After a tough couple of years, the return of orders has rewarded ATR, one of the few manufacturers to have maintained its belief in the regional turboprop market
ATR may be a multinational company – it is a 50/50 joint venture between EADS and Italy’s Finmeccannica – but it is very much a French success story. With its headquarters and final assembly line in Toulouse, at least two-thirds of its 520 employees are French and it has long benefited from the French national ambition for global aerospace dominance.
But it has been a difficult few years for the company – now the only Western airframer to operate exclusively in the regional turboprop airliner game – having had to endure the recent slump in airliner sales combined with what had until recently been an unabated onslaught from regional jets.
Exit strategy
Indeed, there was a time not so long ago when some of the industry’s soothsayers had been expecting the turboprop stalwart to manoeuvre an exit strategy. There must even have been some in Toulouse who wondered whether there was any way back after ATR annual deliveries collapsed into single figures during a disastrous 2003.
However, it would appear that after a strong comeback by the turboprop market and ATR in particular – it has taken orders for over 60 aircraft since the start of the year – any tales of ATR’s demise were greatly exaggerated. “We always believed that the market for new turboprops would recover,” says senior vice-president commercial John Moore.
ATR’s origins lie with the independent studies into a new-generation regional turboprop that were being undertaken in the late 1970s by founders Aerospatiale and Aeritalia (now Alenia).
They decided to unite, adopting the name Avions de Transport Regional (ATR), initially to produce the 48-seat ATR 42 and later the stretched, 68- to 72-seat ATR 72 derivative. The joint venture was set up as a GIE consortium under French law in 1981 – the same corporate structure originally chosen for Airbus. It also adopted the same light-assembly process as its big cousin, with complete pre-stuffed fuselage and empennage assemblies being shipped from Aeritalia’s Pomigliano plant near Naples to the Toulouse line to be mated with wings built by Aerospatiale. Wing assembly is now undertaken by EADS Sogerma Services for Airbus France in Merignac, near Bordeaux. Every ATR aircraft has been powered by Pratt & Whitney Canada PW120-series engines.
It is now more than 20 years since the first ATR 42 rolled off the production line at what was then the Aerospatiale plant at Saint Martin on the southern side of Toulouse-Blagnac airport.
On a par with Airbus
The first of over 680 ATR 42/72s was delivered in December 1985 at a time when ATR production levels were on a par with Aerospatiale’s neighbouring Airbus assembly plants.
Even though the Toulouse-headquartered Airbus was still relatively youthful in those days, it was undoubtedly its growing presence within the global aerospace business that was a key driver behind the decision by Aerospatiale and Aeritalia to centre the final assembly and sales and marketing operations alongside it – a judgement that has proved increasingly fruitful as the years have passed, says Moore: “Thanks to Airbus’s presence, Toulouse acts like a huge magnet, dragging suppliers and industry expertise into the region which ATR can tap into.”
Moore says that, while ATR’s 520 employees are primarily French and Italian nationals, the former is in the majority. “Around two-thirds to three-quarters of our staff are French,” he says.
The company rotates its president and chief executive every three years, with the seconded appointee alternating between each partner. The seat is currently occupied by Italian, ex-Eurofighter chief executive Filippo Bagnato, who is halfway through his tenure. He believes that Airbus and France are important allies in the increasingly competitive civil aircraft market: “To be based in Toulouse in conjunction with Airbus in a French environment is of great benefit to ATR,” says Bagnato. “The actors in the French system, including the government and the chamber of commerce, are continuously working with the objective of establishing Toulouse as a centre of excellence in Europe for the high tech and aeronautical businesses. This is very good for us.”
One often-stated disadvantage of Toulouse, however, is its lack of direct international flight connections, which has prompted ATR to decide to relocate its spares centre to a better-connected hub as it looks to improve its response time for customers. “It could be at Paris or Amsterdam or another major European hub,” says Bagnato. “We are in discussions with several potential suppliers and expect to announce our selection before year-end.” He says the move will be implemented next year.
Strong euro
One problem that ATR has shared with Airbus in recent years is the fact that the bulk of its cost base is allied to the strong euro when competing in a market that buys and sells in US dollars. As a result, ATR has been evaluating ways to reduce its exposure by moving some cost areas out of the euro zone – for example aircraft maintenance and refurbishment.
Bagnato concedes that the decline in the euro’s exchange rate against the dollar since the start of the year has lessened the pressure. “When the euro is competitive we push in the area of Europe; when it is too high we push outside,” he says. “We always have this concept clear in our mind when implementing our industrial network.”
Although the bulk of ATR production is in the middle of the euro zone at the partner sites in France and Italy, Bagnato points out that “a significant part of their activity is located elsewhere, for example a major proportion of the fuselage is fabricated in China”. China has been producing parts for ATR since 1985, when Xian Aircraft (XAC) began making the ATR 42’s wing box. Since 1997 XAC has also produced section 16 of the ATR 72 fuselage.
Despite this long-standing co-operation, to date only five ATRs have been delivered to a single operator in the country – China Southern Airlines. “We would like to see the result of our effort to support the Chinese aviation industry grow with our contribution in terms of workload,” says Bagnato. While the door is open to expanding the industrial co-operation, he is tight-lipped on what form this could take: “Depending on the dimension of the opportunity, we may take into consideration some other industrial project.”
It may be hard to believe for those with shorter memories, but a little over a decade ago ATR was the dominant player in the regional sector with a 30% market share. Those were the days before the birth of the 50-seat regional jet, when ATR’s main rival was de Havilland Canada (DHC), with its Dash 8 turboprop family. When DHC’s then-owner Boeing was looking to sell its Canadian subsidiary in 1991, ATR came close to buying its rival to create a powerful regional manufacturer. In the end the takeover was blocked by Europe’s competition watchdogs as the two companies’ combined market share would have potentially created a monopoly in the 50- to 70-seat turboprop sector. The following year DHC was bought by Bombardier, which already owned Canadair, with its then embryonic CRJ 50-seat regional jet, as well as Shorts and Learjet. The rest is history.
The turboprop market was a busy sector in the 1980s and 1990s with no less than six main players in the 30-seat and above sector. Other participants included British Aerospace, Dornier, Fokker and Saab. But the emergence of regional jets prompted an industry restructuring that ultimately led to the exit of three of the leading regional aircraft makers – BAe, Fokker and Saab – while Dornier’s efforts to grab a share of the big time ended in disaster after its take-over by Fairchild.
ATR was at the centre of one of the consolidation efforts when it tried to create a regional heavyweight with BAe – a period which is now seen as a missed opportunity by some. Aero Intenational (Regional), or AI(R), was created in 1996 as a joint venture between ATR and BAe Regional Aircraft. Although it initially focused on the marketing of existing products, it had a clearly stated intention to develop a new-generation aircraft, dubbed the “Airjet”, in the large regional jet category.
But these plans came to nought as BAe’s board decided that it had no further appetite to compete on the frontline of airliner manufacturing and the venture was dissolved in 1998. This effectively meant that ATR missed the regional jet boat and was left to fight on with a depleted armoury as rivals Bombardier, Embraer – and for a while Fairchild Dornier – developed families of small jets.
Learning lessons
“The AI(R) chapter is seen by some in ATR as a negative experience, as it was supposed to have created a regional jet,” says Moore. “But ATR learnt from the experience and I think it made us stronger,” he adds. US-born Moore, like several of ATR’s executives, found his way into ATR as a direct result of the link with BAe, where he was working within its North American division at the start of the AI(R) venture.
At the start of this decade, ATR’s landscape changed again when its French parent became part of the pan-European EADS joint venture, while its neighbour Airbus reorganised itself into an integrated company. In 2001 ATR followed suit with an integration of its own as the two partners regrouped all their ATR industrial activities into the existing consortium, which now comprises four directorates – commercial, operations and technical support, customer services and finance.
But despite the shake-out in the turboprop sector, ATR faced the most challenging period in its history as sales for propeller-driven airliners came to a grinding halt due to a combination of the post-9/11 downturn and the onslaught of regional jets. As sales dried up, the company’s output, which had peaked at over 60 aircraft a year in the early 1990s, collapsed, falling to fewer than 10 aircraft in 2003.
“We’ve had a difficult couple of years, but the market for used aircraft remained active, which reinforced our view that the turboprop market was still there and would eventually return for new aircraft,” says Moore. By late last year signs were good that a recovery was beginning, and this was confirmed early in 2005 when ATR landed a deal from India’s Air Deccan for 30 new aircraft. This has been followed by string of further sales, taking ATR orders for the year so far to over 60 aircraft.
“I think this trend will continue because the three main elements that are characterising the growth of our market are still there,” says Bagnato. “These three elements are increasing traffic, the reduction of net yields for airlines, and the increasing cost of oil, which are giving more importance in the short sectors below 400nm [740km] to the turboprop.”
He adds that while Asia, South America and China are key areas for growth in turboprop sales, the USA –- once the biggest turboprop market – could be about to stir: “I think that after five or six years, the market for turboprops is beginning to wake up in the USA as the cost of kerosene is pushing airlines to rethink product policies.”
Moore says that ATR is working to increase production to match the increasing sales: “We’ll deliver around 16 aircraft in 2005, and increase to 23 next year and 30 in 2007.” He says output will continue at that level or slightly higher, depending on demand. ATR has reconfigured its assembly line to improve efficiency, enabling higher rates to be achieved without significantly increasing the workforce beyond the 70 currently employed.
Moore is tight-lipped on ATR’s long-term plans for product development, saying only that the company is focused on continuously improving the existing models: “We are focused on several areas – engine performance, cockpit and avionics, passenger comfort and operating cost.”
An example of the latter is the development of a new flightdeck multipurpose computer system that provides aircraft condition and performance monitoring to reduce operating costs.
Low cost-per-seat
The ATR 72’s main rival is the similarly sized, but faster, Q400 version of the Dash 8. Although Moore concedes the rival has a 40kt (75km/h) speed advantage, he says this increases operating costs with little difference in flying times on the short sectors usually operated by turboprops: “The ATR 72 has the lowest cost-per-seat in the industry,” he says, adding that this factor, rather than cruise-speed increases, will remain the focus of future developments.
The company is evaluating ways to improve aircraft field performance and increase payloads, and is discussing tweaks for the PW127 engine with P&WC. Moore indicates that a decision to develop upgraded ATR models could be made “within the next one to two years”.
With more aircraft sold in the past three quarters than the previous three years, ATR is feeling buoyant. Only time will tell how strong and deep this turboprop recovery will be, but ATR is promising to remain faithful to propellers come what may.
MAX KINGSLEY-JONES/TOULOUSE
Source: Flight International
