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Monday, March 3, 2008

Analysis: The CSeries Takes on the Mainstream Market

Paul Leighton

The dithering appears to be finally over and Bombardier has taken a major step towards offering a product that breaks away from the regional mold and enters the mainstream market, potentially impacting the residuals of existing 100- to 130-seat mainstream products of Airbus and Boeing, according to RAN’s sister publication Aircraft Value News. Related Story
The danger for A319 and B737-700 residuals is that the CSeries could erode existing markets or, indeed, force both Airbus and Boeing to accelerate replacement products to the detriment of the currently projected residuals. There are however, always disadvantages and advantages in being the first to market a new product.
The CSeries was announced as long ago as July 2004 at the Farnborough Airshow but the combination of unsuitable market conditions, corporate health and the lack of power plant has delayed the development of the new model.
The CSeries is offered in two sizes representing direct competition to the A319 and B737-600, both of which can be considered problem variants in terms of sales. The C130 will provide accommodation up to 145 passengers thereby representing direct competition to the A319 and B737-700. Both CSeries variants, the other being 110 passengers, will feature “ER” variants facilitating a range of 3,000 nautical miles, matching the current competition.
The engine type, in the form of the Pratt & Whitney Geared Turbofan (GTF), was previously selected and the fuselage will make greater use of composites. The new aircraft is expected to offer a 20 percent reduction in fuel burn – similar to the targets set for the B787 versus the B767-300ER which has since yielded an order bonanza for Boeing - compared to existing types and an overall 15 percent improvement in overall cash operating costs.
Aircraft manufacturers need at least a 12 percent improvement in operating costs for a new model to be launched but with only incremental improvements in technology and lack of flexibility in terms of aircraft size, realizing such efficiency improvement has caused both Airbus and Boeing to delay offering replacements.
By using the Pratt & Whitney power plant, which is already in advanced testing, Bombardier hopes to take advantage of the possible 10 years before the competition offers replacements for the A320 and B737 families. Yet there exists a clear danger that the GTF will be viewed as an engine that fills the void until such time as the CFM and Rolls-Royce are able to develop even more efficient engines around 2020. The geared turbofan is also reportedly being considered by Boeing and Airbus for its decrease in CO2 emissions along with $1.5 billion operating cost savings including reduced maintenance costs.
In addition to Bombardier’s choice of the geared turbofan for the CSeries, Mitsubishi Heavy Industries has chosen the engine to power its new 70- to 90-seat MRJ regional jet currently under development, although formal engine designs for the two aircraft await program launches.
Pratt hopes to regain its once heavy involvement in the regional airline industry, as well as future 737s and A320s. Pratt & Whitney-Canada had most of the regional market when regionals were flying turboprops but lost ground as Embraer chose Rolls Royce to power its ERJ 145 family and GE to power its larger E-Jets. GE also got the nod from Bombardier for its CF-34 to power the CRJ regional jet family. Pratt, however, is on Embraer’s Phenom program which is showing great promise in the Very Light Jet and Light Jet markets.
The CSeries will also offer operators the opportunity to play the green card. The existence of such greener technology may also force regulators in some countries and regions to seek shorter timescales for new models, said AVN.
Potential launch customer Lufthansa has always been anxious to exploit technology and has been instrumental in the design of Airbus products. The CSeries would offer Lufthansa a replacement for the B737-300s, B737-500s and Avro RJs in its fleet. Qatar Airways is another potential launch customer. International Lease Finance Corporation (ILFC) have also been cited as a possible launch customer. ILFC has been noted for being involved in new programs that have subsequently gone on to be good investment vehicles, aided by hefty launch customer discounts. ILFC have been loath to participate in regional jets as the work involved in managing such leases can be even more time consuming as for larger equipment while the returns may be lower. The CSeries, however, takes capacity to a much more interesting level, particularly as the attention of Airbus and Boeing are currently focused on other sectors.
The five-year gap between the service entry of the CSeries and new offerings from Airbus and Boeing should provide considerable comfort for launch customers. Even when the A320 and B737NG family replacements enter service, delays are possible and delivery slots will be scarce. The window of opportunity for the CSeries will therefore extend for a few more years and with production rates in excess of 200 a year, five or more years of limited competition will be the basis for success. Both the Airbus and Boeing products are running out of steam in terms of technology though not for the present orders. But as the years progress, delivery rates will wane just as they have done with the B737 Classic and B767-300ER in the run up to service entry of replacements. The CSeries offers operators an opportunity to take early advantage of new technology. With operators of the CSeries enjoying both reduced maintenance costs owing to recent entry as well as a 15 percent improvement in operating costs, operators of the A319 and B737-700 may face rising costs as airframes and engines mature.
The CSeries may be seen as competing head to head with Airbus and Boeing which will create difficulties when seeking to compete on price. However, the CSeries is just as much a product of the increasing size of regional jets as seeking to take a slice of the mainstream market. The reason for the lack of orders for the A318 and B737-600 is due to both variants being downsized from larger baseline models. Shortening aircraft will see an improvement in performance but not necessarily increased efficiency owing to extra weight being carried. Just as five years ago the regional jet market was seeing excessive demand for the 50 seaters, in five years time, regional operators will be seeking larger equipment. The rise of the low-cost model means that fleets are now usually built around a single variant and at 125 or 145 seats, the CSeries looks able to meet new market demands, particularly when offering considerably lower operating costs.
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