March 20, 2015: C. Leeham Co. Bombardier’s current challenges don’t end with the CSeries. The company has seen its once-dominate positions in the regional jet and turbo prop markets decline precipitously.
The CRJ struggles in its sales against the Embraer E-Jet. The Q400’s market share of the turbo prop sector has declined to a mere 10% of the backlog vs ATR.
Still, Ross Mitchell, vice president of Business Acquisition and Commercial Aircraft for Bombardier, gave a spirited defense and upbeat outlook of both products during last week’s ISTAT conference in Phoenix. In a one-on-one interview the next day, we posed a series of questions about the CRJ and the Q400. We reported on the Q400 yesterday. Today’s report is about the CRJ.
Mitchell said the CRJ has a lower unit cost than the rival Embraer E-175 and E190, the direct competitors to the CRJ-700/900 used most in the USA, where labor Scope Clauses limit the size and number of airplanes that may be operated by the regional airlines on behalf of the legacy carriers.
Embraer’s chief commercial officer, John Slattery told the annual ISTAT conference last week that his E-Jets are now dominating the North American market (Canada, USA, Mexico), where sales now have captured an 86% market share of the seats.
Mitchell, in our one-on-one interview the next day, figuratively waved off Slattery’s claim.
“I haven’t had a chance to verify it, but I think [the claim] was a very short sample size, from January 2013 or mid year on,” he said. “The important thing to remember about the CRJ is this: the CRJ provides you the lowest unit costs, period. I think there is always a message that Embraer seems to not want to talk about, which is Scope Clauses. Today the Embraer 175 fits in Scope Clauses. The Embraer 175 E2 does not. It’s too heavy. Our airplanes, in fact our CRJ 1000, is lighter than the Embraer 175 E2. Their 88 seat airplane is heavier, much heavier, than our 100-seat airplane.
“That’s an issue. We don’t know exactly how Scope Clauses are going to change, but what we do know about the CRJ is that all three of the family members fit inside the weight aspect of the Scope Clause.”
The Scope Clauses also restrict the number of seats in a regional airplane. “To the extent [the Scope Clause] moves in terms of seats, we can benefit.”
Mitchell dismissed Slattery’s market share statistic. “He’s looking at a short sample size and over a short sample size, there’s a lot of variability. You get one large order and now you have a much larger percentage in terms of market share. I think you need to look at a much larger picture. I think you need to ask about the future. We have the 700, the 900 and the 1000. We’re competing against one airplane, the 175. The 190 is a competitor for the CS100. It is not a competitor for the CRJ. It will not fit in Scope Clauses.”
Mitchell also prefers to look at global sales figures rather than just North America. “We know from our customers in the rest of the world, they quite like the 1000. If you ask Air Nostrum, they will tell you the 1000 has been vital to their turnaround. They can offer seats in the market at a cost that is very similar to a large airplane.”
Indeed, when we last compared backlogs of the CRJ and the E-Jet, as well as the E-Jet E2, the Sukhoi SSJ100 and the MRJ90, the CRJ stacked up surprisingly well given the image Bombardier has of an outdated airplane vs the E-Jet.
“What we need to be doing is getting the right messages out about the CRJ,” Mitchell said. “I think the orders will come on the CRJ. I don’t have any hesitation about that. Ultimately, the one thing you have to do in the airline business is control costs. The CRJ-1000 has the lowest seat costs. It’s lower than the E-175 E2, if they live up to their promises, and it’s lower than the E-195 E2 will be.”