The sheer size of Delta Connection's order takes some getting used to. An order for 500 aircraft is massive by anyone's standards. In the regional business it stands alone. But the implications of this order are equally huge, both for the lucky manufacturer and for the regional airline sector as a whole.
By securing this Delta deal, Canadian manufacturer Bombardier Aerospace has placed itself in the big league; a major manufacturer that can cut deals with major carriers. Bombardier president Bob Brown's claim that this order has "redefined the regional jet" is hard to deny.
The deal also has implications for the airline sector at large, most immediately in the USA. Barely into the second quarter of the year and US carriers have between them managed to place a staggering 600 orders for the new breed of regional jets.
The first big deal of the year came in February at the Asian Aerospace air show in Singapore. Continental Express, the regional subsidiary of Continental Airlines, announced an order for 100 Embraer regional jets.
The deal, valued at $1.8 million is impressive enough in its own right, but Continental Express already had 100 orders in hand. At a stroke it committed the carrier to a mix of 200 of the 50-seat ERJ-145s and smaller 35-seat ERJ-135s. That should enable the regional to continue receiving small jets at a rate of more than 30 each year until the end of 2003. It also puts the carrier on track to become an all-jet operation by the first or second quarter of that year.
Then, on 29 March, Delta Connection chief executive David Siebenburgen made that order appear almost small fry with its own $10 billion deal. Delta Connection signed for 500 aircraft on order and option. The aim is to draw the options down as required by its regional subsidiaries, Atlantic Southeast Airlines (ASA) and Comair, both of which have been brought securely within the group over the last year.
Quite apart from its scale, the Delta deal is interesting for another couple of reasons. First, there is the flexibility. Delta has committed to only 94 firm orders so far, with the rest held as options. There is little doubt that the carrier intends to take up most or all of those 406 options, but will do so as they are needed. They may be delivered to either ASA or Comair and can be speeded up or slowed, depending on requirements. Company executives point out that the purchase of a common fleet with a common cockpit will make such flexibility easy.
In short, Bombardier and Delta have struck the same style of deal that Airbus and Boeing have offered on mainline fleets to the likes of American Airlines, Continental Airlines and US Airways. Another sign, perhaps, of how the regional jet market is coming of age.
Second, Bombardier has been prepared to offer some customised types into the mix to give Delta the family that it wants. Besides the classic 50- and 70-seaters, there are 40- and 44-seat aircraft being thrown in among the CRJs that will be delivered by the end of 2010.
Comair is taking 45 of these as part of the firm order. These aircraft will, in fact, be 50-seat CRJs with fewer seats. There will be no other physical difference between the aircraft and the manufacturer does not believe it will need separate certification. Bombardier also emphasises that this will almost certainly be an exclusive deal with Delta Connection. Bombardier has long maintained that it cannot make the economics work for a new 40-seater regional jet, but president and chief executive Bob Brown says the sheer volume of this particular order allowed them "to come up with a solution" and a cost that allowed some flexibility. "We have made some accommodations on our aircraft to make it competitive in the markets it will be operating in," says Brown.
Jets take over
Over the next few years, as aircraft from the Continental and Delta deals are delivered, the face of the US regional airline industry will be irreversibly transformed. Figures from the UK-based Airclaims consultancy show that there are already above 570 regional jets of all descriptions in USservice. The bulk of those are in the hands of the big pioneers like Comair and American Eagle (see table below). On top of that, there are another 600 on order and as many again in options. Together those numbers already outstrip the total 1,768 turboprops operating in the USA.
As more new jets are delivered and more turboprops are phased out, the balance must swing heavily in favour of the regional jet. And more large orders from US carriers are expected; US Airways is believed to be planning a fleet of up to 400 regional jets and American Eagle may order additional regional jets to boost its growing fleet.
The same pattern is appears to be taking hold in Europe - witness Crossair's deal for 75 Embraer jets. In fact, jets now account for 86% of the world's regional aircraft order backlog with turboprops reduced to less than 15% and fading fast (see table page 56).
As one aircraft valuation consultant puts it: "The question of whether the turboprop has a future is almost meaningless now. The regional jet has not only come of age with orders of this size occurring, but it has also wiped out the value of the turboprop. In terms of value, the turboprop is dead now."
The Delta Connection system itself currently has about 100 turboprops in operation but Siebenburgen describes it is a "high priority" to replace all of them with jets. He expects Cincinnati, Ohio-based Comair to become an all-jet operation by December this year. "Our intention has always been more jets and fewer turboprops," he says. In addition, the new jets will allow both ASA and Comair to expand their route networks. Love Field in downtown Dallas and New York's La Guardia are listed among the key targets.
But Siebenburgen does not see the plan ending there, saying that Delta did not buy up its regional affiliates "with the idea of standing still". He adds:"This order gives us the tool we need to fulfil announced plans. We expect major expansion in many areas. And wouldn't it be a dream to have an all-jet fleet across America and the world?"
The timing of the deal may also be significant. It appears that Delta was eager to place the regional order before it ratifies a new contract with its mainline pilots. Negotiations with the local pilots' association are on-going and the union has no scope clause restricting the number of regional jets the airline can operate - a major competitive advantage that might become more restrictive under a new contract. Delta Connection executives are keen to separate themselves from those negotiations and to stress they play no part in them. "That is an activity between Delta Air Lines and ALPA," says Siebenburgen. "We are not doing anything in that arena."
The order clearly also has implications for Bombardier. It will now ramp up production of its 50-seater from 9.5 per month to 12.5 by autumn 2001, with the aim of delivering 135 aircraft in 2002 compared with the 100 it intends to produce this year. The company aims to double sales again over the next five years.
"What this order does very clearly is position us as the leader in regional aircraft," says Brown. What this deal, and others like it, has already started to do, is to put regional aircraft manufacturing on a whole new scale.
| US regional jet fleets and order books | |||||||||||||
| Carrier | Grouping | Regional jet fleet in service | On order | options | Total | Main types in service | On order | Manufacturers | |||||
| American Eagle | American Airlines | 159 | 85 | 117 | 361 | ERJ-145, -135 | Bombardier | Embraer | |||||
| Atlantic Coast Airlines | Delta Connection, United | 26 | 119 | 99 | 244 | CRJ 200ER | CRJ 200ER | Bombardier | Embraer | ||||
| Atlantic Southeast | Delta Connection | 82 | 25 | 53 | 160 | CRJ 200ER | CRJ 200ER | Embraer | |||||
| Business Express | America Eagle | 0 | 20 | 40 | 60 | - | Embraer | ||||||
| Comair | Delta Connection | 90 | 40 | 105 | 235 | CRJ 100ER | Bombardier | ||||||
| Continental Express | Continental | 67 | 132 | 75 | 274 | ERJ-135, ERJ-145 | ERJ-135, ERJ-145 | Bombardier | |||||
| Express Airlines 1 | Northwest | 0 | 42 | 0 | 42 | - | CRJ 200LR | Bombardier | Embraer | ||||
| Horizon | America West | 0 | 25 | 25 | 50 | - | CRJ 200ER | Bombardier | Embraer | ||||
| Mesa Airlines | US Airways, America West | 33 | 35 | 64 | 132 | CRJ 200LR | RJ-145 | Bombardier | |||||
| Mesaba | Nortwest, Continental | 33 | 3 | 0 | 36 | Avro RJ85 | Avro RJ85 | BAE Avro | |||||
| Midway Airlines | American Airlines | 19 | 7 | 4 | 30 | CRJ 200ER | CRJ 200ER | Bombardier | |||||
| SkyWest Airlines | Delta Connection, United | 11 | 55 | 55 | 121 | CRJ 100ER | CRJ 200ER | Bombardier | |||||
| Tran States Airlines | TWA, USAirways etc. | 9 | 6 | 12 | 27 | ERJ-145 | ERJ-145 | Embraer | |||||
| Total | 529 | 594 | 649 | 1,772 | |||||||||
| Source: Airclaims CASE database | |||||||||||||
Source: Airline Business
