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) and Airbus EAD.PA looms large over the aviation industry, Canada's Bombardier (BBDb.TO) and Brazil's Embraer (EMBR3.SA) 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), 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 (7011.T), the controlling shareholder of MRJ manufacturer Mitsubishi Aircraft Corp, are little changed.
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 SIFI.MI, 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 program 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 (UAL.N), Republic Airways RJET.O 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 (DAL.N) for 40 firm orders and 30 options for its CJR900 aircraft.
Additional reporting by Siva Govindasamy, Brenda Goh and Julian Satterthwaite in Paris,; Susan Taylor and Solarina Ho in Toronto; Editing by Mark Potter