partly a cost issue”.
Both manufacturers agree Europe has never suffered from the serious turboprop avoidance issue experienced in the USA.
Bombardier initially had “some very good success” with the 50-seat jet in Europe in markets connecting smaller-volume city pairs, but MacKinnon says that the increasing yield pressures and high airspace and airport charges, combined with high fuel prices, have “put a squeeze” on the 50-seaters. “There are also more areas in Europe where you need the performance of a turboprop due to airfield considerations, like Norway and Lugano, Switzerland,” he adds.
But after almost a decade of success, the recent unabated rise in the price of fuel has all but killed off the small regional jet and spelled the return of the turboprops.
“We’re seeing a significant resurgence in our turboprop orders – over 100 for ATR and Bombardier combined this year to date – and we’re not done yet,” says MacKinnon, who explains that declining yields and rising fuel prices are the “two horsemen of the apocalypse” for the changing appetites of the regional operators. “Both these factors are key to the market shift to larger regional jets and also the resurgence of turboprops as airlines seek lower unit costs,” he says.
According to Bombardier, the seat-kilometre costs of the 70-seat CRJ700 are 17% lower than a 50-seat CRJ200 – on a 940km (500nm) sector in the US market – while those of the 86-seat CRJ900 are 27% less. That explains why demand for these types is increasing as orders for the 50-seater slow. MacKinnon says the margin between the 50-seater and the larger jets has widened by two percentage points as a result of the recent surge in the cost of fuel.
Warranties
ATR’s Moore says that, although demand for new turboprops had a “difficult couple of years, the market for used aircraft remained active and reinforced our view that the turboprop market was still there and would return for new aircraft”. He adds that another contributor to the decline in the popularity of small regional jets is that the older aircraft in service have come to the end of their manufacturer’s warranties, which had helped mitigate maintenance and support costs. “Airlines are finding that they now have to pay for those costs,” he says.
While regional jets work well on sectors of around 900km and beyond, MacKinnon says that “all jet types flip into money-losers on short-haul markets because jet costs rise faster than yields to sustain them”.
As shown in the accompanying Bombardier table, which compares two of its own products, the greater efficiency and lower price of the turboprop (in this case the 74-seat Q400) enable it to achieve some huge gains over a similarly sized CRJ700. “A Q400 has a list price of around $21 million versus a CRJ700’s $30 million…and there’s no speed advantage over 200nm so on these short sectors you can’t obtain the productivity gains that you can with a jet on the longer stage lengths,” says MacKinnon. He explains that on short sectors, the regional jet’s fuel burn per kilometre is much greater than the turboprop’s, while engine maintenance costs are much higher “due to very high cyclic cost sensitivities on a jet engine compared to a turboprop engine, which is based more on hours flown”.
Brady says that “a turboprop engine has much fewer cycle-limited components and fewer turbine stages compared with a jet engine, so the cycle-limited costs are much lower”. The compound effect of the fuel price rise on the competitiveness of the turboprop is evident by an ATR calculation of cost savings. It says that a fleet of 10 turboprops operating sectors of 560km would generate an annual fuel cost saving of $1.69 million over a fleet of similarly sized regional jets when fuel was priced at 16¢/litre (60¢/USgal) as it was three years ago. However at today’s price level of 50¢/litre, the turboprop fleet’s advantage is almost $5.5 million, says ATR, which equates to savings of $27 million over five years.
Little optimism
With things looking so bleak for the 50-seat jets, Bombardier has little optimism for the future of the 30- to 40-seat airliner market, be it a turboprop or jet. Embraer has competed in this sector with the ERJ-135/140, and Dornier with the 328Jet, while the only new-build turboprop offering left is the 37-seat Bombardier Q200.
“This market is dead for the jet – the economics are impossible with today’s fuel prices,” says MacKinnon. “We don’t see much airline demand for turboprops in the 30- to 40-seat segment, but there will be some lingering needs in some markets that will never support over 30 passengers per flight, or where there are performance considerations.”
There is also unlikely to be a return to production of new-build 19-seat turboprops in the near term, says Brady. “The economics of building and certifying a 19-seater make it impossible in today’s environment – as there’s not a huge difference in the cost of building a 19-seater versus a 30- or 50-seater. The difference in the price of the aircraft is not proportional to the number of seats, which means that the economics just don’t work – unless somebody comes up with something totally revolutionary.”
With over 1,000 50-seat CRJs in service to be taken care of as airlines move up to larger types, Bombardier is keeping a careful eye on potential secondhand markets. “We still see an important role for the 50-seater as there are still a lot of US markets that are low density where you’d be hard- pressed to fill a 70-seater at good frequencies,” says MacKinnon.
Meanwhile, there are “several emerging secondary markets for passenger aircraft, for example India, and also many areas that have few regional jet services where there could be demand for secondhand CRJs – Russia, Ukraine, South-East Asia and Africa for example”, he adds.
Non-airline applications
Several non-airline applications are also being evaluated, including the reconfiguration of secondhand passenger CRJs as corporate shuttles and conversion for the package freighter role. “We are studying the applicability of the aircraft in the freight role,” says MacKinnon, who estimates that in an all-cargo configuration it would have a payload of around 7t.
The surge in turboprop orders this year to its highest level since the 1990s indicates the underlying recovery of the market, but the 100-plus sales are unlikely to repeated year after year, says MacKinnon, as this year’s tally has included volume orders from Air Deccan and Flybe. “But we do believe that, overall, turboprop sales will be sustained at a higher level than previously,” he says.
ATR’s Moore concurs: “There has been a compound build-up for new turboprops over the last five years as airlines deferred order decisions waiting for an upturn, leading to the sudden explosion this year.”
Both companies agree with the latest market outlook numbers generated by the Forum of European Aerospace Market Analysts (FEAMA) – which also includes Bombardier and Embraer representation despite its name. FEAMA forecasts the need for an average of around 60 turboprops each year for the next 10 years.
According to FEAMA, there is demand for 600 new 15- to 89-seat turboprops worth $10.4 billion over the next 10 years, giving an average annual delivery rate of around 60 aircraft. Although it is slightly less optimistic over the longer term, FEAMA still expects turboprop demand to average more than 40 aircraft annually until 2023 (see graphic).
Both turboprop manufacturers are responding to the increased demand with production rises over the next year or two. ATR will deliver around 16 aircraft this year, 23 next and 30 in 2007, while Bombardier has increased turboprop output from 20 last year to 33 this year. “We are ramping up our turboprop production next year – we’re sold out this year and very close to sold out next year and that’s at much higher build rates,” says MacKinnon.
US market
Amid all this success for the turboprop there is one ominous absentee so far – the USA. With the exception of Bombardier’s success selling Q400s to Alaska Airlines’ partner Horizon Air, large-scale turboprop orders from US regional airlines have looked as though they have been banished to the history books – but this could soon change.
ATR believes the US market is beginning to wake up after more than half a decade of regional jet mania, as the rising cost of fuel forces airlines to rethink their purchasing policies. “There could be a move by some US airlines to replace old turboprops with new turboprops rather than jets,” says Moore. “In the next one to two years we should see an order in the USA.”
MAX KINGSLEY-JONES/TORONTO & TOULOUSE
Source: Flight International
