The future of regional jets is limited by choices, Scope Clause

By Judson Rollins
Introduction 

July 6, 2020, © Leeham News: The fallout from COVID-19 is beginning to intersect with the beginning of a wave of regional jet retirements globally. However, the market for smaller commercial jets today stretches the meaning of “regional” as most aircraft still in production have 100+ seats and can fly more than 2,500nm.

In the critical US market, both Embraer’s E175-E2 and Mitsubishi’s remaining M90 are too heavy to comply with the Scope Clause limits imposed by pilot labor agreements. These clauses restrict regional carrier flying to 76 seats and 86,000 lbs MTOW, while also capping the number of regional jets that can be flown by each carrier.

Delta Air Lines is limited to a total regional fleet of 450 aircraft, while American Airlines is capped at 75% of its single-aisle fleet and United Airlines is limited to 255 aircraft plus 90% of single-aisles in service. Earlier this year, American accelerated the retirement of some EMB-140s to maintain compliance with its limit.

Summary

  • Regional jet utilization will be lower in the near term due to higher unit costs and US Scope Clause fleet limits.
  • There will still be some replacement demand for regional jets over the next decade.
  • Scope Clause relief is unlikely to happen in the coming round of US pilot contract negotiations.
  • Lack of Scope relief will extend the life of Embraer’s E175-E1 through the 2020s.

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How much life is left in the Boeing 737 MAX after recertification?

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By Scott Hamilton

Introduction

June 29, 2020, © Leeham News: As Boeing narrows in on recertification of the 737 MAX, one of the questions that is unanswered, but forward-reaching is, how much life is left in the airplane?

In this context, the question is not about “useful life.” This is the length of time an airplane can economically be in service before passenger carriers retire the aircraft. Then there is the potential as a cargo conversion airplane. The useful life may equal or exceed the useful life as a passenger airplane.

How much life is left in the MAX in this context means how long will it be before Boeing pursues a replacement design—and how long will MAX remain in production?

Summary
  • 737NG program launched in November 1993. EIS: December 1997. Production ended late 2019.
  • 737 MAX program launch, July 2011. EIS: May 2017. Boeing contract with Spirit Aerosystems for fuselages extends to 2033.
  • A321XLR, MAX grounding killed NMA.

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Looking ahead for 2020 and 2030 decades: Boeing

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Second in a series.

By Scott Hamilton and Vincent Valery

Introduction

June 24, 2020, © Leeham News: “Airbus’ widebody strategy is a mess.”

This is what Kostya Zolotusky, then a VP with Boeing Capital Corp., said a few years ago on the sidelines of a major aerospace conference.

Today, it may be going too far to say there is increasing opinion in the industry that Boeing’s product strategy is a mess. But it’s fair to say it’s seriously challenged.

Even setting aside the 737 MAX grounding, Airbus clearly outpaced the MAX with the A320neo family. The A321LR and XLR thrust Airbus into dominance in the single-aisle, 150-220 seat sector.

Airbus fell into a winner with the acquisition of the Bombardier C Series. Boeing’s 737-7 MAX has captured fewer than 100 orders since the program launch in 2011. Demand for the 777X is weak.

Boeing critics, and there are many, see little but doom and gloom ahead. Even before the COVID-19 crisis, Boeing faced years of recovery from the MAX grounding.

There’s no doubt Boeing has a deep hole to climb out of, exacerbated by the COVID crisis. The question is, what does Boeing do after the MAX is returned to service and the virus crisis is over?

Summary
  • Airbus is clear leader in single-aisle sector.
  • Boeing’s product strategy for New Midmarket Airplane, Embraer role is over.
  • Former CEO Jim McNerney said, “no more moonshots.” But is this just what Boeing needs to regain its position?

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Regional Jet Retirements

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By Vincent Valery

Introduction  

June 22, 2020, © Leeham News: Last week, LNA analyzed the narrowbody aircraft retirements. We now turn our attention to the regional jet market.

LNA analyzes retirement prospects for Embraer’s E-Jet and ERJ, the ex-Bombardier CRJ100/200 and CRJ700, Fokker 70/100, BAe 146/Avro RJ, Sukhoi Superjet 100, and Comac ARJ21.

Summary
  • Four families dominate the market;
  • Heavy geographical concentration;
  • Challenges for old and small regional jets;
  • Retirement trends in the two largest regions;
  • Regional breakdown for the oldest types in service.

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Looking ahead for 2020 and 2030 decades: Airbus

First in a series of reports.

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By Scott Hamilton and Vincent Valery

June 17, 2020, © Leeham News: Airbus was riding high in February.

The A321XLR was a clear winner. An important order was won from United Airlines, up to then an exclusive Boeing narrowbody customer. American Airlines selected the XLR. An order was expected from Delta Air Lines.

Each order was another that made it impossible for Boeing to launch the New Midmarket Airplane (NMA).

In one of his first actions, Boeing CEO David Calhoun, taking office Jan. 13, put the NMA on indefinite hold, pending a complete review of Boeing’s product strategy.

The Boeing 737 MAX remained grounded by regulators, with no return to service in sight.

The Airbus A321XLR. This 9-hour capable airplane helps fragment routes–and soften demand for widebody aircraft. Source: Airbus.

Things couldn’t be going better for Airbus.

And then in mid-March, the COVID crisis became a global pandemic. Air transportation fell up to 95%. Airlines required government bailouts. Airbus CEO Guillaume Faury said the very existence of Airbus was threatened.

Summary
  • COVID’s impact.
  • A320 family ‘s commanding lead over Boeing.
  • A220 commands low-end of single-aisle sector.
  • A330neo is the weak link.
  • Looking ahead in product strategy.

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Embraer’s Slattery named CEO of GE Aviation

By Scott Hamilton

June 15, 2020, © Leeham News: John Slattery, the CEO of Embraer Commercial Aviation, was named CEO of GE Aviation, it was announced today.

John Slattery

Arjan Meijer is the new President and CEO succeeding Slattery. Slattery succeeds David Joyce, who is retiring. Slattery’s appointment is effective July 13.

Slattery devoted much of the last year trying to win approval of the proposed Boeing-Embraer joint venture, Boeing Brasil-Commercial. Boeing terminated the agreement April 25, claiming Embraer failed to meet all required terms and conditions. Embraer claims it met the conditions. Both took the dispute to arbitration.

Slattery had been designated CEO of Boeing Brasil. After the deal’s collapse, his departure from Embraer was expected.

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Mitsubishi’s options for the SpaceJet

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By Scott Hamilton

Introduction

June 2, 2020, © Leeham News: Mitsubishi Heavy Industry (MHI) yesterday closed the acquisition of the Bombardier CRJ program.

There are 15 CRJs in backlog to complete. But the purpose of the acquisition was to give MHI a global product support system for the SpaceJet.

With the aviation world still reeling and confused by the “suspension” of the SpaceJet program, what are the options going forward?

MHI last month announced it was suspending indefinitely development of the M100 SpaceJet. MHI said it will reevaluate the market demand of the M100. It suspended further flight testing of the M90 SpaceJet. It says it will proceed with office “validation” of the M90 for certification. Facilities in the US and Canada devoted to the SpaceJet program are closing. About half the workforce devoted to SpaceJet in Nagoya, Japan, is being reduced.

Customers that signed MOUs for 495 M100s and which have firm orders for some 200 MRJ90s (the previous brand for the M90) are in limbo. Suppliers are in limbo. MHI’s failure to communicate with them leaves a planeload of questions and no answers.

MHI’s move clears the way for Embraer to have a monopoly in the regional jet space. Unless—unless MHI restarts the SpaceJet program on its own or partners with another company to make a commitment to developing a new airliner.

LNA noted when the Boeing-Embraer joint venture collapsed that this presented opportunities for MHI and Boeing to renew and expand their previous relationship for the MRJ program. Here are some possibilities facing MHI.

Summary
  1. Kill SpaceJet entirely.
  2. Restart SpaceJet.
  3. Resuscitate the agreement for Boeing to support the MRJ program, updating it to the SpaceJet.
  4. Resuscitate and expand the previous agreement, strengthening the development SpaceJet and co-marketing by Boeing.
  5. Create an entirely new cooperative agreement, vastly broadening and strengthening decades-long ties between MHI and Boeing. LNA sees this as including SpaceJet and an entirely new family of aircraft replacing the 737 MAX.
  6. An expanded, broader agreement could even include development of a new “NMA Lite.”
  7. Finally, buy or create a JV with Embraer Commercial Aviation.

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Embraer announces a first Quarter 2020 loss of $292 million

By Bjorn Fehrm

June 1, 2020, ©. Leeham News: Embraer presented its 1Q2020 results today. It lost $292m (vs. loss of $43m 1Q2019) on revenues of $634m ($823m).

The reason is the COVID-19 crisis and halting commercial jet production during January, to prepare for the Boeing Joint Venture. It halved the 1Q2020 revenue of Commercial aircraft to $141m versus $281m last year.

The Executive jet segment is recovering, however. Its 1Q2020 revenue was $130m versus 117m 1Q2019, an 11% increase despite delivering fewer jets. The reason is high-end deliveries are now strong after several years of slump.

The separation costs for the canceled Boeing Joint Venture during 1Q2020 was $22m. The 1Q2020 results include $55m of special items due to the impacts of COVID-19. Embraer lowered the fair value of its stake in Republic Airways Holdings with $22m and made bad debt provisions for weak airliner customers of $33m.

Arbitration proceedings with Boeing have started for the canceled Comercial airplanes Joint Venture agreement and the KC-390 Contribution agreement. Embraer said in the quarterly presentation call it would be open to new cooperation agreements but had nothing new to tell on the subject.

The Company has $2,501m of Cash exiting 1Q2020 with first debt maturing in 2022. Given the present crisis for Civil aviation, guidance for 2020 is suspended.

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Mitsubishi SpaceJet retreat is the best news for Embraer in months

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By Scott Hamilton

Analysis

May 25, 2020, © Leeham News: Mitsubishi Heavy Industries (MHI) surprising retreat from its SpaceJet regional airliner program is the best news in months for beleaguered Embraer.

This takes pressure off the Brazilian manufacturer and gives it time to regroup after Boeing jilted it at the alter by walking away from a proposed joint venture.

Going into storage: four Mitsubishi MRJ90s at Moses Lake (WA). Photo: Mitsubishi.

MHI’s actions leave Embraer with a monopoly in the 76-100 seat arena vs new airplanes. The M90 SpaceJet is not a viable competitor to the E175-E1 or the struggling E175-E2. Embraer’s competition will be its own used jets, plus used Bombardier CRJ-700/900s.

Summary

  • Closing US operations entirely. Closing the recently opened engineering center in Montreal
  • Continued operation of the CRJ product support center in Montreal or relocation to Nagoya uncertain.
  • Major cost-cutting drive.
  • MHI wants to certify M90, then consider whether to proceed with M100.
  • M100 has MOUs for 495 aircraft.
  • MRJ90 was not certifiable due to design deficiencies.
  • Redesigned M90 meets certification requirements.
  • M90 is economically uncompetitive with E-Jet.
  • COVID-19 upends entire airline industry, casting doubt in MHI’s commitment to SpaceJet future.

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Pontifications: There is no good news

May 18, 2020, © Leeham News: There simply is no good news in commercial aviation right now.

By Scott Hamilton

Yes, airport traffic is upticking in the USA (and elsewhere) slightly. But in the USA, it’s still less than 10% of last year’s totals.

There remains a tremendous amount of uncertainty.

  • Airbus plans to lay off some 10,000 employees, according to press reports. Another production rate cut seems inevitable.
  • Boeing’s CEO revised the forecast for air traffic recovery from 2-3 years to 3-5 years. Production recovery will take another 2-3 years after that, he said.
  • Embraer’s biggest customer for the E195-E2, Azul Airlines, deferred deliveries from 2020-2023 to 2024. There haven’t been announcements about deferrals by US carriers for E175-E1s, but there is no reason to believe these won’t be deferred.
  • Delta Air Lines says 7,000 of its 14,000 pilots will be surplus to its needs this fall.
  • Spirit Aerosystems laid off about 1,700 employees due to Boeing’s production planning.
  • Qatar Airways will retire 50 airplanes, defer new orders from Airbus and Boeing and cut the workforce by 20%.

The list goes on and on and on.

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