AIRSHOW-New regional jet duo squeezes Bombardier out

Thu Jun 20, 2013 9:30am EDT
 
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* Quiet air show for Bombardier as CSeries struggles
    * Embraer, MRJ win over major operator SkyWest
    * Embraer unveils overhaul of smallest jets by 2020

    By Brad Haynes
    PARIS, June 20 (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 and Airbus 
looms large over the aviation industry, Canada's Bombardier
 and Brazil's Embraer 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,
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.
    Meanwhile, after three days at the industry's biggest air
show, Bombardier had yet to unveil a new deal for its CSeries.
    Asked how the Canadian firm was preparing its fleet for the
arrival of Embraer's next-generation regional jet, Chief
Executive Pierre Beaudoin told Reuters: "2020 is seven years
down the road, so we'll have time to respond."
    He was also confident the company could boost its firm order
backlog for the CSeries from 177 planes to 300 by the time the
aircraft enters service next year.
    Bombardier shares have slipped 1.5 percent this week, while
Embraer's have leapt 12 percent. Shares in Mitsubishi Heavy
Industries, the controlling shareholder of MRJ
manufacturer Mitsubishi Aircraft Corp, are little changed. 
    
   
    STILL CONCENTRATED
    Now is not the first time the regional jet market has looked
poised for change. Just five years ago, it seemed set to split
five ways, but technical stumbles held challengers back. 
    The Superjet 100, made by Russia's Sukhoi and Italy's
Finmeccanica, has been plagued by safety concerns
since a plane crash in Indonesia last year. Finmeccanica told
Reuters on Monday it wanted to restructure the Superjet joint
venture or scrap it entirely. 
    Development of China's first homegrown passenger jet
programme has been hung up for years by design flaws standing in
the way of regulatory approval, according to suppliers for
Commercial Aircraft Corp of China. 
    The MRJ, Japan's first commercial aircraft in a half a
century, has also taken longer than expected to reach the
market. But Teruaki Kawai, the head of Mitsubishi Aircraft, said
it was still aiming for its first flight by the end of the year.
    And in a sign of the problems facing Bombardier, Kawai said
at the air show that the MRJ had been boosted by clients' desire
to maintain a strong competitor to Embraer's E-Jets. 
    "SkyWest is (Embraer's) customer and our customer," he told
Reuters. "They do not want a monopoly but a duopoly. It is a
reasonable choice for them to pick two aircraft."
    Mitsubishi expects to eventually split the market for 70- to
90-seat jets down the middle with Embraer, Kawai said,
estimating demand for 5,000 aircraft in the next 20 years.
    Embraer, for its part, remains confident it will lead the
market for years to come.
    The E-Jet upgrade will begin with the E-190 and E-195 at the
top of its lineup, pressuring the CSeries in the 100- to
130-seat segment before the new engines arrive on the E-175 at
the heart of the regional market.
    By the time its entire new lineup enters service in ten
years, Embraer's passenger jet production could climb as much as
70 or 80 percent from current levels, commercial aviation chief
Paulo Cesar Silva told Reuters at the air show.
    Selling the existing E-175, the Brazilians have already
dominated a wave of orders this year from U.S. carriers renewing
their regional fleets of jets with up to 76 seats.
    Embraer booked three of those four major deals over the past
seven months, with 117 firm orders from United Airlines,
Republic Airways and its first of two SkyWest contracts
- plus potential orders for 247 more jets. 
    Bombardier's only big U.S. contract in the same period was a
December deal with Delta Air Lines for 40 firm orders
and 30 options for its CJR900 aircraft.