Feb 24, 2015: The mainline jet orders get the headlines, and the focus on the order cycle, but the smaller jets have yet to see their order cycle peak.
Goldman Sachs downgraded Boeing to a Sell this week, in part on the theory that orders for the single-aisle, mainline jets have peaked and an oversupply is developing in its competition with Airbus.
The oversupply—if it develops—will only get worse as Airbus and Boeing ramp up production. Airbus has announced plans to take A320 family production to 46/yr next year. It’s notified the supply chain to be ready to go to 54/mo in 2018.
Boeing has announced plans to go to a firm rate of 52 737s per month in 2018. It’s considering 58/mo in 2019 and 63/mo in 2020, according to supply chain sources. We expect Airbus to match.
Given the long backlogs for mainline jets, out to 2020 and even beyond, it’s natural to conclude the order cycle has peaked for the time being. At the Pacific Northwest Aerospace Alliance conference Feb. 11 in Lynnwood (WA), Boeing’s VP Marketing Randy Tinseth said the company sees the need for 4,000 more orders for the A320/737 class in the next five years. This averages 800 per year, or about 440 per year for the A320 and 360/yr for the 737 at the recent split of 55%/45% for the two airplanes. This is down dramatically from recent order history and well below the book:bill of the production rates.
If the mainline order cycle has peaked, it’s a different story for the smaller jets in the 70-130 seat sectors.
There are still a large number of aging 50-90 seat Bombardier CRJs and Embraer ERJs in service that have to be replaced. Even though the market is up-gauging, competition is growing in this sector.
In the 100-130 sector, Bombardier and Embraer square off with the CS100 and the E-195 E1/E2 respectively.
Embraer sees hundreds of orders for its E-Jets in the near term. It already has orders and commitments for nearly 600 E2s, the next generation of the E-Jet that is planned for delivery beginning in 2018. It is still racking up orders for the E1, the original version of the E-Jet that entered service in 2004. Embraer sees nearly 800 retirements between now and 2018 in North America alone.
The Japan Aircraft Development Corp., which has ties to Mitsubishi, sees a demand for 3,508 regional jets (under 100 seats) through 2033, nearly 3,400 in the 60-99 seat sector. Another 1,800 jets will be needed in the 100-119 seat sector. JADC doesn’t break out the demand to 135 seats, instead identifying the next sector as 120-160 seats.
Embraer sets revisions in the US Scope Clauses, which should provide more market opportunities at the mainline carriers for airplanes such as the E-195 and CS100.
American Airlines last week said it sees a need for a 100 seat airplane.
Bombardier’s CSeries sales have been stalled for all the reasons we’ve written about going back two years: pricing policies, inflexible terms and conditions, personnel turnover, aggressive pricing by Airbus, program delays and more. We expect sales to begin to pick up next year. We don’t expect to see anything meaningful by the Paris Air Show nor, perhaps, even later this year, as Bombardier sorts out its financial issues and rebuilds its sales force following the naming of a new chief executive officer this month. Testing has to be completed and a launch operator nailed down.
The CRJ 900 will tick along slowly. The CRJ 1000 is a marginal aircraft with few sales expected. The MRJ90 will eventually share the market domination with Embraer for the 70-90 seat sector. The SSJ100 will remain a niche aircraft and the ARJ21 will be confined to China.
We don’t believe the order cycle has reached the top of the bell curve, nor will it for the next several years.