The turbo-prop conundrum: small market, high costs

Discussion

The ATR 42/72 and Bombardier Q400 are aging. While ATR and BBD have done a good job of updating their aircraft and the venerable Pratt & Whitney PW120

Q400. Bombardier photo via Google images.

remains the fuel-efficient, reliable engine that likewise has been updated over the decades, there is a general consensus that one day a new, clean-sheet turbo-prop will be needed. Most attention right now is focused on the prospect of a 90-99 seat model.

The costs and demand forecasts simply don’t support it. The prospect of China expanding its home-market MA-Series and new entrants from Indonesia and India jumping in mean a crowded field for a shrinking market.

Projecting the demand

Some analysts and even Boeing look at the 100-149 seat jet sector and call it the Bermuda Triangle for jet manufacturers. There is a split about how big this sector is. Airbus sees the demand at around 4,200 airplanes. Bombardier, which bet the future of its company on the CSeries, sees this as a 7,000-7,200 airplane market. Boeing doesn’t publicly break out this sector but our analysis a couple of years ago of its data and various statements of its officials suggest Boeing saw this sector as between 5,000 and 6,000 aircraft.

Embraer doesn’t play in the upper end of this sector, so its public market forecast stops at 135 seats. Japan Aircraft Development Corp (JADC) is the only public source we’ve seen that provides key detail: it forecasts 6,806 jets are needed in this sector, with 1,793 of these in the 100-125 sector.

Only Embraer and Bombardier are viewed by JADC as the likely, dominate players.

JADC sees a need for just 1.518 turbo-props in the 60-99 seat sector through 2034. And therein lies the conundrum.

Ambitions for a new, clean-sheet design for a 90-seat turbo-prop, are challenged by these numbers. JADC sees a 20 year demand for 80-99 seat turbo-props at a mere 510—this is just an average of 10.5 per year. JADC forecasts a 20-year market for only 232 turbos in the 40-59 seat sector. (It sees a market for 512 15-19 seat turbos and 478 20-39 seat turbos, sectors even the new entrants don’t seem interested in.)

The cost of developing a new medium- and large turbo-prop was characterized by Embraer last year in an interview with LNC as about the same as a new jet—over a much smaller market.

If it cost $3bn to develop a family of turbo-props, that’s $2m per airplane just in R&D costs over 1,518 60-90 seaters. Add in 232 40-59 seaters if a third family member is offered, the cost per plane declines to $1.7m, before production and all other costs.

If the R&D is $5bn, the cost per plane on the three-member family is $2.9bn and $3.3m for the two-member family.

Developing only a new 90-seater—the one with a demand for 510 aircraft over 20 years—pushes the per-plane R&D up dramatically.

None of these figures include the new engine R&D and all assume Western costs, not those in China, India or Indonesia.

These market forecast and cost figures make it evident why proceeding with a new-design, 90-seat aircraft is so problematic.

Bombardier has rejigged the Q400 to seat 86 in high density configuration. ATR added seats to the ATR 72, but with a smaller interior cannot match BBD.

Airbus, a 50% shareholder in ATR, is unwilling to green light a new turbo-prop when ATR currently has 80%-90% of the backlog, depending on any given measuring point.

Production efficiencies and costs

Some insiders claim ATR’s production is inefficient, a holdover from the early days of the ATR program. Bombardier’s cost of producing the Q400 is too high, leading to the list-price differential between and advantage for the ATR-72 and Q400. It doesn’t help BBD that it long ago dropped the 40-50-seat Q300 production, ceding this market to the ATR-42. The reason: it cost as much to produce the Q300 as it did the Q400 for less revenue.

Demand in China, India and Indonesia for turbo-props to serve small markets is clear. In China, development of the MA-Series is but one step in the development of a national commercial aerospace industry. Indonesia and India have their own ambitions—Indonesia previously developed a small turbo-prop—and their own needs.

The lower costs in these three countries help the financial numbers on a cost basis, but as we’ve seen in China, efficient production and certification is difficult at best.

According to JADC, “The in service passenger turboprop airplane fleet will decrease from 3,459 units in 2014 to 3,273 units in 2034. Demand for new airplanes will be 2,740 units with a total value of $54bn (at 2014 list prices). The largest demand will be for airplanes with 60-79 seat class amounting to 1,008 units. Regionally, as with passenger jets, the Asia-Pacific region will have the largest demand for passenger turboprop airplanes at 911 units.”

JADC sees retirement of turbo-props slowing due to the lack of a replacement and lower fuel prices.

“In 2004, 76 turboprop passenger airplanes were retired, with an average retirement age of 23.6 years. By 2014, the number of retired planes decreased to just 50, with an average retirement age of 24.1 years. Last year the number of retired planes was just two thirds of the sample year, and average retirement age was 0.5 years older, putting it in the opposite trend of passenger jets.

“Due to the sudden rise of fuel prices, and the superior fuel efficiency of turboprop passenger planes, as well as the lack of suitable substitute aircraft, turboprop passenger planes now tend to see longer use than passenger jets.”

There were 3,459 turbo-props in service at December 31.

With the old Bombardier Dash 8-200 and Saab 340 aging, a real need for these aircraft replacements will emerge in the early 2020 decade, JADC concludes. But there is no OEM designing an aircraft in this sector, let alone one at a price that’s affordable to the operators of these types of aircraft. The same is true for 15-19 seat turbo-props.

The need is there for new turbo-props across the board. The economics simply don’t work in some sectors and they certainly don’t work for the number of competitors that exist or want to enter the market.

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