Bombardier squeezed by ATR, Embraer, Mitsubishi

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Introduction

Oct. 22, 2018, © Leeham News: Bombardier has a firm backlog of 67 Q400 turboprops. ATR has a backlog of 256 through Oct. 20, according to the Airfinance Journal Fleet Tracker.

This is an 80% market share for ATR.

Bombardier has 83 CRJ jets of all models in backlog. Embraer has 442 orders for all E-Jet models. Mitsubishi has 213 firm orders for its MRJ70/90.

This is just an 11% market share for the CRJ.

These figures illustrate why the market doubts Bombardier’s long-term future in commercial aerospace.

Summary
  • The Q400 and CRJ are aging aircraft designs.
  • Minor enhancements don’t address the underlying issues.
  • New competition is squeezing BBD.

Discussion
Aging designs

The Q400 has been Bombardier’s sole turboprop offering since 2008. A derivative of the DASH 8 that first entered service in 1983, the Q400 represents nearly half of the more than 1,300 family members that have been ordered.

The DASH 8 was originally developed from the four-engine DASH 7 turboprop.

Although Bombardier recently updated the Q400 to offer 90-seat and Combi versions, the airplane fundamentally hasn’t been upgraded in years.

This aircraft, like the aging CRJ, took back seats to the development of the CSeries, Bombardier’s bold gamble to leap from the regional airline market to the lower end of the mainline jets sector. The CSeries development was concurrent with development of three models of two corporate jet types. The huge cash commitments starved the Q400 and CRJ programs and nearly drove BBD into bankruptcy.

Only government and provincial bailouts keep Bombardier afloat. Even these proved inadequate. Last year, 50.01% of the CSeries program was sold to Airbus for a symbolic US$1.

Bombardier is still on the hook for $700m in costs and construction of a second final assembly line for the CSeries next to the Airbus A320 FAL in Mobile (AL).

The CRJ, despite the recent addition of the Atmosphere cabin (enlarged overhead bins and other upgrades), can’t do anything about the cramped cabin seats and short ceiling.

The Embraer EJets, first entered service in 2004, continue to outclass the CRJ.

ATR’s advantage

With a lower capital cost and lower operating costs and two models to choose from (the ATR-42 and the ATR-72), the ATR has an advantage over the Q400 for routes that don’t know high performance. The Q400 beats the ATRs for hot-and-high operations and it is faster, an advantage only on longer routes.

One shorter routes, 300 miles or less, where speed isn’t an advantage, the Q400 can be throttled back to more closely match the ATR72 operating economics.

But Bombardier loses money on each Q400 delivered, analysts say, because of its higher cost structure in Canada than ATR has in Europe. The low-rate production aggravates Bombardier’s cost problem.

But the ATR is also an aging design. Its design dates to 1984. There have been periodic updates, but company officials recognize there is a need to develop a next generation aircraft.

Airbus owns 50% of ATR and, noting the 80% market share for the backlog, blocks any new aircraft.

Part of the issue is the market is small, estimated at about 2,500 over 20 years. Utilization by operators is low and for the past several years, fuel prices also have been low.

Squeezing the CRJ

The EJet has dominated the CRJ since its introduction in 2004.

A newcomer, Mitsubishi, developed the MRJ70 and MRJ90 to compete in the below-100-seat sector.

The airplane is running five years late and it’s been plagued by challenges that often face a new entrant. The design in similar to the E-Jet: wide 2×2 seating, large overhead bins, comfortable stand-up headroom and improved economics vs the CRJ.

But help has been needed. Mitsubishi recruited employees from Bombardier, Embraer and Boeing to help with design changes and certification issues.

Bombardier believes Mitsubishi went too far, however.

Last Friday, the company filed a federal lawsuit in Seattle charging Mitsubishi with trade secret theft via the BBD recruits. The Seattle Times was the first to report the lawsuit.

Although Bombardier cited the CSeries as the source of the alleged theft, the MRJ doesn’t compete against the larger airplane—only the CRJ.

Doubts about the future

During LNC’s visit to New York City last week, there wasn’t a single industry official who expressed belief Bombardier will be in commercial aerospace for more than about five years. The aging CRJ has been eclipsed by the E-Jet and MRJ.

The consulting firm Oliver Wyman forecasts that within the next 10-year period, Mitsubishi will deliver more MRJs than Bombardier will CRJs.

Sooner or later, some company will develop a new generation turboprop. At this point, it likely will doom the Q400.

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