The regional market and scope clauses

By Bjorn Fehrm

January 17, 2017, ©. Leeham Co: Union contract Scope Clauses–the provision limiting the weight, capacity or number of aircraft operated by airlines for major carriers–are unlikely to be modified any time soon, panelists at the Air Finance Journal conference in Dublin said.

The restrictive Scope Clauses are predominate in the US. These limit the ability of small airplane manufacturers to sell aircraft in the US. Most affected are Embraer, Bombardier and newcomer Mitsubishi.

Contract negotiations in December, concluded before Christmas, resulted in no changes, surprising some. This will impact planned purchases of aircraft.We sat with Bombardier’s Ross Mitchell, vice president of commercial operations, to understand why the scope clauses are so important and why they did not change.

US airline scope clauses

The dominant market for regional aircraft is the US market. Regional aircraft operate on the routes that feed traffic to the mainline carriers’ network hubs.

The carriers outsource this traffic to specialized regional operators, which fly the routes with smaller regional aircraft. The mainline carriers and their pilots have special agreements in place (scope clauses) which regulate which routes and with what aircraft these routes are flown.

The purpose of the agreements for the pilots are to protect them from losing jobs when their airline outsources more routes to the (lower cost) regional operator.

On the aircraft side, there are two important limits, the maximum seat limit (76) and the Maximum Take-Off Weight (MTOW) limit (86,000lb). These set the size of aircraft which can used for these routes.

The 86,000 MTOW limit creates problems for the manufacturers of regional aircraft. New technology aircraft, equipped with new efficient high-bypass engines, turn out heavier than 86,000lb in their 76 seat variants. The manufacturers of new technology aircraft gambled on the scope clause MTOW limit being raised by the end of the decade.

Why scope clauses don’t move

Many in the market were surprised the scope clauses did not change. One who was not was Bombardier’s Mitchell.

“I have said for a long time the scope clauses will not change,” he told LNC in an interview. “To understand why, one has to understand the situation for the pilots in the mainline carriers. Scope clauses in their contracts are there to protect them from traffic being outsourced to regional operators. Traffic that they would otherwise have flown with the mainline carriers aircraft,” said Mitchell.

“US airline pilots are paid for flying time. Fly a short route with a short block time (time from closed door to when door opens again) and you earn less. Fly a longer route and you earn more. A higher MTOW aircraft can fly longer routes. It’s not in the interest of US airline pilots to increase the scope clauses MTOW limit. It would enable regional operators to take over more of the mainline carrier’s route network, flying longer routes. This is not what US mainline pilots want,” explains Mitchell.

The result is the US market will continue with an MTOW limit of 86,000lb for regional feeder aircraft. For how long, no one knows. The limit would likely stay the remainder of this decade and into the next decade.

The unchanged MTOW limit in the scope clauses favors the two aircraft types that fit under the scope clauses: Bombardier’s CRJ900 and Embraer’s E-175 E1.

It makes life difficult for new entrants like Mitsubishi Aircraft’s MRJ90. An MRJ90 certified to a scope close MTOW limit would have a short range. The smaller MRJ70 would fit the scope clauses, but would offer less space for a domestic first-class than the CRJ900 and E175.

Embraer’s new E-175 E2 exceeds the 86,000 lb scope limit. Embraer originally planned entry-into-service for this model in 2020, the last in the family that includes the E190/195 E2. The date was to give airlines time to reach new Scope agreements allowing a higher MTOW.

Embraer rescheduled the E-175 E2’s EIS to 2021 after contract talks failed. Officials plan to continue production of the A-175 E1 as long as necessary to meet the Scope limits.

Scott Hamilton contributed to this report.

36 Comments on “The regional market and scope clauses

  1. They can reduce MTOW by limit allowed fuel just to reach the allowed MTOW. Just like Airbus did with the A330 Regional.
    Range will be limited but you meet scope limits.

      • The Aircraft manufaturer certifies a new “type” like the A330RE with its low MTOW. For a price you can then convert it to a “normal” A330 with a new dataplate and MTOW when selling it. Operating it as a low MTOW “RE” is not optimal as you carry more structures and Engine thrust than needed. But in real Life you only fill’er up with JET-A as needed and maybe 93% of your routes are ok with the “RE” certified MTOW. After that you need to dump pax or cargo. You save Engine Life and might get 30-50% more Life out of them unless the PW1000G series can run to Life limit. Not all PWA powered Aircraft do that right after Engine certification… (some wait to buy a PWA Engine until they reach 400 issued SB’s on ATA 72)

      • Manufacturers can recertify aircraft for limits lower than the aircraft’s Certified Type Certificate. Republic Airlines Holdings was doing this via fax machine, a logbook entry and a sticker on the panel to reduce MGTOW to be scope compliant. Major carriers have done this to reduce taxation and landing fees. IE “aircraft with MGTOW over XX pay $$$” and the airline responds “fine, here is the new certification received from the manufacturer limiting us to X weight, so now we only pay $”

  2. Everyone seems to think that the new aircraft are not usable if the USA scope clauses are not changed. This is not necessarily true. These aircraft can be flown by the major carrier pilots – nothing prevents that. The issue is can these aircraft be flown at a profit under the pilot contracts of the major carriers. There is little chance that the scope clauses are going to change but major carrier pay rates may be adjusted to make them profitable.
    Beyond that, these aircraft could be used by new carriers that compete with the major carriers and do not have regional contract relationships with the majors.
    Also, there is the whole rest of the world where these can be sold.

    • Absolutely.

      It’s the obvious solution but the manufacturers want workers (it is not just pilots) to subsidize their one time $25 million sale with a lifetime of lower earnings.

      Workers (at least the pilots) are refusing to subsidize the manufacturers (and why should they?)

    • Why it is a problem in the US but not a problem in rest of the world?

  3. Once again, what could change the market is if Bombardier, by imitating Mitsubishi, could manufacture a CS75, then a major carrier pilot trained at the CSeries (ie a CS100, CS300 or CS500 ) such an aircraft would actually pass through the main airlines and it would probably be more efficient and paying to pick up all regional aviation ….

    • With the CRJ why would they do that?

      They have a co lock on the market.

  4. Is there a way to structure pilot pay that mitigates that issue?

    Not by the hour but by the month?

    • Dont US pilots have a maximum flying hours per month anyway- which is similar to most carriers.
      While its in the union agreement, dont scope clauses protect the major carriers as well from the regionals who may want to upgrade to larger planes.

  5. long term, the pilots and the airlines would be better served by a scope clause that explicitly defined a pax/cargo/range scope (76pax, 1000 nm, 2000 lbs non-pax related cargo) or some such instead of pax/MTOW. as the scope clauses sit today, an airline could configure something like a bombardier global 8000 as an all first class TATE configuration and fly it to Europe using “regional” pilots as subcontractors at slave wages.

    changing the metric to an explicit range better protects the mainline pilots while giving the airlines the ability to upgrade to more efficient (and therefore more profitable) equipment.

    • Actually scope by Type Certificate makes sense. However, by simply holding the line at 86,000 lbs the unions will win without having to deal with the difficult political ramifications of having to buy back the scope that was taken from them in bankruptcy. The senior pilots do not want to give back wages and working conditions to improve protections for junior pilots.

  6. Its all about greed on both sides. Airlines have for years paid regional pilots very low wages and want to extend these low wages beyond the 50 seat category.
    Pilots are always pushing for higher wages and want to eliminate competition from regional carriers.
    Perhaps a small increase in maximum weight, say to 92,000 or so. For an airline to succeed, regional feed is necessary as many airports cannot support mainline sized aircraft.
    Most carriers have a flow through arrangement where regional pilots build hours flying and then are given first chance at mainline openings.
    AA,UA,DL all need regional feed to expand as the 50 seater’s are slowly going away and when fuel goes higher, the exodus of the lawn darts will increase.
    There needs to be some give and take on both sides.

    • @Steve & others,

      Everybody is trying to figure out ways to save a dying system. The regional airlines as we currently know them are going to shrink into almost nothing.

      Before long nothing less than 76 seats will make economic sense so the regionals will have the 76 seat aircraft and the majors will be flying the rest.

      • There are too many small markets out there for airlines to ignore. I fly through CLT often and the number of regional flights and passengers are quite high. While the smaller aircraft will die out, larger 70-90 seat airliners will continue to grow. Both sides, airlines and pilots need to compromise their positions so as to keep smaller cities on line.
        Regional operations contribute quite a bit to the airlines bottom line.

  7. I am curious why Alaska Airlines which is unencumbered by scope clauses still went with E175 instead of CRJ1000 or CS100. I also wonder why Chorus Aviation operates only CRJ900 and has not gone for CRJ1000. The CRJ1000 would add the possibility of 10 more seats with almost the same fuel burn as I understand it. Any comment on this?

    • Bigger is not always better. Regional aircraft need to match the market and having fewer seats can bring up yields due to higher last minute pricing. Throwing more seats at times can mean departing with the extra seats empty.
      If the market on certain city pairs improve, frequency can increase.

    • It may be because the CRJ-1000 performs poorly on takeoff and landings, which is particularly bad so you have to carry passengers with excess luggage and coats.

      • about 200m on takeoff and 150m on landing. Not a huge difference. The E-175 actually has a longer takeoff roll. But the E-175 can go almost 950 km further so I suppose they needed range. That still does not explain Chorus aviation though…

    • Could be they would have to carry an extra flight attendant to take advantage of those extra seats.

      • No its 1 FA per 50 passangers… CRJ1000 has the same thrust as CRJ900 and is only 3K lbs heavier. The extra seats would not be a significant loss if you cannot fill them.

        • They are going to operate the 900s in their least dense setup with 76 seats. The 1000 has a min of 97 seats. That’s 21 extra seats, a 26% increase. I suppose that’s many more seats than they think they can fill. It’s closer to 4k pounds heavier which adds up over the lifetime of the craft when you have empty seats.
          I’m sure they studied their needs carefully and only bought as much plane as they thought they could fill.

  8. Scott has the “news” part down, reporting what he is told. However, the “analysis” part falls flat as he overlooks the facts; if the only way Mitsubishi or Embraer’s products can be successful is through a labor subsidy created by outsourcing, then it is the basic design that has failed. The C Series has compelling economics without having to game labor arbitrage.
    The game has changed as the surplus of qualified pilots has diminished. If Mitsubishi and Embraer have not kept up with the market it certainly isn’t the responsibility of labor unions to bail them out of their mistakes.

    • “The C Series has compelling economics without having to game labor arbitrage.”

      Is there any evidence of this? Without subsidies or government protection do you really believe that the C-Series would be competitive?

      • Please focus on the aircraft performance not how it got into being. Remember there was an equity stake sold to the Quebec government it was not a handout. It is easy to bash Bombardier for being late and over budget but do not bash them for making a great aircraft that is performing currently (in limited numbers) Is the 787 a bad aircraft because Boeing is way over budget and was late? Is the A350 a bad aircraft because Airbus in the early days they received billions of subsidies from the European partners?

        If it was not for the Brazilian government completely subsidizing Embraer it would not exist in the large regional market today. Brazil is a completely protected market with a 40% import tax on goods produced outside of Brazil. (Sound familiar?)

        • @Caerthal,

          Neither the airlines nor the pilots care whether or not the governments subsidize the aircraft. In fact, I would guess they rather like it!

        • @NAK,

          You are partially right about Brazilian protectionism in many in products, but this not apply to aeropace industry were Boeing/Airbus/Bombardier have no disadvantage to serve national airlines in comparison to Embraer. In fact all kinds of taxes (IVA, Income, ..) are very high.

          The more developed coutries tipically apply lower tarifs to imported industrial products but not rarely create heavy barriers to agricultural goods. A balanced perspective is wellcome!

  9. The new aircraft that are proposed as larger regional aircraft are very close in capability to the BAC-111 and the DC-9-10 that were flown by major airline pilots in the past.
    That and a host of other factors will keep the major airline unions from allowing further exceptions to their scope clauses. When those aircraft arrive at the major carriers they will be flown by the same people who would have flown them at the regional carriers only now they will be employed by the majors.
    The unions will have to agree to work rules and pay rates that will allow the majors to make money operating the jets.
    The other big issue not mentioned here is that the regionals have been withdrawing service from smaller cities because it is not profitable. Some people will have to drive farther or get on regional flight that makes intermediate stops on the way to the connecting hub just as in the old days when a flight would operate LGA – ROC – BUF – ORD.
    The aviation world continues to change!

    • @Bob Maurer: Actually, the DC-9-15 MTOW was just over 90,000 lbs and the MRJ90 comes in at 86,000 lbs. The DC-9-15 in all coach was 90 seats.

      • @Scott,

        I said close not the same and what about range? That’s an issue also.

        • @bob Bjorn did a study that to “derate” the MRJ90 to 86,000 MTOW would mean range would be limited to 900nm.

  10. Pingback: MRJ regional jet delayed until mid 2020 - Leeham News and Comment

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