Brian Dunn/MONTREAL Chris Jasper/LONDON
Bombardier's aerospace division is on a high, with revenues for last year rising by 32%, to C$6.44 billion ($4.29 billion), and pre-tax profits leaping by 42% to C$682 million. The Canadian manufacturer forecasts similar growth trends during the current year.
Despite this and an order backlog up by 41% to C$25.5 billion, some industry analysts are unconvinced that Bombardier can maintain the pace, arguing that regional airlines placing double-digit orders may default on the deals if faced with a downturn in the market.
Those analysts believe airlines have overestimated demand for regional services and argue that if economies falter in their North American and European heartland, cancellations will result.
"All those aircraft look good on the orderbook, but there's no guarantee they'll ever be delivered," says Barbara Beyer, president of the Avmark consultancy. "My concern is that regionals traditionally ordered aircraft on an as-needed basis, which meant one or two at a time. Now they're acting like the majors, who are all trying to outdo each other with huge orders which may not turn into sales."
Bombardier's main competitor, Embraer of Brazil, has also reported impressive financials for 1998, but both face likely challenges from other players eyeing the regional jet market, with the Fairchild Dornier 728JET family due to begin flight testing next year, and British Aerospace planning to extend the life of the Avro RJ for at least 10 years.
While ATR's plan to revive the Airjet is seen by some as no more than a stalking horse to win it a role in an existing project, and Rekkof Restart is struggling to resurrect the Fokker family, one industry observer says that "four regional jet manufacturers is in any case probably two too many".
Meanwhile, The World Trade Organisation has come out against Brazil and Canada over the state support given to the two regional giants, although Bombardier's claim that Embraer will come off much the worse as a result of a ruling against the Proex subsidy is unproven.
Bombardier president and chief executive Bob Brown (left) says: "We think the WTO decision on Proex has had an impact. Look at our recent orders - Northwest, Ansett, Jersey European. We think it's having an influence on our orders."
A further factor which will help determine the long-term viability - or otherwise - of regional jet manufacture concerns the fact that both current 50-seat jet models are still effectively in launch mode, with pricing reflecting the need to attain a healthy level of market share. While effective in fuelling sales, those prices are probably unsustainably low at current levels.
Regional jet sales have also been artificially inflated by the global requirement for the renewal of fleets which include turboprops; once those aircraft have been replaced, demand is bound to fall off.
Bombardier nevertheless claims to be unconcerned by these factors, pointing out that major and regional airlines are two different markets, and that in an economic downturn passenger business is to an extent offloaded on to regionals.
"We've seen the majors defer orders," says the company. "Our problem is that we're trying to meet demand."
Brown shares this optimism. He describes aerospace as the "major driver" in the group's financial performance for the year. "We will more than double revenues and profits over the next five years," Brown predicts.
In terms of market share, Bombardier's CRJ-100/200 accounted for 60% of new orders in the 50-seat market last year. With 539 firm orders for the type ordered, of which some 300 have been delivered, the company is to push production from six to 7.5 aircraft a month by year end.
Embraer enjoyed considerable success in the 30-seat sector last year with its ERJ range, where it is unopposed by its Canadian rival, but both manufacturers are poised to go head-to-head in the 70-seat market, with Embraer pledged to launch a new rival to the CRJ providing it can share development costs with a partner.
Industry forecasts put the demand for regional jets in the 40/79-seat category at 2,100 aircraft over the next 20 years, while Bombardier expects demand in the 80/110-seat category to reach 2,500 aircraft, prompting the company to consider a 90-seat aircraft.
Despite this likely jet demand, Bombardier is committed to turboprop production - a policy that analyst Fred Larkin of HSBC Securities, Toronto, calls into question. The company's Dash 8 family is no longer massively cheaper than jet rivals from Embraer - yet Bombardier this year begins deliveries of a 70-seat model.
The saving grace of the turboprop may be its low running costs, which make it ideal for routes where there is no jet competition. Market contraction could also increase demand for cheaper turboprops, so that the Dash 8 could prove a useful safety net.
Source: Flight International
