Among an array of aircraft models in ATR chief executive Christian Scherer's office – mostly of Airbus jets, which is no surprise given his three decades at the European consortium – one takes pride of place. On a table by the sofas near his desk, sits Concorde.
"It's the ultimate inverse of the turboprop," he says of the erstwhile supersonic 100-seater. Maybe its presence signals an intent to look beyond what is possible today.
Scherer joined ATR in November 2016. "I already love the company," he says. But during his first two months in office, he had to make the decision to reduce ATR's production rate amid a decline in orders last year.
In 2016, the Toulouse-based company – jointly owned by Airbus and Italian group Leonardo – received orders for 34 ATR 72-600s and two ATR 42-600s, versus a total of 76 in 2015. Revenue declined 10% to $1.8 billion.
Scherer admits that ATR's production output was "a little bit less than forecast" – deliveries fell by eight aircraft to 80. He says the market "considerably softened" as a result of "economic uncertainty" amid political developments, currency fluctuations that have particularly affected airline purchasing power in emerging markets, and a strong order backlog from previous years.
ATR says it has orders for "a little over 200" aircraft, which translate to a production backlog of around 2.5 years.
The manufacturer had originally planned to deliver 90 aircraft in 2016. That target was revised to 88 units during the year, before management ultimately decided to "stabilise" production "in the low 80s". Scherer says he is "a little hesitant" to specify an exact number, given the "very soft market". But he describes the new production level as "cruise altitude 80".
ATR has capacity to build up to 110 aircraft per year. Output has grown over recent years – 51 aircraft had been delivered in 2010 – but Scherer says the new level could be "comfortably" maintained for years to come. Given that ATR is a medium-sized business, he argues, "we need to react much faster because we are much more exposed to having holes in our production line" than Airbus and Boeing.
"We don't want to degrade our margin, and therefore we don't want carry to significant inventory of unsold aircraft or work in progress," he says. ATR does not disclose detailed results, but Scherer asserts: "We can make just about every aircraft manufacturer in the world jealous of our profitability."
This he links to an amortisation of development costs from the original aircraft family – the ATR 42 first flew in 1984, followed by the ATR 72 in 1988 – models he sees as "virtually unchallenged" in today's turboprop market.
The nearest Western-built competitor is the Bombardier Q400, which, Scherer says, is "admittedly the better aircraft for longer range". But he argues that the ATR 72 is more economical on routes with sector lengths below 350nm because it has less powerful engines and hence a more lightweight airframe: "ATR has pushed Bombardier into a corner where the Q400… is a much less liquid asset in the market."
Flight Fleets Analyzer shows that Bombardier has 29 outstanding orders for the Q400.
Reducing the production rate is "much easier" for ATR versus manufacturers of large aircraft because lead times for turboprops are usually less than two years, Scherer contends. He says ATR shareholders and aircraft financiers have welcomed the move. Noting that around 100 aircraft per annum are typically delivered in ATR's market segment, he argues that a 10% production cut has an "immediate effect" on residual aircraft values.
"We have been applauded very explicitly by the financial community for having taken the decision... to stabilise our production output at the current level," he says, adding that 2016 was a "globally difficult year" and that "the environment is getting tougher".
Despite the headwinds, Scherer believes there is potential to increase sales and "break out of that 80 box". Airlines in emerging economies have formed a major part of ATR's customer base, but the manufacturer is not yet an established player in China, India or the USA.
In Scherer's view, protectionism by the Chinese government has been a reason that no ATRs operate in the country today. State manufacturer AVIC has its own turboprops – the MA60 and MA600 – and is developing a 70-seater MA700, which Scherer sees as an ATR 72 "lookalike". In India, ATR must contend with bureaucratic hurdles and a "feeding frenzy" of narrowbody orders.
Meanwhile, in the USA, scope clauses in pilot labour agreements have favoured airlines' deployment of regional jets, Scherer notes. But he argues: "There are no fundamental, natural economic reasons why our aircraft are not relevant in markets like China, India and the United States." ATR therefore intends to be "more aggressive" in its sales efforts than over the last two years.
Appealing to local governments to establish subsidised air services to remote areas is central to ATR's sales strategy, based on the argument that air-transport links to areas without much infrastructure can stimulate economic and social development. Scherer says talks are under way with several operators in China and India, and with government authorities in the two countries.
Additionally, engineers have proposed "manageable modifications" for the ATR 42 to enable the 50-seater to operate from runways "no other [comparable in-production] turboprop airplane can access", says Scherer.
Measures will include adoption of lighter, more powerful carbon brakes and a potential rudder modification to increase the ATR 42's manoeuvrability. This is to fulfil more stringent certification requirements at airfields with high terrain in the vicinity. "This opens… whole bands of currently uncharted territory," declares Scherer.
While the performance improvement package's development has not yet been launched yet, ATR's shareholders authorised the manufacturer to offer it to airlines. "If we find launch customers for this particular version, I will go the shareholders and ask for the development," says Scherer.
He shows no concern that ATR's market position could come under threat in the foreseeable future. "I look at the horizon [and] I don't see anything out that remotely competes with our airplane." In his view, "there is, right now, infinite life left" in the existing airframe design.
Leonardo has repeatedly voiced its intent to develop a larger sibling to the ATR 72 – lately mooting a 100-seater – and has suggested that it could increase its ATR shareholding above 50% or potentially build the bigger turboprop on its own. Meanwhile, Airbus has been cool about the prospect of an ATR family expansion or change in the shareholder structure.
In Scherer’s view, the promotion of a larger variant is "more an expression of Leonardo's strategy than an ATR strategy". He adds: "Leonardo naturally aspires to moving forward in this… aviation space, and so it is a natural thing for Leonardo to say ‘Why don't we develop new airplanes?'"
But he insists: "Everything is fine... We have a very profitable programme at a production rate that, five years ago, we thought we were never going to have."
Scherer indicates the development of a larger aircraft will find a way onto ATR's agenda at some point. "The question is not are we going to do a new product [but] when are we going to do a new product." However, he notes that the 100-seater market has become very busy with the development of new regional jets such as Russia's Sukhoi Superjet and China's ARJ21, and that similar programmes are to be launched by other countries "obsessed by doing jets".
He remarks: "Just imagine what would happen if somebody came in there with, say, a 90, 90-some, 100 [or] whatever-seat turboprop. It would create an absolute chaos in the market." Instead, he believes ATR should stand back and choose its timing for launch of a new type after some market consolidation: "Everybody is spending five billion… and we are saying: 'Please go – and kill each other.'"
Despite his view that ATR is relatively comfortable today, Scherer says the manufacturer is closely monitoring technological developments that could change its market outlook and potentially spur the launch of a new type: "As the market leader… I want to be the one obsoleting the status quo rather than somebody else." But he adds: "Right now, we see no reason to rush into anything."
Source: Cirium Dashboard
