Boeing's interest in Fairchild Dornier could herald a radical rethink of the relationship between regional jet and large airliner manufacturers
The airline industry is gradually recovering from one of its worst setbacks ever and it is noteworthy that this comeback is being led by what many pilots traditionally regard as the pariah of mainline flying - the regional jet. Reports that Boeing is considering investing in Fairchild Dornier should therefore not come as a surprise and it is perhaps a signal of a wider and more fundamental realignment in the commercial aircraft industry yet to come.
A number of clear trends have emerged since 11 September. While major carriers quickly moved to shed older, less efficient equipment and delay deliveries of new Airbus and Boeing aircraft, many smaller carriers continued to absorb the large number of regional jets on order. This is reflected in traffic figures showing the US regionals enjoying more than 14% growth in January.
Major carriers, under pressure from low-cost operators, are showing interest in the larger regional jets. The Fairchild Dornier 728/928 and Embraer 170/190 bridge the gap between the 120-seat Boeing 737 and Airbus A319 and the traditional 50-seat regional jet. With the demarcation between mainline and regional operations becoming less discernable, this is prompting manufacturers of large and small aircraft to move closer.
While attention is focused on Boeing's interest in Fairchild Dornier, it was Embraer that took the first step in aligning itself with a larger entity, selling a 20% stake to a group of French companies in 1999. Some of the shares now reside with Airbus parent EADS. The joint announcement at the last Paris air show of the sale of 40 Airbus A318s and Embraer 195s to Brazil's TAM may symbolise the unfolding relationship.
For a company looking to expand into the regional aircraft market, Fairchild Dornier represents an attractive opportunity. It has invested heavily in a new 70- to 110-seat family and the first 728 will roll out shortly. However, it lacks a lucrative backlog of 50-seater orders and as a result does not have the deep pockets of Bombardier or Embraer. Furthermore, its owners Clayton, Dubilier & Rice and Allianz Capital are eager to offload what was only ever intended as a short-term investment.
Fairchild Dornier is in need of not only more capital, but a strategic partner to help market, finance and support sales of the 728/928. Manufacturers are discovering that they are selling either to regional airlines that are increasingly being instructed by their larger partners on what to buy or directly to the mainline carrier. Packaging a range of aircraft with 70-seats up to 450 seats into a single sales proposal offers benefits for seller and buyer.
Boeing burned its fingers in the early 1990s when it owned de Havilland in Canada, which has many observers asking why would it want to divert money and management resources away from selling high-value widebodies to smaller, lower-priced regional jets. Perhaps the answer lies in the diversification of Boeing's business in recent years. The fleet of 30- to 110-seaters could represent a huge market for some of Boeing's value-added investments in area such as maintenance, training, in-flight entertainment and online services.
Watching warily from the sidelines is Bombardier, which could be left in the cold by the vertical integration of its two chief rivals with either of the large airliner builders. Should talks with Boeing founder, Bombardier could well take its place at the negotiating table.
There is nothing in Fairchild Dornier's portfolio that directly threatens Bombardier's 50-seat CRJ200, while the CRJ700 and CRJ900 represent 70- and 90-seat extensions to the 50-seatfleet rather than direct competitors to the large cabin 728/928 and 170/190 aircraft. Bombardier has balked at the $1.2 billion cost of developing an all-new BRJ-X that would enable it to play in the 90-120 seat market. The money might perhaps be better spent on a company with a family of aircraft in development. But then again Bombardier is a much more diversified industrial concern than either Embraer or Fairchild Dornier and its very survival does not necessarily hinge on success or failure in the regional jet market.
A better business case can be made for a tie-up between Boeing and Fairchild Dornier, but it has its hurdles. For Boeing, investing in a regional manufacturer would force it to finally confront the issue of its slow-selling 717. The dwindling backlog for the 106-seater may seal its fate anyhow, particularly as potential operators choose to await the 928-100/200 and 190/195. The best advice for Boeing might be: "If you can't beat them, join them."
Source: Flight International
