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Monday, June 23, 2003

Despite U.S. Boycott Call, Companies Turnout In Paris

The 45th annual Paris Air Show, like most of the shows before it, was not without political intrigue and major aircraft sales announcements. Despite the U.S. government urging U.S. companies to boycott the French show in a spirit of "We'll show them," U.S. companies did attend, with Boeing [NYSE:BA] announcing major deals for its 747s and 777s. Boeing was, however, upstaged by rival Airbus, which announced multi-billion dollar sales deals for its giant A380 and smaller A340s and A330s.

But the regional manufacturers were also present, with both Bombardier [Toronto: BBDa] and Embraer [NYSE:ERJ] making announcements -- some good, some not so good.

Embraer announced the sale of 10 Embraer 190s, but tempered it with the announcement that once again it is reducing its forecast for 2003 deliveries. Bombardier talked about possible deals.

Embraer: The Brazilian regional jet maker has rescheduled delivery of its first Embraer 170 from August to November, and cut its year-end delivery forecast from 132 to 110. The RJ manufacturer had already cut its delivery forecast in February following a request by ExpressJet to delay delivery of the ERJ 145XR (C/R News, Feb. 17). That was followed in March by another cut in production forecast for 2003, from 136 to 132 (C/R News, March 31).

The rescheduling of delivery of the first of six Embraer 170s going to Alitalia [Milan:AZPRA.MI] was caused by a delay in certification of the Embraer 170 until November due to problems with computer software, according to Embraer CEO Mauricio Botelho. Certification had been planned for mid-summer, with the first deliveries to Alitalia in August. Specific delays resulted from "the completion of system related tests and the production of associated documentation, and the inclusion of capabilities currently scheduled as post-certification items in the basic certification program." The aircraft initially will be certified by Europe's Joint Aviation Authority, followed by FAA certification.

Botelho announced at last week's Show that the delay was something "we are not happy about," but that more than 90 percent of the certification process has been completed. He noted that the first flight of the Embraer 175 took place June 14 and that certification and first delivery dates of the 175, as well as the 190 and 195, remain unchanged. Certification of the 175 is scheduled for third quarter 2004. The Embraer 190 is due to be certified in third quarter 2005, followed a year later by certification of the Embraer 195.

The certification delay is also expected to impact on delivery of the Embraer 170 to US Airways [OTC BB:USALA.OB] and GE Capital Aviation Services (GECAS) [NYSE:GE]. Swiss International Airlines [Zurich:Swin.S] has also postponed deliveries of its Embraer 170s and 195s, with the 170 deliveries pushed back from this September to September 2004.

Although 2003 deliveries have now been forecast at 110 aircraft, Embraer has upgraded its 2004 delivery forecast from 136 to 160.

The drop in forecast for 2003 also caused a drop in Embraer's stock, cutting its ordinary shares on the Sao Paulo Stock Exchange by 8.5 percent and preferred shares by 5.9 percent. The drop followed a sharp rise of up to 20 percent to a seven-month high following the news that JetBlue [Nasdaq:JBLU] had placed a $3 billion order for 100 Embraer 190s. In the U.S., Embraer's American Depositary Receipts [NYSE:ERJ] were down 2.76 percent to $19.70.

Despite the delay in certification and deliveries, Botelho said that the two recent orders from US Airways and JetBlue for a total of 185 Embraer 190s has given the company something to be optimistic about. Botelho also announced 10 additional orders for the 190 to an unnamed customer.

Embraer's order book for the Embraer 170/190 family currently stands at 244 firm orders and 309 options. Embraer reportedly is working to close deals with the Chinese following a recent joint-venture agreement, and that a similar effort may be pursued with the Russians.

Bombardier: The Canadian manufacturer may take another look at its cancelled BRJ-X program once its current economic problems are over, according to Bombardier CEO Paul Tellier. The BRJ-X was planned to be a regional jet in the 108- to 110-seat range, but was cancelled in 2000 in favor of the family of CRJ200s, 700s and 900s.

Tellier also said that Bombardier has now done all the downsizing that it needed to do, taking its workforce from 35,000 to 28,000.

Barry McKinnon, Bombardier vice president of regional aircraft marketing and analysis, told journalists at the show that Bombardier is responding to a request for proposal from four Star Alliance members who are planning to purchase up to 100 RJs over the next five to seven years. The carriers are Lufthansa, Austrian Airlines, SAS and Air Canada.

Avions de Transport R�gional: ATR announced two orders for a total of eight ATR-42s during the show, one order to a new customer and one to an established customer.

Air Tahiti will add two ATR 42-500s to its current fleet of four ATR 42-500s and five ATR 72-500s. Deliveries are scheduled for December and next June. ATR also noted that Air Tahiti was the first airline to receive ETOPS certification for the ATR 72. The airline's routes cover 42 islands scattered over French Polynesia, with its longest route being 1,600 kilometers (1,000 miles) between Tahiti and Mangavera.

Indian regional airline Air Deccan ordered four ATR 42-320s for delivery in July and August, with two additional ATR 43-320s to join the fleet by the end of the year.

ATR also announced that it will reduce its 2003 prices on rotables and breakdown parts by an average 8 percent and has launched a new customer service policy branded as I-CARE, according to Roberto Bellino, senior vice president for customer services. Bellino said that along with the price reduction, "we have significantly expanded our stock range on serviceable units, With an increased offer and off-the-shelf availability, ATR is now very well positioned on the rotable market, mainly driven by second-hand units."

The I-CARE Customer Loyalty Program was launched as a result of the ATR operators council held last February, and is available to all ATR operators around the world, Bellino said. Under the program, once a specified level of business has been achieved, whenever an ATR operator uses an ATR service, a percentage is applied and the resulting amount is put at the disposal of the operator.

ATR has delivered at total of 656 ATRs worldwide to 113 airlines.

The Russian Regional Jet: RRJ is scheduled to fly during early 2006, according to company representatives attending the air show. The RRJ will consist of a family of three aircraft, the RRJ-60, -75 and -95, ranging from 60 to 98 passengers. They will also be offered in standard and long-range versions. The RRJ is being built as a team effort between Boeing and Sukhoi Civil Aircraft, with two other Russian manufacturers, Ilyushin and Yakovlev, also involved in the program. The new regional jet will be powered by twin SM146 engines produced jointly by Snecma and NPO Saturn. The consortium expects to sell at least 800 RRJs, with Snecma and Boeing tasked to finding the $600 million in financing needed for the program.

Snecma President Jean-Paul Bechat reported that there are still signs of hope for the French engine company, despite the problem created when Sabena Technical Services failed. The company lost 60 million euro ($71.11 million) due to its 50/50 ownership with Sabena Technical Services. Along with its joint venture on the RRJ SM146 engine program, Snecma has orders for larger engines including its GP7200 engine for the Airbus A380. It also has 436 orders and 396 options for the CFM56.

The Chinese ARJ21: Thatprogram is on schedule to enter the market by 2007, according to Liu Chi, manager of international cooperation at China's AVIC I Commercial Aircraft Co. Liu announced at the show that production of the aircraft is expected to begin by the end of this year. The ARJ21 will come in an ARJ21-700 and -900 model, with 70 and 90 seats, respectively. AVIC I is also looking at a 150-seat version for the future. The aircraft will be designed specifically for the Chinese markets, with "hot and high" capabilities to serve the rugged areas of western China, Liu said.

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