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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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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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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Analysis: Mitsubishi suspends development of M100, continues M90 due to COVID

By Scott Hamilton

Analysis

May 12, 2020, © Leeham News: Mitsubishi Heavy Industries (MHI) yesterday said it cut development money for the M100 SpaceJet. M100 R&D is suspended indefinitely while it continues for the M90 on half rations.

MHI will continue certification of the M90.

MHI also said it will reevaluate demand for the M100 because of COVID-19 impacts.

This immediately raised questions whether MHI may kill the M100 program.

To do so will squander MHI’s once-in-a-lifetime chance to become a real global power in commercial aviation. If this happens, “Japan Inc.” also loses a chance to be part of this.

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HOTR: Mitsubishi, Bombardier set June 1 to close CRJ deal

By the Leeham News staff

May 6, 2020, © Leeham News: Mitsubishi Heavy Industries announced May 7 (Tokyo time) that it will close the acquisition of the Bombardier CRJ program June 1.

Production of the CRJ was to end this summer. The COVID crisis effectively terminates the program now. But the CRJ itself wasn’t the reason MHI bought the program, for US$500m. The attraction was the built-in global product support system for the CRJ that will transition to the M100 SpaceJet. It also provides a new revenue/profit stream as MHI enters the global RJ market.

Along with it, as icing on the cake, is acquisition of Bombardier’s sales team, infrastructure and other assets.

It would take years for MHI and Mitsubishi Aircraft Corp. (MITAC) to establish its own product support system.

This is a major step in development of the SpaceJet as a new global competitor.

With the collapse of the Boeing-Embraer joint venture, MITAC can reinvigorate and strengthen its relationship with Boeing.

Embraer, which said it needed the Boeing JV to compete in the future with Airbus against the A220, increasingly faces higher risks as MITAC and MHI evolve the CRJ product support system and potentially strengthens the Boeing relationship.

MHI also announced that it will immediately write down the $500m acquisition by ¥50bn- ¥ 70bn ($470m-$656m).

 

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Collapse of Boeing-Embraer JV gives Mitsubishi Aircraft new opportunities

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By Scott Hamilton

Introduction

May 4, 2020, © Leeham News: The collapse of the Boeing-Embraer joint venture removes a major cloud over another Boeing agreement with a different airframe company.

Long ago, Boeing and Mitsubishi Aircraft Corp. (MITAC) entered into a support agreement for what was then the MRJ program.

MITAC was to receive marketing and services support from Boeing for the MRJ.

From the moment the news emerged that Embraer and Boeing were talking about a merger, acquisition or joint venture (the goal moved over time), questions arose over the future of the MITAC agreement.

Summary
  • Boeing said the MITAC agreement would be honored, but skepticism remained.
  • The MRJ and later the SpaceJet would compete with the former Embraer product line.
  • Recovery consensus 3-5 years.
  • With collapse of Boeing-Embraer JV, Mitsubishi-Boeing can reaffirm, strengthen their cooperative agreement.

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The Squeeze on Embraer

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Now open to all readers.

By Scott Hamilton

Introduction

April 27, 2020, © Leeham News: The collapse of the Boeing-Embraer joint venture Saturday resurfaces the squeeze Embraer was under when the deal was announced in 2018.

Then, Embraer faced the prospect of competing against Airbus in the 100-150 seat sector with the former Bombardier C Series.

Embraer’s E2 Jets are squeezed from above by the Airbus A220 and, if Mitsubishi performs, the M100 SpaceJet from the bottom.

John Slattery, the CEO of Embraer Commercial Aviation (ECA), said he could not compete against the marketing might of Airbus alone. In fact, he lost a key customer when jetBlue ordered the A220-300 instead of the E195-E2 to replace 60 E190-E1s. Airbus, which took over the C Series July 1, 2018, wrapped the A321neo into the A220 order. This deal was announced shortly after Airbus assumed majority ownership of the C Series program.

Summary
  • E195-E2 will drive demand.
  • The E190-E2 won’t be a “door opener.”
  • The E175-E2 future depends on US Scope Clause relief.
  • Coronavirus upends everything.
  • M100 waiting in the wings.

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Japan seeks to develop aircraft industry ties through Asian trade partnerships

By Judson Rollins
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April 20, 2020, © Leeham News: Japan has long been known as an engineering powerhouse, and Japanese manufacturing titans like Mitsubishi Heavy Industries and Kawasaki Aerospace have been a key part of Boeing and Airbus supply chains for the last two decades.

Japan’s government wants to expand the country’s influence by signing agreements with members of the Association of Southeast Asian Nations (ASEAN) to secure improved cooperation with downstream suppliers. Aircraft and engine OEMs and key tier-one suppliers already have manufacturing operations in Thailand, Singapore, Malaysia, Indonesia, the Philippines, and India.

The first of these agreements is expected to be signed with Malaysia, which declared its ambition to become the biggest aerospace producers in Southeast Asia by 2030.

On the sidelines of February’s Singapore Air Show, LNA met with representatives of Japan’s Ministry of Trade, Economy, and Industry (METI) to discuss the proposed agreement with Malaysia. This article has been withheld until now due to the myriad aerospace issues caused by the COVID-19 crisis.

Summary
  • Bilateral agreement postponed due to COVID-19.
  • Areas of cooperation include manufacturing, training and more.
  • Malaysia’s growing aerospace footprint.

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Pontifications: Assessing the impact of COVID-19: today’s take

By Scott Hamilton

April 6, 2020, © Leeham News: It’s going to be quite a while before there is a clear understanding how coronavirus will change commercial aviation.

LNA already touched on impacts to Airbus, Boeing and Embraer. None of it is good. For Boeing, burdened with the additional stress of the 737 MAX, is in the worst position. Even when the MAX is recertified, there won’t be many—or any—customers in a position to take delivery of the airplane.

Bearing in mind that what’s true today will change in a day, or even an hour, let’s take a rundown of where things seem to stand now.

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