RJ50s Slashed, Secondary Market Robust

Luis Chiessi, Embraer’s vice president market intelligence – airline market assured investors that there will be no wholesale abandonment of the 50-seat regional jet market but said between 250 to 270 RJ 50s, including the 184 already scheduled to be shed in the recent wave of capacity cuts, will be spun out over the next few years, largely owing to the fact that scope clauses required airlines to buy far more than necessary to meet market demand. He cited their intense role in the U.S. domestic market with 39 percent serving monopoly markets where airlines have more pricing flexibility.
Chiessi reported in a presentation to New York analysts that both Continental and American have already broached pilots about liberalizing scope clauses. He pointed to earlier moves by US Airways and others allowing them to reduce their exposure to the higher-cost, 50-seat jets. Continental, for instance, has a scope ceiling at 50 seats meaning most of its Express fleet is 50-seaters, although Colgan recently introduced the Bombardier Q400 turboprop this year.
“United and US Airways have already achieved 60 percent of fleet at 75-seat aircraft, and 40 percent with 50 seats, he said. Delta and Northwest are going in the same direction and have an increasing backlog in the larger equipment. The tendency is to move to 75 seats, keeping about 40 percent of RJ 50s to balance capacity and demand in small markets.”
The secondary market, however, will be robust as emerging markets demand more than enough to absorb 250 aircraft. He pointed to Mexico, which has already grown its RJ fleet dramatically in the last two years as well as Russia where a large number of Yaks and Tupelevs are averaging 33 years old. “More than 450 aircraft need replacement so there will be a natural movement of those 50 seaters out of the U.S. to Russia,” said Chiessi, who noted the recent certification of the ERJ 145 in Russia and the emergence of a Ukrainian airlines that wants the ERJ 145 once the aircraft gains certification there. He said it is unlikely used RJ 50s will enter the Chinese market.
Embraer expects fuel prices to stabilize at $100 per gallon but not for another two years, according to Chiessi. He also expects any softening of U.S. demand will have little impact on export growth for the manufacturer since it will be more than compensated for by demand in emerging markets such as the Middle East, India and China as U.S. market influence declines. For a complete report see the next issue of Regional Aviation News.