Nov. 12, 2018, © Leeham News: The writing had really been on the wall for the past few years, regardless what the corporate line was: Bombardier was one day going to sell the Q400 program or shut it down.
Better to sell it and get at least some money out of it, no matter how small.
Bombardier agreed to sell the program to British Columbia-based Viking Air for a mere $300m–$250m, net of fees.
Ditto the CRJ program. It’s on life support. It’s a design dating to the 1980s, the passenger experience has long been eclipsed by the Embraer E-Jet and it will be also by Mitsubishi’s MRJ when this jet finally comes on line in 2020.
The entire reason for the continued existence of the CRJ in recent years has been the US Scope Clause. The original E-175 complies with Scope, which is the clause in US pilot labor contracts with American, Delta, United and Alaska airlines that limits the size, weight, number of passengers and number of airplanes regional airline partners can operate for their major partner.
In this context, the weight is the key metric. The Scope limits airplane weight to 86,000 lbs. The E175-E2 and Mitsubishi MRJ90, conditionally ordered by the USA’s Skywest and Trans States airlines for operation on behalf of their partners, weigh too much. It’s only a few thousand pounds. Embraer and Mitsubishi counted on contract relief in the 2019 and 2020 negotiations, but the unions signaled they have no intention of granting this small concession.
The CRJ900 complies with Scope. It also has a solid, installed customer base in the US. These two factors are keeping the program alive. (There have been a few orders outside the US.)
Embraer’s back-up to being unable to confirm the E175-E2 deal is to continue with the E175-E1 (as it is now called). Mitsubishi’s back-up is to switch the MRJ90 orders to the smaller, Scope-compliant MRJ70. This was confirmed at an event last month in New York.
Bombardier’s back-up plan to keep the CRJ viable in the face of these new technology, more comfortable passenger-experience competitors appears to be to sue Mitsubishi for trade secret theft because it hired Bombardier engineers. (It also hired some Embraer people.)
The lawsuit, filed in Seattle last month (Mitsubishi has flight testing and engineering facilities in Washington State), claimed people with knowledge of the CSeries and Global corporate jet programs left Bombardier for Mitsubishi, taking trade secrets with them.
Mitsubishi denies the claims.
Since the MRJ in no way competes with the CSeries (now the Airbus A220) or the Global jets, the threat really is a competitive or superior airplane to the CRJ.
If Bombardier were to succeed in the lawsuit, I hypothesize the bet is that the costs the MRJ program would threaten the commercial viability and maybe Mitsubishi would drop the program—thus saving the CRJ and making it potentially viable for Bombardier to keep the program or, more likely, pump the price for sale.
This sounds like a page out of the Boeing strategy to kill the CSeries when it filed a complaint with the US Department of Commerce over alleged unfair trade practices. Boeing prevailed at Commerce, which proposed a 292% tariff. The International Trade Commission, which had to determine in Boeing suffered harm, unanimously ruled it didn’t, thus killing the case.
Ironically, it was the trade complaint that forced Bombardier to sell 50.01% of the CSeries program to Airbus. This gave Airbus an advantage in the single-aisle sector. Boeing and Embraer proposed a joint venture to combine Embraer Commercial with Boeing in a new company, giving Boeing (and Embraer) a new way to compete with Airbus and the CSeries.
I have no way to judge the merits of the Bombardier lawsuit, but I can judge the future of the CRJ.
By 2025, the design will be more than 30 years old. Although Bombardier rejigged the interior with its new Atmosphere cabin design, which is nice, a cramped cabin is still a cramped cabin and the EJet and MRJ cabins are much more spacious.
The E1 economics are pretty close to the CRJ’s in our analysis and the E2 is better, as is the MRJ70. The CRJ can’t be re-engined. The Pratt & Whitney and GE Passport engines weigh more than the CRJ’s GE34 engines and the airplane already has weight-and-balance challenges under some flying conditions. (A recent flight I was on had to play musical chairs before we could leave the gate to get weight-and-balance right.)
Reengining the CRJ would exacerbate center-of-gravity issues.
The CRJ, with more than 1,500 sales over its life, served Bombardier and its customer well. But without a new engine, and with a design that’s more than 30 years old next decade, its day is coming to an end.
Oliver Wyman, the consulting firm, in its 10 year forecast sees more MRJ deliveries than CRJ.
Bombardier loses money on every CRJ it sells, its CEO admitted last week on the earnings call—as it does with the Q400.
Like the Q400, Bombardier needs to sell the program for whatever it can get. Time is fast running out.