It is likely that the technology coming for regional and narrow-body aircraft, will change the manufacturing landscape, according to two experts who spoke before the New Market Opportunities, Aviation Today Webinar, last week. In addition, Richard Aboulafia, vice president-analysis, The Teal Group and Michel Meriuzeau, director-military and commercial airborne systems, for the Aerospace and Defense Group of Frost and Sullivan, indicated that it is far from clear that regionals will get more routes from their major partners. The two predicted there will be an aircraft sales slump around 2010/11 as the advances coming in the 2013/14 time frame come on the market. They also doubt the role of Very Light Jets (VLJs) in filling the void left as regionals abandoned small markets.
Regional Aircraft
Narrow-body replacement is the coming niche, they said. Meriuzeau predicted that, European airlines will likely be looking at the coming Sukhoi regional jet very carefully. (Sukhoi Article Link) “The 110- to 130-seat aircraft will be the niche of the future,” he said, noting a likely demand for 4,000-5,000 aircraft. He also said that such increases in aircraft size will likely be from regionals expanding to point-to-point service, especially in Europe.
Aboulafia provided interesting insight when he said that, to date, the legacy carriers have been using the regional jets to preserve their networks and raid other networks when they should have been merging or reducing capacity and cost. This resulted in the massive uptick in RJ sales between 1998 and 2002. “This was an artificial bump up to help dysfunctional carriers survive when they really shouldn’t have,” he said, adding the danger has passed. “They are moving toward larger aircraft where the seat mile cost is definitely better. To what extent we will get a bull market depends on the restructuring of networks. We see very few examples today of airlines going to larger-than-70-seat aircraft with the exception of Air Canada (ACE), USAirways (LCC) and JetBlue (JBLU). What we need to see is Continental (CAL) and Delta (DALRQ) embrace the 100-seat jetliner and we haven’t seen that yet.”
He continued saying that the future is unclear because “we have the huge inflational effect of majors reinventing themselves. There are a lot of unloved 737s and MD80s available that could be put back into service if fuel stays low, which is a potential problem for regionals and may be an obstacle to growing regional market share.”
Meriuzeau agreed that the technology is not there for expansion, noting it was part of the reason Bombardier (BBD) postponed the C-Series (C-Series Article Link) “We are in an uncertain gray period with the technology offered by OEMs is far inferior to what will be available in four to five years," he said. "You will see a lot of ‘wait and see’ from airlines. These new aircraft programs will redesign the landscape. It is critical for Bombardier to succeed. The avionics will displace the role of the controller.”
Despite the failure of the USAirway/Delta deal, both agreed that LCC CEO Doug Parker has shown the way. They predicted there will be another restructuring over the next two years.
VLJs
It is highly unlikely that Very Light Jets (VLJs) will be the answer to the erosion of air service to small communities, Aboulafia and Meriuzeau agreed that the per-seat, on-demand, air-taxi model is far from proven
“You are talking about an entirely different pricing model,” said Aboulafia. “Frankly, a lot of communities have found their catchment areas are really to nearby Southwest (LUV) airports to which they can drive and save money. You are talking about a market that is so cost sensitive that they went from regionals to cars. I like the idea of providing for small communities but I don’t think it is going to happen. Even if they go full-throttle, the model will not make a dent in airline traffic.”
Meriuzeau agreed adding that travel rules at businesses, including a restriction against top executives flying on the same plane, could preclude their success. They added it will be interesting to see if corporate travel departments change their rules, especially with respect to what they will pay for short-haul travel. Predicting they will insist on a certain type of aircraft with a good safety record, the two indicated that Embraer (ERJ) and Cessna would have an advantage because of their reputation as manufacturers. Others, however, are unknown quantities which may forestall recommendations from travel managers. “If the Sino Swearingen and Eclipse do succeed, it will be the first in a long time,” concluded Aboulafia.
“This is a model still to be validated,” said Meriuzeau. “The issue for VLJs is going to be training and the coming avionics including ADS-B will be critical components that will take them to the next level in terms of situational awareness. The big question is will they be able to operate safely and ADS-B will be a key enabler for places not equipped with radar capability.” He predicted that more and more avionics systems will be very intuitive and will emphasize anything to do with easing the pilot workload. However, he cautioned that some avionics cost $400,000, an untenable number for a $1.3 million aircraft.
Both agreed VLJs will have little impact on the air traffic control system since they will be avoiding congested airports. Still, Meriuzeau indicated that the Northeast Corridor was always a concern. To listen to the webinar click here.