As orders for 50-seat regional jets continue to decline, Embraer [ERJ] has jointed its chief rival, Bombardier [BBD], in scaling back the production of this once-hot vehicle.

Instead of building a total of 160 RJs this year, Embraer said it would build 145. It plans to build 145 in 2005 instead of the 170 it had earlier projected.

And just like at Bombardier, the bankruptcy of US Airways [UAIRQ] is playing a role in Embraer's new production schedule. As part of US Airways's 2003 restructuring plan, the carrier ordered 85 Embraer 170s - it is the North American launch customer for the 70-seat RJ. Prior to its Sept. 13 return to bankruptcy, US Airways had received 22 new planes. The delivery of the remaining planes has been suspended until the carrier obtains new funding.

As of Sept. 30, Embraer said it had 119 backlog orders for the Embrear 170 - 63 from US. Airways.

With Bombardier, US Airways still had 45 RJs it had not taken delivery on (CRAN, Oct. 18). However, after General Electric Capital Aviation Service (GECAS) stepped in to buy 12 of the 16 CRJ 200s that remained on the production schedule, Bombardier only has four "white tail" planes to find new buyers. Bombardier plans to lay off 2,000 workers as it reduces its production rate.

An Embraer spokeswoman said the Brazilian-based company did not have plans to furlough any employees. It would adjust its production schedule by making shift changes, she said.

Embraer also lost an order for 18 ERJ 145s when American Eagle canceled the last of the planes it had on order. The 50-seat RJs were to be delivered from July 2005 to February 2006. Embraer has a back order of 109 ERJ 145s remaining to be built.

"The tremendous expansion that the 50-seater regional jets experienced during the last decade was partially due to the restrictions to larger aircraft imposed by the scope clauses in the U.S. market," said Frederico Curado, Embraer executive vice president for civil aircraft. "With the recent trend of a gradual relaxation of such restrictions, it is natural that we see some of this demand shifting to larger equipment - 70- and 90-seaters. Nevertheless, 50-seaters will keep playing an important role in the regional airline industry and Embraer forecasts, for the next 20 years, a demand for 1,950 jets, with seating capacity ranging from 30 to 60 passengers."

Embraer did not make any specific projection as to how many of the 145 planes it anticipates building next year will be the smaller RJs versus the Embraer 170/190 family.

Joining recent reports by Forecast International and UBS Investment Research that predict the decline of the 50-seat RJ (CRAN, Oct. 18), aviation consultant Michael Boyd of the Denver-based Boyd Group in a recent forecast report noted that there is a "downslide of net-new orders. What is on the books is pretty much it." Furthermore, as the Chinese and Russia RJs reach the market later in the decade, they will be "too late to a market that will be saturated with used RJs and no real aftermarket.

"By the end of the decade, there will be somewhere around 200 CRJs and ERJs in the desert. With an aftermarket demand roughly akin to a litter of stray kittens."

A recent analysis of the 50-seat RJ market by Aircraft Value News (AVN, Oct. 18), a CRAN sister publication, noted that no new orders for the ERJ 135 have been placed since 2002. The plane is also being marketed as the Legacy, a large corporate jet. Embraer has delivered two Legacies in the last three months with five remaining on back order.

The backlog for the ERJ 135/145 family stands at 18 percent of its total orders. Likewise, the CRJ 200 backlog amounts to 14 percent of its total orders. "When the backlog falls below 20 percent," AVN reports, "it traditionally points to a product that has passed its peak in terms of product lifecycle. In the later years of product lifecycles, values usually experience a decline, generally regardless of the state of the market."

While there are only four ERJ 145s and two CRJ 200s on the used aircraft market, a scarcity that should be reflected with higher values, AVN reports that instead over the last six months the value of a 50-seat RJ has fallen 2-4 percent. A similar decline is expected in the next six months.

Turboprops

In its annual forecast for aviation turboprops, Forecast International's senior analyst David J. Franus said little has changed since it examined the market a year ago. Forecast projects that Pratt & Whitney - the primary builder of turboprop engines for regional aircraft - will build about 708 new engines through 2013.

While new turboprop aircraft cost less to buy than a new RJ, the "values for turboprops are falling so quickly that few financial institutions now wish to finance the leasing of new aircraft," according to the Forecast study.

Likewise, the maintenance gap is closing. While a turboprop still is less expensive to maintain, turbofans are becoming easier to maintain as the number of parts inside the engine are reduced and at the same time become more durable. "Fewer parts means fewer problems and a lower overhaul expense in general," the report stated.

Forecast also notes that in the next 10 years there may be great erosion of the turboprop market at the low end compared to the large aircraft market - ATR-72 or Q400. Single engine jets are now making inroads into the market for aircraft capable of carrying less than nine passengers. A small jet, although more expensive, can travel another 300 miles at speeds nearly 200 miles per hour faster.

>>Contacts: Embraer, (954) 359-3414; Michael Boyd, (303) 674-2000; David Franus, Forecast International, (203) 426-0800.<<