Regional Airlines Not Target Of Sales Pitch

Bombardier's [BBD] new jet concept has a name, an image and a market. However, the $2 billion development project lacks a financing plan as well as the board's endorsement.

The C series jet has a 20-year market potential of 5,800 orders, said Gary Scott, president of Bombardier's commercial aircraft program. Its niche - the 100- to 150-seat market - is valued at $250 billion, Scott told CRAN.

A plane that size, he said, will not be specifically marketed to the regional airline carriers. "The market will be the majors - both network and low-cost carriers. We won't be specifically marketing to the regional carriers. You never know where they [the regionals] will end up with scope clauses. Today's scope clauses limit most to 70 seats or below."

Bombardier is midst of a three-part feasibility study. While the market research indicates a need for a small mainline jet, Scott said he still needs preliminary engineering to prove Bombardier can build a jet that will be 15 percent more efficient to operate than any current production aircraft, and that it makes business sense for the company to proceed.

The first C series plane will most likely be a 110-seat plane with either an 1,800-mile or 3,200-mile range. A second model will be a stretch version capable of seating 135 passengers in a one-class cabin. "It will be the best in its class when it comes to single-aisle, five-abreast seating," he said.

Bombardier looks to use the C series to replace aging DC-9s, MD-80s, Fokker 100s and the Boeing [BA] 737 classics. The current crop of "downsized B737s and Airbus 320s are not well suited for this group as they are optimized for 150 seats and above," Scott said.

"The second part of the equation that I have to solve for the board is putting together an airplane that can serve that market. I feel confident that I can do that," he added.

The plane's engines will be a key, but not the only, element that will help Bombardier meet its efficiency goals. Two engine consortiums, IAE and CFM, will be building new engines to power the plane. "They will build on new technology being used for the B7E7 or the A380, but tailored to the lower end of the market. It won't be a modified version of an existing engine, but a new engine. Our timetable for a new engine to be certified is 2008," he said.

"There is a window of opportunity for Bombardier," said Bill Dane, an analyst with Forecast International. "We expect the B737 and A320 to get a major tweak or an outright successor, such as the next B7E7. But no one will be talking seriously for at least another three or four years. Nothing will hit the market until at least 2012 or later."

Boeing and Airbus won't invest in the 110-135 passenger plane, predicted Tulinda Larsen, an analyst with BACK Aviation Solutions. "It does not make business sense for them to develop on par products. Bombardier's only competition will be Embraer [ERJ] if they make something larger."

The Embraer 195 will top out at 110 seats in a one-class cabin with two-by-two seating. Analysts doubt that the Embraer 195 can be stretched to seat any more. The Brazilian firm would need to design a new plane if it wants to compete head-to-head against the larger C series plane.

Make no mistake, Larsen said, the new Bombardier "is a mainline aircraft. It is an LCC [low-cost carrier] aircraft. They are looking globally at the explosion of low-cost airlines. There are now 28 LCCs in Europe. They are now growing in Asia. The next area would be the Mideast and Africa. I see the LCCs expanding and this is a good aircraft for it."

With the distinction between major and regional carriers blurring, Dane does see some regional airlines flying the new Bombardier to markets now served by slightly larger B737s.

Dane predicts that the chances for Bombardier moving ahead with the program have increased since it was first proposed earlier this year (CRAN, March 8). The odds are now 70 percent, he said. "They seem very committed to it. The harsh reality is that the RJ sales have been flat. The 50-seat market is nearing saturation. They are fighting head- to-head with Embraer on the 70-seat plane. They cannot develop the CRJ 900 to its maximum potential. They are competing with Embraer with one hand tied behind their back."

The wider-body design of the Embraer 190 with five more seats than the 90-seat CRJ 900 is proving to be more popular, Dane said.

A third analyst, whose firm has done work for both Bombardier and Embraer and as a resulted asked not to be named, predicted the new plane will not move forward. "If I were a betting man, I would not put money on Bombardier. It will be late in the race and have a pile of competition. They would be walking in the 'Valley of the Shadow of Heavy Competition.' I don't see how they will do it."

To finance the $2 billion price tag for the development of the C series, Scott said only about one-third of the bill will come from Bombardier. Just as Boeing has with its 7E7 program, Scott said Bombardier would be looking for its suppliers to shoulder one-third of the costs. For the final third, Bombardier wants the public sector to pick up the tab.

Bombardier may place the final assembly plant in whatever jurisdiction makes the investment via government tax breaks or outright subsidies. "We have discussions going on today. We have not decided where the final assembly will be. We are looking at some of our sites in Canada, Belfast, [Northern Ireland], and other venues in the United States. In the U.S., we are talking to state governments about the final assembly plant. Obviously, any contribution they want to make to the development of the plane can influence the final assembly site," Scott said.

Bombardier has assembly plants for its RJs in two Montreal suburbs and it assemblies it Q-series turboprops outside of Toronto. It builds its Learjets and other business aircraft in Wichita, Kan., and completes the interiors on these planes at Tucson, Ariz.

Scott said he needs to have the governmental commitments "well-defined" before going to the board next year. "It is a complicated business model and I need to connect all the dots," he added.

>>Contact: Gary Scott, Bombardier, (514) 855-7972; Bill Dane, Forecast International, (203) 426-0800; Tulinda Larsen, BACK Aviation, (202) 783-5052.<<