New regional jet duo squeezes Bombardier out

Thu Jun 20, 2013 9:37am EDT
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By Brad Haynes

PARIS (Reuters) - Bombardier's shift upmarket showed signs of backfiring at the Paris Airshow this week, as its arch-rival in the small passenger jet category, Embraer, piled on orders for an upgraded plane and a new Japanese challenger vowed to win business.

While the battle between Boeing (BA.N: Quote) and Airbus EAD.PA looms large over the aviation industry, Canada's Bombardier (BBDb.TO: Quote) and Brazil's Embraer (EMBR3.SA: Quote) have been slugging out an equally competitive duopoly in the market for smaller, regional jets since the 1990s.

But by gambling the future of its civil aviation division on the larger CSeries, Bombardier may have tipped the balance of power in a segment that companies value at nearly $100 billion over the next ten years.

While the CSeries has struggled for orders against models from Boeing and Airbus, Embraer unveiled plans at the air show to overhaul its smallest jets by 2020 and match the next-generation of fuel-saving engines set to premiere with rising Japanese challenger Mitsubishi Regional Jet (MRJ) in 2015.

That could leave Bombardier relying on its aging CRJ family in the market for 70-100 seat planes, spelling trouble according to some analysts.

If it does not come out with a new regional jet soon, Bombardier will have to offer steep discounts to hold its slice of the market, RBC Capital analyst Walter Spracklin said in a note to clients. Yet a major new design seems unlikely, given plans to use the CRJ as a "cash cow" to help finance the CSeries, Spracklin added, after meeting executives in Paris.

Underscoring the challenge for Bombardier, SkyWest (SKYW.O: Quote), the world's largest regional airline group, signed as launch customer for Embraer's new E-Jets on Monday. The carrier has now booked three major orders in the past year, turning to Embraer and Mitsubishi for up to 600 planes over the next decade.

SkyWest is the CRJ's top operator, but its biggest recent order from Bombardier was a 20-plane deal in 2005.   Continued...

A security guard looks on as Bombardier unveiled its CSeries aircraft at a news conference at its assembly facility in Mirabel, Quebec, March 7, 2013. REUTERS/Christinne Muschi