Selling airliners in the regional market is a tough business. In the past 30 years, the short-haul segment has spawned and slain whole companies and aircraft. From turboprops like the BAe ATP and Saab 340/2000 to jets like the Fokker 100 and the Fairchild Dornier 728, entire aircraft programmes have been snuffed out by intensely competitive market forces.
Small-jet production lines that were slow to adapt when Bombardier and Embraer stormed into the sector in the early 1990s – such as the BAe 146/Avro RJ and Fokker’s twinjet family – passed out of business. The regional market has always suffered from having too many participants fighting over small opportunities to make a profitable business, which is why it has been littered with so many casualties over the years.
Deliveries of the four-engined BAe 146 – an aircraft conceived around the concept of a quiet, efficient small jet able to transport passengers between city centre and city centre – began in 1983. But the appearance of the twin-engined Bombardier CRJ100/200 (nee “Canadair Regional Jet”) and Embraer ERJ-145 family a decade later completely changed the paradigm. Rather than a short-haul, point-to-point aircraft, these new 50-seat-class jets could operate as medium-haul network feeders – replacing the more efficient but slower turboprops, as well as larger jets on off-peak services. Despite being less efficient than either of the alternatives, these second-generation regional jets offered passengers a more comfortable ride and more convenient frequencies.
That was enough for aircraft manufacturers from Brazil and Canada to start building a franchise. By the middle of the last decade, the third generation regional jet was entering service with the arrival of the 70-seat-class E170 in March 2004. Although only marginally more fuel efficient than its 50-seat forebears, the E-Jet and the CRJ700/900/1000 series built on the foundation laid by the BAe 146s and Fokker 100s of the same class.
Now in development comes the fourth generation, in the form of the E-Jet E2 and the Mitsubishi Regional Jet (MRJ). Both are scheduled to enter service in the second half of this decade, promising to provide the network connections desired by passengers at a fuel economy more closely resembling the turboprops that the regional jets largely replaced two decades ago.
The generational leap is enabled with the introduction of more efficient propulsion. The General Electric CF34 powerplant that was adapted from the US Air Force A-10 fighter for the regional market is being replaced. Pratt & Whitney is offering customised versions of the PW1000G geared turbofan, and it has been eagerly adopted by Mitsubishi and Embraer.
Bombardier has decided to stay in the segment between 70-110 seats without a new or re-engined product. As the company stays focused on development of the 110-160-seat CSeries family, it hopes to leverage the proven appeal of the CRJ family – especially the CRJ900 and CRJ1000.
That leaves only one incumbent offering a new product from a market-leading position still in the competition – Embraer.
Paulo Cesar Silva, executive vice-president of Embraer commercial aviation, says the company is not taking its position for granted with the re-engined and re-winged E-Jet E2 family still in early development.
“There is a competition out there,” Silva says. “There is also the Japanese with the MRJ, although they are late in their programme. What we are concentrated and focused on is to develop the best aircraft in the category with the lowest operating cost, the best cabin.”
Embraer never wanted to be in this position – a sign, perhaps, of how brutal the segment remains. For several years, Embraer has shared a goal with Bombardier to exit the large regional jet segment and push their way into the small narrowbody market.
Bombardier moved first in 2008 by launching the CSeries to occupy the low-end of the narrowbody segment, which at that time was assumed to soon be vacated when Airbus and Boeing replaced the A320 and 737 with clean-sheet designs by the end of this decade.
In 2010, however, Airbus decided to capitalize on P&W’s geared turbofan architecture as well and re-engine the A320. The rapid popularity of the A320neo, which amassed 800 orders in less than eight months on the market, forced Boeing to follow suit in 2011 with the re-engined 737 Max powered by the A320neo’s alternative engine, the CFM International Leap-1.
At the time, Embraer was still reviewing plans to launch an all-new five-abreast design, but the re-engining decision by Airbus and Boeing meant it would have at least four major competitors: A319neo, 737 Max 7, CS100, CS300 and China’s Comac C919. Wisely, Embraer decided to remain in the large regional jet segment, launched the E2 family in November 2011.
“Of course, we would like to tap into the 130-150 seater market,” Silva says. “It’s a larger market there. However, we are seeing there is not a good business case still. Maybe in the future, 10 years or more, as the two largest manufacturers will develop larger narrowbodies in order to take advantage of the opportunity of the need for a larger aircraft. Maybe at that moment we can grow with the lower segment. Right now, we are not seeing a good business case for us.”
The company’s primary challenge is filling the four-year backlog between now and the scheduled arrival of the E190 E2 in 2018.
The long-awaited re-fleeting of the North American regional carriers in 2013 helped Embraer re-stock an almost depleted commercial aircraft backlog. The backlog is full through 2015, but Embraer has more than a year of production still open.
“As we approach the [entry into service] of the E2 in the first half of 2018, it’s going to be more and more challenging to us to make this bridge,” Silva says. “However, what helps us too and is key for us is we have a family of aircraft.”
Brendan McHenry, who is a senior analyst with Flightglobal’s Ascend consultancy arm, believes Embraer can capitalise on its strong market position to bridge the gap, but may have work on pricing too. “Embraer do have a significant customer base to market these last-off-the-line first-generation aircraft to,” he says. “But inevitably there will be some element of price discounting required to incentivise those customers to accept these aircraft and offset their fuel burn penalty relative to the E2s.”
Another potential advantage Embraer may enjoy is good timing. Silva anticipates a second wave of major orders by North American carriers in 2017, as union contracts expire and scope clause agreements limiting the size of the aircraft in the regional fleet are reviewed.
“I believe there will be a second wave of 76-seater orders, in maybe three years’ time, as airlines will replace old 50-seaters not only because it’s old but also because of the possibility to be more efficient with larger aircraft,” Silva says.
This second wave of demand could peak, if Silva’s calculations are accurate, three years before the scheduled entry into service of the E175 E2 variant, which fills the 75-80-seat segment.
Embraer has released a package of performance improvements for the base version E-Jet fleet, which was scheduled to enter service as this article went to press. The E-175 Enhanced package that includes a winglet redesign and aerodynamic clean-ups is expected to lower specific fuel consumption by 6% compared to the base model.
The E-Jet E2 family will enter service in 2018 with a promised further reduction of 7% of fuel burn compared with the E-Jet Enhanced, Silva says.
It has been a dynamic first decade of operations for the E-Jet family. Embraer launched the programme in 1999 with no experience building commercial aircraft beyond 50 seats, and facing a wide range of competitors.
The move put the company head-to-head with upstart Fairchild Dornier and its all-new five abreast 728 which had been launched with the backing of Lufthansa, no less. At the time, Embraer’s expectations were tempered by caution. Embraer knew there was a replacement market for the BAe 146 and Fokker 100, but beyond that demand there was only speculation. “We knew it would be a good market,” Silva says. “However, maybe it has exceeded what we had imagined. It turned out to be well beyond of what we would expect.”
What Embraer didn’t know at the time, of course, was that Fairchild Dornier’s ambitions would go up in smoke, with the programme collapsing shortly after the first 728Jet had broken cover at its roll-out ceremony. One thing's for sure: the regional sector is a playground where only the strong survive.
Source: Airline Business
