ANDREW DOYLE & NICHOLAS IONIDES / SINGAPORE
Regional-jet makers fighting for position in the Asian market first have to convince airlines of their need
Asia has become the new battleground for regional jet manufacturers keen to exploit the region's vast traffic-growth potential. But much still needs to be done to convince the continent's airlines of the merits of equipping their fleets with aircraft with fewer than 100 seats.
While North America has accepted the regional jet, and a deregulated Europe is quickly due to follow suit, many obstacles remain to their widespread use in Asia.
Inter-governmental bilateral air-service agreements still constrain the Asian airline market, limiting competition to a few airlines on a given route, encouraging the use of larger aircraft - predominantly widebody twins - on intra-Asian services.
In addition, a significant proportion of Asia's inhabitants live in or close to major cities, which need to be interconnected via high-density air routes. Carriers such as Cathay Pacific and Singapore Airlines have been able to operate profitably with fleets composed only of twin-aisle aircraft, with no requirement for narrowbodies, let alone types seating fewer than 100 passengers.
So Bombardier, Embraer and Fairchild Dornier are focusing on secondary areas where there is potential for low-density but high-frequency services, point-to-point or point-to-hub. The most significant market is China, where the first shots have been fired in a fierce three-way sales battle. The companies have established permanent offices in Beijing to spearhead sales and marketing efforts, and co-ordinate negotiations on local industrial incentives.
Initial sales successes were scored with China's airlines, but most of these deals have stalled following an apparent policy reversal by Beijing. Fairchild Dornier achieved the first important breakthrough in Asia in August 1999 when Hainan Airlines of China ordered 19 32-seat 328JETs and took options on 20 more.
The Chinese government began encouraging the country's airlines to acquire regional jets two years ago, but has not approved provisional orders concluded since then. The Hainan order, though significant, did not open the sales floodgates as predicted. Done deals included Shandong Airlines' order for five 50-seat Bombardier CRJ200s and Sichuan Airlines' acquisition of five 50-seat Embraer ERJ-145s.
Bombardier has since sold regional jets to other carriers in China. But other deals reached in 2000 and last year between Chinese airlines and Bombardier, Embraer and Fairchild still await approval.
Meanwhile, Beijing is mysteriously applying import tariffs of up to 23% on aircraft with a structural weight below 25t (55,000lb), without official reason. Manufacturers and airlines cannot explain the impasse, but there is a tacit acceptance that vendors must do more to involve Chinese industry in production work.
China makes no secret of its desire to participate in aircraft manufacturing. Would-be US regional-jet manufacturer Alliance Aircraft has an agreement with Chinese partner Harbin Aircraft to create a family of small regional jets, including Chinese manufacture of the 35-seat version for local and international markets. Meanwhile Harbin's parent, Aviation Industries of China II, continues collaboration talks with all the major regional manufacturers on regional jet programmes.
Elsewhere in Asia, regional jets were sold in Japan for the first time in 1999 when Bombardier sold CRJs to Japan Airlines subsidiary J-Air and to start-up carrier Fair.
The manufacturers say China, Japan and the rest of the Asia Pacific region are ready for modern regional jets, arguing that the region usually follows trends in European and the USA. The latter have seen a boom in the sector over the past 5-10 years, and passengers are demanding higher frequencies from aircraft which are potentially cheaper to operate than older turboprops.
But there are also regulatory considerations. China is building a US-style "hub-and-spoke" network as a key part of its tenth five-year plan for economic development to run from 2001-5, and will feature airport infrastructure improvements, tariff cuts and financial incentives for airlines.
Chinese potential
China is by far the biggest potential market in Asia for regional jet makers. Turboprops have never caught on in the country, so manufacturers expect the bulk of the demand to be regional jets seating 30-110 passengers. Sales so far have only been for regional jets seating 50 passengers or fewer.
In Japan, meanwhile, deregulation has resulted in the lifting of restrictions on small aircraft. Until 1997, commercial aircraft with fewer than 60 seats were not allowed to fly on routes served by scheduled carriers. Increased competition has also resulted in bigger carriers pulling larger aircraft off some thin routes, leaving them to be served by commuter airlines with smaller aircraft. Key airports, such as Tokyo's busy Haneda and Narita, are warming to small aircraft operations with the opening of new slots from new runways.
JAL, for one, is hopeful about regional jet development in Japan. According to Chinese government domestic traffic data, its corporate planners estimated last year that more than 100 routes in the country would suit 50-seat jet operations.
Other developments may spur regional jet growth in Japan. With government rules requiring traffic alert and collision avoidance systems to be installed on domestic aircraft in the coming years, carriers will have to replace older turboprops such as ageing home-grown NAMC YS-11s.
"In the next two years, we'll see new opportunities in Japan," says Embraer chief representative and managing director Asia Pacific Luiz Fernando Fuchs. "They are starting to look more and more into the regional concept. The second runway at Narita will help a lot," he says.
Despite the industry's recent emphasis on regional jet demand, Bombardier has had some success with its high-speed 70-seat turboprop, the Q400. Although the region's first operator Changan Airlines of China is disposing of its Q400s as part of a broader strategy to move to an all-jet fleet, Japan Air Commuter has five of the turboprops on order. Some observers believe that the turboprop's high competitive speed performance combined with its lower trip costs will see the aircraft succeed in regional jet markets.
Embraer reckons the Asia Pacific region will absorb around 600 passenger aircraft seating 30-120 passengers over the next 10 years. Approximately half of these aircraft will be purchased by Chinese airlines.
Fairchild Dornier predicts China will need around 400-500 70-seat regional aircraft over the next 20 years, though this forecast was made before the downturn prompted by the 11 September attacks against the USA.
Some observers argue Asia is still not ready to embrace regional jets, however. They say problems still face the region, making small-jet operations unprofitable, for the foreseeable future at least.
Infrastructure is one, as some secondary airports are not designed to handle regional jets. Spares distribution is also a difficulty, as is a lack of capability to maintain such aircraft. But perhaps the biggest problem is the level of domestic air fares, which in markets such as China, Indonesia, Malaysia, Thailand and Vietnam is low because of government regulation.
The region's carriers do have some advantages over their counterparts in the USA, however. One is the lack of scope- clause limitations in contracts with pilots, which have made it difficult for some US carriers to expand their regional jet fleets.
In many parts of Asia, manufacturers and airlines also see a fresh opportunity to create new market segments. Unlike in the USA and Europe where regional jets are often used to replace turboprops, in many Asian markets turboprops have never been ordered. As a result there have been no services in more remote parts of some countries such as China and India, while on some routes, airlines have only used larger aircraft, so limiting frequencies.
Apart from China and Japan, India is also seen as a potentially huge prospect, though significant penetration is not expected in the near future.
Australasia, a more "mature" market, is expected to continue growing, while other potential new markets include Hong Kong, Indonesia, Taiwan, Thailand and Vietnam. Australian flag-carrier Qantas is evaluating a possible joint purchase of more than 100 large regional jets with alliance partner and minority shareholder British Airways.
New opportunities
Among Asian customers, awareness of the capabilities of regional jets is still low, however. Embraer executive vice president airline market Frederico Fleury Curado says he expects more orders to materialise from South-East Asian airlines within the next two years, though China remains the region's "key market". He adds: "I believe the [Asian small-jet] market will develop because right now there is no real knowledge [of regional jets]. I believe we will see the same phenomenon as the USA. It's an untapped region."
As for 145 orders placed by China Southern and Wuhan, which are still awaiting government approval, Curado says he is "hopeful a decision will come soon".
Source: Flight International
