Report by Karen Walker in Washington
The regional jet knows no boundaries. Now it has the attention of the world's largest aircraft leasing and financing company, GE Capital Aviation Services (GECAS), which has ordered up to 450 jets from the three main manufacturers.
GECAS said in June that it would add RJs to its portfolio, signing agreements with all three of the main manufactures of the new breed of RJ. Business was evenly handing out with 50 orders and 100 options each for Bombardier CRJs, Embraer ERJs and Fairchild Dornier 728JETs. If all options are exercised then the business could be worth close to $12 billion (see table).
With GECAS in the market, other leasing companies may follow. Other majors have shown interest in the new breed of RJs, but were waiting for a broader market to develop, beyond the initial handful of big-league regional operators. The order numbers have clearly already gone through the roof and with a greater spread of carriers taking the aircraft, it seems that the time could be right for commitment.
GECAS has been monitoring this market sector carefully. It has, for instance, financed 28 Bombardier CRJ deliveries. But GECAS president Henry Hubschman says the decision to leap into leasing was triggered by a number of things. "Like anything, it comes down to pricing," he says. "The RJ market has always been an abstract 'yes', but you have to wait until the price is right."
The continued strength of the RJ market was another factor. "We are convinced that the RJ will have a greater growth rate than the rest of the market. That makes it of interest to us. Secondly, having financed a bunch of these aircraft recently, we became convinced we could make a reasonable return by either outleasing or financing them.
"But most important of all, we have been listening to our customers. We concluded that, if we could get these aircraft on the right terms and conditions, it would be a useful additional asset." For that reason, Hubschman adds, it was important to get a cross-section of jets from each of the major suppliers.
Even though the major carriers - especially in the USA - are buying RJs in large quantities direct from the manufacturers, Hubschman does not rule out the possibility that these same airlines might also become GECAS customers. Some may want to top up their fleets with the flexibility that a leased aircraft provides, he points out. He adds that the company is already in "advanced discussions" with some full-service airlines that need extra RJs. They are looking to lease anything between one and 12 jets, he says. "But you keep adding those sorts of numbers up around the world and you should have no problem leasing or financing all these aircraft."
More strategically important to GECAS, however, is to be in a position to offer those customers the full range of aircraft, from top to bottom. "But we are not limiting ourselves to the major carriers," says Hubschman. "We are talking to regional airlines around the world."
Hubschman adds that there may also be some "innovative" lease deals done with airline alliance partners, while other customers may be seeking a nose-to-tail lease package that GECAS, with its vast resources, can put together. As with big jets, some RJ operators are increasingly interested in a "full solutions" offering that includes maintenance and spare parts, says Hubschman.
The GECAS order focuses on 50- and 70-seat jets, with deliveries beginning in 2002. But the company is also casting its sights ahead to the 90-100-seat market. This market sector, Hubschman points out, remains in "a considerable state of flux" until it is known who will operate here - the regional carriers or the majors - and what they will operate - larger RJs or smaller mainline jets. For that reason, GECAS is keeping its options open and has included 90-seat Bombardier CRJ900s and 90-100-seat Embraer ERJ-190s in its order, convertible to other variants. "It gives us flexibility and we thought the risk was worth it until we understand that market better," says Hubschman.
| GECAS regional jet orders and options | ||||||
| Manufacturer | Type | Firm orders | Options units | Total orders/options | ||
| Units | $ bn | Units | $ bn | |||
| Bombardier | CRJs | 50 | $1.3 | 100 | 150 | $3.9 |
| Embraer | ERJ-170 | 50 | $1.2 | 100 | 150 | $3.6 |
| Fairchild Dornier | 728JET | 50 | $1.4 | 100 | 150 | $4.2 |
| TOTAL | 150 | $3.9 | 300 | 450 | $11.7 | |
| NOTE: Bombardier order for 15 x CRJ200s, 25 x CRJ700s and 10 x CRJ900s (pending launch) | ||||||
Source: Airline Business
