The challenges in bringing a new turboprop to market

By Philippe Poutissou
Special to Leeham News and Comment
Introduction
Dec. 15, 2014: The market for turboprop aircraft has been strong for nearly a decade, yet there has been limited new product development in the segment. This has some regional airlines getting nervous about their future, in particular those who specialize in serving smaller markets with 30- to 50- seat turboprops built in the 1980s and 1990s. Which aircraft will replace the robust, but not indestructible, Bombardier DHC-8, Saab 340 and Embraer Brasilias?

Setting aside the technical challenges of developing and certifying a new aircraft type (of which there is ample evidence), the market challenge for smaller turboprops comes down to a question of limited revenue potential. Due to overall pressure on aircraft prices and demand that is highly fragmented, the business case for an aircraft OEM becomes risky and difficult to justify.

Summary

  • High-yield regional routes are increasingly rare and harder to protect.
  • Turboprop acquisition costs must remain in line with those of larger jets on a per-seat basis.
  • The 30- to 50- seat turboprop market is a highly fragmented, replacement market with limited potential for large volume orders.

Discussion
Propelled by the rise in fuel prices in the second half of last decade, demand for new turboprops has been steady in recent years with annual order totals typically surpassing 100 units and matching the demand for regional jets. As backlog and production rates for Bombardier and ATR turboprops increased, both OEMs tweaked performance and introduced new cabin and cockpit upgrades to keep their product lines fresh. However, the focus of development has been the 70+ seat market (or up to 86-seats in the case of the Bombardier Q400). AVIC of China is now joining the competition by launching the 70-seat MA700 planned for delivery in 2019. New turboprop aircraft and engines studies have primarily targeted the potential for even larger turboprops in the 90- to 100-seat range.

However, at this time, no OEM has proposed any new programs for smaller turboprop in the 30- to 50- seat range. Since the 1980s, more than 2,600 aircraft were delivered in this category, of which roughly half remain in service (see table). But of the nine types brought to market, only ATR still offers new production 50-seaters with the ATR42-600.

Click on image to enlarge to a crisp view.

A bottom-up market survey would likely uncover several requirements for a small turboprop replacement aircraft. The business model for airlines such as Wideroe of Norway, flying DHC-8-100s into short airfields on coastal fjords, or REX of Australia, flying to smaller communities in the outback with a fleet of Saab 340s, depend on the operating costs and performance characteristics of small turboprops. In addition to regional airlines, there are also many operators around the world supporting resource operations ferrying passengers and cargo to remote airfields. Surely there have been sufficient improvements in manufacturing, materials and systems since the 1980s to develop a significantly better aircraft. Why then is no OEM working on one?

Changing fare structure a barrier

Regional airlines have historically commanded higher RASM (revenue per available seat-mile) on the short-haul routes flown by smaller aircraft since these markets have been isolated from direct competition. However, fares in thin markets can no longer diverge from the prevailing trend to lower yields that exist in larger markets.

As large low-cost airlines seek continued growth opportunities, some lucrative regional routes have become targets. For example, in Canada, low fare carrier WestJet established a subsidiary WestJet Encore operating a fleet of 78-seat Bombardier Q400s to cherry-pick short-haul markets where the incumbent airline historically enjoyed higher than average yields.

In other markets, passengers are willing to travel by surface to a nearby airport in search of lower fares. New roads, rail links, bridges and tunnels all nibble away at markets for small turboprops, especially where these bring alternative Low Cost Carrier service into close proximity.

Furthermore, there are fewer and fewer airports globally where challenging runways are the preserve of small turboprops with good short-field performance. Runway improvements as well as the development of better performing aircraft have allowed operators to swap out small turboprops for larger, more profitable aircraft. For example, at London City Airport, an airport specifically developed for STOL (Short Take-Off and Landing) turboprops, the 30- and 50-seaters have largely been replaced by newer more capable 70- to 100-seaters.

In emerging markets, where many new airline routes are being developed as economies grow, demand for air travel is highly elastic and traffic growth has largely been driven by availability of air travel at accessible fares.

Across the globe, the days of the “protected” high-yield regional routes are numbered and the market potential for smaller turboprop orders is therefore primarily for fleet replacement in regions where these routes remain. Since the alternative to the small turboprop is more often than not a larger jet aircraft, the cost to operate a small turboprop must also improve in proportion to the savings being achieved by large regional jet and single-aisle operators. The challenge is that on a per-seat basis, most regional operators have fewer opportunities to reduce costs such as: crew salaries, training costs, airport landing and handling fees, and overheads.

The typical small turboprop operator has fewer than 10 aircraft in its fleet and as a result significantly less leverage on costs than the single aisle operators who generally have dozens if not hundreds of aircraft of a single type.

Ability to pay capital cost is capped

This reality leads to the conclusion that the regional operator’s ability to pay the acquisition cost of a new aircraft is capped. Fifteen years ago, when 50-seat regional jets were selling like hotcakes, their customers were planning to achieve higher yields and were willing to pay higher prices, on a per seat basis, than for a larger jets. These market conditions no longer exist. And the challenge for the OEM is to convince airlines to invest in an aircraft with less than 50-seats for more than a third of the price of a single-aisle or half the price of a 100-seat jet.

Regardless of the quality of market intelligence available, the back-of-the-napkin-conclusion is that a new 30-seat or 50-seat turboprop will need a market price in the low- to mid-teens (in $ M US). Considering that development costs for any new aircraft program these days is likely in the $US Billions, the limited potential for pricing upside requires high production rates in order for a new program to be profitable.

As described earlier, the market for 30- to 50- seat turboprops is primarily a replacement market. With a few exceptions, the order opportunities are with many small operators, around the globe, with business models covering a wide spectrum from the traditional regional airline, through to charter, cargo and special mission operators. While a widely distributed fleet is generally considered a sign of strong asset value and liquidity which attracts investors, this fragmentation makes the effort required to launch a new aircraft type even more difficult. Large volume deals are important to help launch programs as they allow OEM’s to concentrate Sales and Product Support resources initially and establish a footprint and critical mass. In this respect, unless an OEM has a well-established Sales and Support network, or is backed by a few large customers, the barriers to market entry will be significant.

The lower-end market is shrinking

Bottom-line is the 30- to 50- seat turboprop market is shrinking, highly fragmented and has limited ability to pay price premiums. Given those conditions, it is unlikely that an all-new 30-seat or 50-seat turboprop will be developed for airline markets in the near-future. In order to reduce risk to the OEM, potential scenarios include: the re-start of production for an existing design, as was the case when Viking Air acquired the type certificate for the DHC-6 Twin Otter; or for a large government customer to fund development of a multi-purpose platform thereby ensuring some minimum level of production. This approach was attempted in the past with the CASA/IPTN CN-235. But the commercial version of the CN-235 did not prove successful for airline operations because of the availability of several more efficient alternatives at the time. Since today, the only choices are the ATR42-600 or to refurbish and extend the life of existing airframes, perhaps the outcome could be different.

Philippe Poutissou is former Vice President Marketing, Bombardier Commercial Aircraft.

7 Comments on “The challenges in bringing a new turboprop to market

  1. ” This approac…….uld be different.”

    this textblock is used is twice, free to delete this mail. rgds

  2. Philippe is correct in his assessment, the only new 30-50 seat turboprop I can envision is if a country wants to launch into the commercial aviation business in a similar fashion as Embraer did 40 years ago, that is with extensive government support knowing full well they will never make money. the 30-50 seat market is probably a good entry level for such an exercise as any larger aircraft would run into severe competition from established players.
    Examples could be India, Indonesia, South Korea etc. No commercially operated aviation enterprise could justify the investment.
    On the other hand existing aircraft can probably fly for a very long time, the Saab 340 has only reached about 60,000 hrs and its already certified for 80,000 hrs under current MRB. REX is launching an updated avionics spec, the propellers can be updated as has already been done on J41s and Metros. The cabin can easily be updated, engines are still fuel efficient and in production.
    ATR is struggling to sell ATR42-500s with prices probably around $15m, many regionals I have spoke to can not justify such an investment in an aircraft that is basically 1980s technology. A used aircraft become much more attractive.

  3. great article!

    it seems obvious that the market can’t support a completely new plane with development, certification etc.

    My bet is on discounted ATR 42s after the current ATR 72 boom is over or alternatively Hindustan Aeronautics buying the type certificate for the Do 328 from its current – German – owners “328 Support Services GmbH”, as that is at least 1990s technology.

  4. Interesting views from Mr. Poutissou who clearly has had experience in trying to fit the Q400 in the current market.

    On the one hand there seems to be no room for a new 50 seat turboprop in the market. On the other hand, the Q400, having been optimized (capacity and speed) as a regional jet replacement for North America, has become too much plane for many other markets, where the cheaper/slower ATR is beating it.

    Would it be a good move for Bombardier to come up with a Q360, with about 60 seats, lower power and lower speed, to better compete at the low end?

  5. Only BAE System have capacity to launch a new set of Regional Turboprop and jet Aircraft with Cost Effective manner at this stage. By Launching jetsream 31/32, Jetstream 41 and Jetsream 61 (BAe ATP), it can provide whole range of turboprop from 19 seat to 70 seat.

    By Changing existing engines and avionics with latest Engines and Avionics, A new set jestream series of Turboprops and Avro RJ series of Turbo Fan aircraft’s can be developed.

    There are many reasons to support my vision to restart production of Next Generation of Out of Production Aircraft’s like Jetsream 31/32/41/61 and BAe Avro RJ70 / RJ85 / RJ100 and RJ110.

    1. Technological Advancement in all Area of Aircraft : Since last 20 Years, Huge Technological Advancement in Engine, Avionics and Cabin space had made which was lacking at the time of production end of Jetsream and Avro Rj Aircrafts.

    2. Since last 10-15 years, there are development of improved high performance low maintenance and cost effective Regional Jet Engine which fitted in today’s modern Regional Jets :

    ** PowerJet SaM146 Engine: SSJ 100

    ** GE CF34 Engine : CRJ 700/900/100, E170/175, E190/195, Comac ARJ21

    ** Pratt & Whitney PW 1000G :
    MRJ 70 / 90, E Jets E2 175/190/195, C Series C100/C300, Irkut MC-21

    3. High performance low maintenance and cost effective Time Tested Turbo prop Engines :

    Pratt & Whitney Canada PW100 Family of Turbo propeller engines are used by major Turboprop aircraft manufacturers across the globe. This family of Turbo prop engine is leader in its class for 30-90 seat Turboprop aircraft.

    ATR 42 / ATR 72
    BAe ATP
    Bombardier Q100 / Q200 / Q300 / Q400
    Dornier 328
    EADS CASA C-295
    Embraer EMB 120 Brasilia
    Fokker 50 / Fokker 60
    Ilyushin Il-114
    Xian MA60

    For Less than 30 seat Engine, there are two engines available

    Pratt & Whitney Canada PT6 Engine:

    Beechcraft 1900/1900C/1900D
    DHC-6 Twin Otter 300 / 400
    Embraer EMB 110 Bandeirante
    Harbin Y-12
    Let L-410 Turbolet
    M28 Skytruck

    Beeachcraft King Air C90 / 200 / 300
    Beechcraft Bonanza
    Beechcraft Model 99A, B99
    Cessna 208 Caravan
    PAC P-750 XSTOL
    Piaggio P.180 Avanti
    Pilatus PC-12 / PC-12NG / PC-21

    Shorts 360 / 360-300

    Garrett TPE331 engine :–>

    Antonov An-38
    BAe Jetstream 31/32 , BAe Jetstream 41
    Beech B100 King Air
    CASA C-212 Aviocar
    Dornier Do 228
    Fairchild Swearingen Metroliner / Metro 23 / Metro III

    4. Out of Production Regional Turboprop Aircraft’s are nearing its retirement age and no easy replacement available in some categories.

    Following 19 Seat Turboprop Aircraft will retire within 2-5 years. There will be around 900 retirement in next 2-4 years.
    BAe Jetstream 31, Beechcraft 1900 Series, DHC-6 Twin Otter, Dornier 228, Fair child Metro III, Let L-410, PZL M28

    And At present, 19 Seat Aircraft produced by 4 companies and they all produce aircraft in small quantity which are not matched with retirement rate. Total yearly production of all 4 companies combined would be less than 50 while approx 900 fleet will retire in next 5 years. Only DHC-6 Twin Otter, Dornier 228, Let L-410 and PZL M28 are in production but they all have their difficulties.

    For 30-40 Seat Turboprop Aircraft, there is negligible production of E 120 available.
    Almost 1000 Aircraft will retire in next 2-5 yeas of aircraft like BAe JetStream 41, Bombardier Dash 8 Q100 / Q200, ConvAir 580/640, Dornier 328, Embraer EMB 120,Saab 340, Shorts 360.

    For 40-60 Seat turboprop Aircraft,
    Almost 800 Aircrafts will reach retirement in next 4-5 years Aircraft’s like
    AN 24, AN 26, AN 32, ATR 42 300, HS 748, Dash 8 Q300, Dash 7, Fokker 50, Saab 2000

    Only in production 40-60 Aircraft’s are AN 140, ATR 42 500/600 and MA60. If we count production rate of all these in production Aircraft, it will also not match retirement rate. And if count less acceptibility of MA 60 and AN 140 in Western world, then ATR 42 is only option and due to high cost, no user will prefer to purchase ATR 42.

    Conclusion of point 4: Huge opportunity and scope for 15-19, 30-40 and 40-60 seat Turboprop aircraft. As BAe is having Jetsream 31/32, 41 and 61 which can cater all the aspects of above mentioned categories of 19 seat, 30-40 and 40-60 seat Turboprop aircraft. Also, please be aware that Crude oil prices will be bounced back to 70-100 USD in next 3-5 yeas, This is right time to start development and production of Jetsream 31/32/41 and 61.

    5. As i already mentioned availability of excellent high performance regional jet engines, i propose to plan development of Next generation of Avro RJ70 / RJ85 / RJ100 and RJ115 with Twin Engine configuration which will retain all characteristics and advantages of original Avro RJ aircraft’s with Twin Engine, new Avionics Suit and improved cabin.

    6. With less than 1 Billion USD required to start development and production of Next generation of Jestream series and Avro RJ Series of aircraft’s, And this can also be achieved with partnering with Engine, Avionics and parts supplier on Risk Sharing basis. I have excellent example of SSJ 100 and Embraer E jet and E Jet E2 series of Aircrafts manufactured on Risk Sharing Basis. This will reduce Initial Production cost. Second, Cost associated with development of present day Aircraft has already been written off hence, there is no cost associated with development of Fuselage, wing, landing gear etc. Entire design is ready and needs improvement in Engines, Avionics, coke-pit and cabin refreshments. reduction in Cots also achieved significantly by outsourcing non critical / sub critical parts production outside UK in India, China or Mexico. So with reduced cost of development, these aircraft’s can be sold very competitively and with support of UK Government which at one time controlled large chunk of land across Atlantic to Indian Ocean and to Pacific, I think sales of 500-700 Aircrafts in next 3-9 years can be possible.

    There are new trend in Aviation for upgrading Existing Model and launching new improved model. This is primarily done to Enhanced Performance of Existing Air frames. All re-engine or re-configure cockpit and improve cabin space and brand new aircraft as NG. For example, Dornier 228 , Let L-410, Pilatus PC-12. All developed, enhanced existing performance of aircraft with New or improved engine and cockpit or cabin.

  6. Looking for Turboprop aircraft between 20-40 seat config for operations to small and high altitude airfields for feeder service

  7. A competitive product will require changes in aeronautical regulations, for example, allowing a 30-passenger aircraft to require only 1 pilot and 1 flight attendant. I imagine upgrading an existing project with the introduction of full fly-by-wire commands, a new electrical system, modernization of the interior and more efficient engines.

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