Suspension of CRJ200 Production Places Further Pressure on Values

The 50-seat regional jet market continues to face adverse pressure, especially since Bombardier [BBD] decided that it will temporarily suspend production of the CRJ200 beginning in mid-January 2006. The suspension of production is of little surprise as the market for the 50-seat RJs in the United States has...

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The 50-seat regional jet market continues to face adverse pressure, especially since Bombardier [BBD] decided that it will temporarily suspend production of the CRJ200 beginning in mid-January 2006.

The suspension of production is of little surprise as the market for the 50-seat RJs in the United States has faltered over the last year as a consequence of the rise in fuel prices and still depressed yields. This is despite the announcement that SkyWest Airlines [SKYW], as part of its acquisition of Atlantic Southeast Airlines (ASA), will not only honor its commitment for 18 CRJ200s on backlog, it also will increase the outstanding order to 22 units. But the agreement allows SkyWest to convert the orders to other Bombardier CRJ aircraft. As SkyWest already has 15 CRJ700s on backlog, this may indicate that not all 22 deliveries will be in the form of the CRJ200.

The order backlog for the CRJ200 stood at only 55 units at the end of September. Eighteen of these are now to be delivered to SkyWest. Air Nostrum still had 19 to be delivered and a further 15 were due to be delivered to Northwest Airlines [NWACQ]. The backlog for the larger CRJ series is only slightly better at 66 for the CRJ700, three for the CRJ705 and nine for the CRJ900. The backlog for the Embraer [ERJ] ERJ140/145 amounts to only 36 units.

The total number of orders for the CRJ100/200/440 stands at 1,068, while the ERJ140/145 total is 701. Both these totals are impressive for a 10-year production cycle. The values of the 50-seat regional jets, including those of the ERJ145, have been falling at a time when values of larger narrowbodies have been increasing. The most significant event changing the market for the 50 seaters has been the price of fuel. The sustained high price of fuel has accelerated the gravitation toward larger equipment. Whereas values previously were seen as declining by perhaps 5-10 percent per year over the course of the next few years as the backlog waned, a fall of 10-15 percent has been registered over a single year. However, should the price of fuel ease, there may well be an opportunity for the rate of decline to slow.

Though the cessation of production had been expected, the enthusiasm for the aircraft over the course of the last few years had perhaps provided the basis to assume that values would continue to register stability. Just as virtually the entire product range of all manufacturers will undergo a transformation over the course of the next decade, then it should be expected that the fortunes of those types held in high regard will exhibit considerable changes as the years progress.