For the second time this year, Bombardier [BBD] is reducing its production of its CRJ 200 series as demand sags for the 50-seat regional jet.

Earlier this month, the Canadian-based plane and train maker said it would reduce its workforce by about 2,000 employees in two waves over a nine-month period. The first layoffs will begin in November. Those furloughed are in the Montreal area plants that build the CRJ 200 and in Belfast, Northern Ireland, which builds the CRJ 700 and CRJ 900 series.

In June, Bombardier announced it was cutting annual CRJ 200 production from 120 to 100. The move resulted in cutting 500 workers from its Montreal facilities (CRAN, June 7).

The production lines are being adjusted so that a new CRJ 200 will be built every four days instead of the current rate of one every three days. While the production rate for the 70-seat CRJ 700 and the 86-seat CRJ 900 will remain the same - one new plane every three days - the company had taken steps to increase the production pace.

The demand has decreased for a number of reasons, said spokesman John Paul Macdonald. "The overall uncertainty in the airlines and the softening of demand. It takes a number of months to adjust our production line. We want to make production as predictable as possible."

As more airlines begin flying the larger RJs, Macdonald said the demand has dropped for the CRJ 200.

Worldwide demand for 50-seat RJs is expected to be about 250 planes in 2005, according to a recent estimate from Forecast International. The demand for the 50-seat RJ will continue to decline until 2008 when an estimated 190 planes will be needed, said Forecast International analyst Ray Jaworowski. He estimates that the annual demand will then hover near the 200 mark through 2013.

Similarly, an August study of the regional airline industry by UBS Investment Research found a weak market for all 50-seat RJs. "Data shows that major airlines that can swap RJ50s for RJ70s do. The RJ50 fleets have been overbuilt. There is a significant chance of near-term events that would result in a glut of RJ50s," wrote analyst Robert Ashcroft.

The September bankruptcy of US Airways [UAIRQ] is "not really a cause" of the layoffs, Macdonald said. Bombardier planned to build 45 RJs - 2 CRJ 200s and 43 CRJ 700s - that US Airways had ordered in 2002. After US Airways' financier, General Electric Capital Aviation Service (GECAS), agreed to buy 12 of the 16 planes still to be built before Jan. 31, 2005, Macdonald said that leaves only four planes without a buyer.

However, he said the situation would be very different if Delta Air Lines [DAL] sinks into bankruptcy. Bombardier is still scheduled to build 42 RJs, mostly CRJ 200s, for Delta Connection. If those orders were wiped out, Bombardier would cut its workforce by an additional 1,200 employees.

There is a bright spot on the horizon for Bombardier, as the orders for its turboprops will nearly double next year. Last week, Air New Zealand placed an order for 17 Q300s, the firm's 50-seat turboprop. The deal also includes options for 10 additional Q300s and 17 70-seat Q400s. The firm orders were valued at $269.5 million. Because turboprop sales have increased, he said, the company in April recalled 200 furloughed workers as it boosted the Q series production line.

>>Contact: John Paul Macdonald, Bombardier, (514) 855-7972; Ray Jaworowski, Forecast International, (203) 426-0800; Robert Ashcroft, UBS, (203) 719-6064.<<

New Jet Gets Support

Bombardier got some good news last week when the Canadian government agreed to provide some funding for the development of the new C series commercial jet.

While Bombardier has not made a decision on whether to build a plane capable of carrying 100 or 150 passengers, it has stated that it would need about $666 million in government assistance, or one-third of the $2 billion development price tag.

Northern Ireland and three U.S. states have already begun courting Bombardier with incentives.

"It is clear that the government of Canada will be a partner and that we will not let Bombardier leave [Canada] without doing everything humanly possible," said Canadian Transport Minister Jean Lapierre.