Posts Tagged “Bombardier”

PNAA and the world’s largest aerocluster

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The Pacific Northwest Aerospace Alliance (PNAA) describes itself as “a coalition of aerospace companies that serve North America’s largest commercial aerospace manufacturing cluster which centers round The Boeing Company just outside of Seattle, Washington”.   All aerospace clusters have umbrella organizations that allow its regional members to meet and discuss issues that pertain to its specific needs.  The PNAA is the umbrella organization of the world’s largest aerocluster, based in Snohomish County, north of Seattle.

We spoke with two of the PNAA’s senior leaders at their annual event yesterday and they shared something about the history and the purpose of their annual event with us. On the left is Fiona McKay, Business Development Director and on the right is Melania Jordan, CEO.

It is remarkable how much of what we see today in US-based commercial aerospace and air transport started in this region and was focused around one man, William Boeing.

Frederick Rentschler is not a name many remember.  He went on to start another storied name in US aviation history, Pratt & Whitney.   This chart helps explain why for so many years United Airlines remains a key Boeing customer and tended to use P&W engines up through the first 777-200 deliveries.  They are, essentialy, family.

We also got to speak with three leading industrry analysts at the event. These three people, all in their own way, offered insights into what seems like a never ending super cycle. This next chart bcame from another one of the three analysts and shows how the super cycle seems unstoppable.  Of course the super cycle must come to an end, just not yet it seems.  This trend does however play a crucial role for what is coming.  These analysts pointed to the supply chain and what may be coming.

We asked each of these three how they view the PNAA and then what were their top three takeaways from the current event.

First, Kevin Michaels, managing director at AeroDynamic Advisory, who produced the Boeing history chart above.

Next we spoke Richard Aboulafia, VP Teal Group, at the who offered the super cycle chart.

Then we spoke with Michel Merluzeau from AIR.

The expected move by Boeing down their supply chain is going to be disruptive.  To achieve its profitability goals, Boeing is likely to cherry pick items that offer long term revenue streams.  The example of aircraft seats was cited.  Because of its size Boeing will create waves.  As a presentation by Triumph Group noted, they supply Boeing, Boeing supplies them and in the future they will also be competing with Boeing.  This could be get messy. But this is what comes with creative destruction.

As the supply chain takes on even greater stress, firms in the supply chain are going to grow larger by mergers and acquisitions.  Everyone needs to drive down their costs.

But this drive for reducing costs also may be a good time for those thinking about entering the supply chain.  Any firm that, for example,  has developed some clever method of deploying advanced technology (additive manufacturing is a prime example) becomes a prime target.  Don’t just think about the “genius in a garage” – the example of Bombardier’s Shorts plant in Belfast was mentioned because of its clever wing manufacturing process.  Or the deep taltent pool of engineering prowess at San Jose dos Campos in Brazil.  Literally everything is on the table; being evaluated and viewed as a potential part of the puzzle to create the most efficient aircraft making process.

Airbus and Boeing are going to search far and wide for these sources of “excellence”.   While the PNAA is focused on the giant Boeing footprint in the region, it is clear by seeing the attendees, that the reach of the region is global.  What PNAA event highlights is what every aerocluster is goign to face, sooner or later.

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airBaltic Receives the Market Leader Award by ATW

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Here’s a PR story worth sharing.  Latvian airline airBaltic was awarded the 2018 ATW Airline Industry Achievement Award as the Market Leader of the Year. ATW’s annual Airline Industry Achievement Awards is one of the most coveted honors an airline or individual can receive to recognize excellence in the air transport industry.

ATW’s Airline Industry Achievement Awards were established in 1974. They are bestowed upon individuals and organizations that have distinguished themselves through outstanding performance, innovation, and superior service. The Market Leader of the Year award goes to an airline that has set itself apart from its peers, either in a geographic region or a market sector, or that has created or stimulated a market.

Martin Gauss, Chief Executive Officer of airBaltic: “2017 was a record year for airBaltic and we are more than thrilled to be recognized on a global scale by ATW. The strong performance of airBaltic allowed us to increase our market share in the Baltic region and to strengthen our position as the market leader. It is an honor to join the list of global airlines that have received this prestigious award over the last few decades.”

ATW Editor-in-Chief Karen Walker said: “airBaltic has dramatically expanded and improved commercial air service in the Baltics. This innovative airline delivers quality customer service, with advanced aircraft such as the Bombardier C Series and high-performance standards. I congratulate Martin and his entire team at airBaltic for this well-deserved Award.”

In addition, on January 3, 2018, airBaltic was ranked No 1 globally in punctuality in 2017 by OAG analysts, who tracked the performance of a total of over 50 million flight records. airBaltic has been on the top of the global on-time performance ranking for the past four consecutive years.

What a great performance by this small airline that is quietly disrupting markets across the EU and beyond.  Moreover, the airline is arguably the prime example of what the C Series can do. While airBaltic has been doing well for years, it is in the past year with their new CS300s that the airline has bloomed.  Besides being good news for the airline, the story here is also about how the new generation sub-150 seat aircraft truly can disrupt markets because of their green credentials and remarkable range.

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Bombardier and Embraer provide Asia forecast

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We assembled this table from their announcements in Singapore to see how comparable their views are.

  • As usual, the definitions are not quite the same.  Bombardier excludes “Greater China”.
  • The seat segments top out at the same number, but it’s not clear where Embraer starts their segment though one might expect at 76 to include the E175.
  • Embraer sees a market 47% larger than Bombardier. But, if Bombardier were to include China their number would be higher.  China is clearly a focus for Bombardier as they frequently talk about CAAC’s Rule 96.
  • As a consequence of excluding China, we can see why Bombardier uses 16% as opposed to Embraer’s 29%.
  • Note Bombardier forecasts a larger market in 20 years than does Embraer.
  • Both Bombardier and Embraer see potential across the region connecting communities to hubs and other smaller communities.
  • Bombardier is slightly more specific in its forecast.

As of 3Q17, there were 7,674 aircraft in service across the Asia/Pacific region.   Breaking out the fleet into regional and single aisles we get this table.

Both Bombardier and Embraer are correct in seeing lots of fleet renewal opportunities. If we grant each company a preference in the renewal of their own fleets, we see there were only 43 regional jets to chase.  Useful, but not exciting.   Among single ailses, we have much more opportunity.   This is principally because of the aging small Airbus and Boeing jets.

Airbus had 244 A319s that might be a shoo-in for the C Series if Airbus muscles customers to stay “on-side” when they come up for replacement.  Boeing had 20 717s that Delta had not snatched.  There were 737 Classics ripe for replacement.  The 700NGs, like the A319s, were too new to replace. There were 28 MD-80s aging fast that need replacement plus 63 Fokkers.  The Embraer fleet was very young at under five years on average.

All told there appeared to be ~5,000 single aisles and under 200 regional jets to pitch for over the next 20 years.  If we throw in a growth factor – Asia is growing faster than any other air travel market – those numbers are bound to be much higher.  That makes the Bombardier and Embraer forecasts look plausible.

The largest growth markets are going to be China and India.  Both suffer from state imposed limits that curtail OEM ambitions.  India lacks runways and other infrastructure.  But that could be fixed over 20 years.  China as a tightly controlled commercial aviation industry and its evolving Rule 96 limits new airline growth.

In summary, in the next five years, we see opportunities for about 150 single aisles and 41 regional jets.  The Asian air travel market has grown fast and its fleet tends to be young.   While the twenty-year forecast looks reasonable, replacements are going to be backloaded.

Bombardier and Embraer need to focus on new startups and adding smaller aircraft to current airline fleets.  Current airlines need light aircraft to reach out across thin routes (as stated by Bombardier above) to feed their networks.  Fortunately, Bombardier and Embraer do not need to fear any outside (i.e. local) competition for at least a decade.

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C919 delayed again?

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News from Singapore suggests that the C919 might be delayed again.  Tracking, using Flightradar24, of the flight test aircraft show that B-001A last had activity on December 19 and there is nothing on B-001C. The second C919, B-001C had its first flight of 2018 on January 14th.  The aircraft took off from Shanghai Pudong International Airport at 7:38 a.m. and landed at 10:33 after a flight of two hours and 55 minutes. A Bloomberg article points out that this flight test program is much slower than Western programs and even slower than one might have expected from an aircraft from COMAC.

Given the ARJ-21’s very long gestation, one could be skeptical of China’s aerospace ambitions.  But those ambitions continue to mushroom.  COMAC has an engine RFP out for the C929.  The C929 is approximately sized like the A330-900.

Even if the first orders for the C929 come at the Zhuhai Airshow in November from Chinese and Russian customers, deliveries are slated for the 2027 era.  Which, based on current experience, might mean more like 2030.

The C919 is long on promise. Lu Zheng, COMAC’s deputy general manager of sales and marketing, told reporters at the Singapore Airshow that they expected Chinese certification to take three to four years.  “It should not have any impact” on the delivery time to the jet’s launch customer, China Eastern Airlines, he said. “We’re striving for 2021.”

COMAC has 700 orders for the C919.  By the time it starts deliveries in 2021, it is likely to be substantially outdated by the current Airbus and Boeing products.  Bear in mind that if Airbus and Boeing’s projects planned around the C Series and E2, respectively, are in full bloom by then the goal posts will have been moved significantly.  Chinese airlines with captive C919 orders might be reluctant to take the C919 unless it has also seen improvements that keep it competitive.

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The SSJ shrink choice

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SCAC (Sukhoi Civil Aircraft Company) announced they are planning on a 75-seat “shrink” version of their SuperJet.  The current SSJ100 seats 98-103.   The new aircraft will be upgraded in several areas, including engines, avionics, and aerodynamics. The image below shows an aerodynamic enhancement for the aircraft, including the addition of “saberlets” on the wingtips.

SCAC has been talking about a three-size family from 65, 75 and 95 seats from the onset of the program, and are following through with a second model.  Shrinks are not as popular as stretches, as they have proven themselves to be economically compromised.  The SCAC decision to move downward to a 75-seat version potentially fulfills a market need.

The idea of a smaller version is not outlandish considering the market.  The more typical decision would be to go for a stretch beyond 100 seats.  Doing this though puts the SSJ up against the CS300 and E195-E2 – which is going to be a very harsh competitive environment.

But look at the 75-seat market and you see a different situation.  The market incumbents are Bombardier and Embraer.  Moreover, the most influential market for aircraft of this size is the US regional airline market.  What the US regionals select effectively drives the market for the rest of the world, given their large fleet requirements.

There are two models currently in favor in that market, the Embraer E175, and Bombardier CRJ900.   Both have strong penetration into large fleets.  The E175 is planned to retire in favor of the E175-E2, but the latter is too heavy for current US scope clauses.  As long as the E175-E2 does not meet scope requirements, that aircraft has a difficult situation to overcome.  Most of its orders are from US regional airlines that cannot deploy it, given current scope.   The forthcoming, and delayed, Mitsubishi Regional Jet faces the same issue.

The current scope clauses expire in 2020 but are expected to be re-ratified in union contracts negotiations in 2019 to extend them for another five years through 2025.  That effectively blocks the E175-E2 and MRJ from the US market.

This means US regional airlines will have limited choices, staying with the existing E175 and the CRJ900.  The E175, while a modern aircraft, lacks the significant economic benefits of the re-engined E2 model, and the CRJ900 is an older, more uncomfortable design with limited passenger appeal.  An opportunity exists if Sukhoi can effectively enter this market with a modern aircraft.

The redesign of the SSJ100 means losing four rows of seats with its five abreast configuration.  It would seem that SCAC is eyeing the US market since the scope clause has two key numbers – 76 seats and 86,000 pounds MTOW.  The SSJ can easily get the seat numbers right, but can it meet the weight restriction?  SCAC would likely not have said a word unless they are confident.  The OEM is talking about a new wing and using the same Pratt & Whitney GTF engines found on the MRJ.  The GTF engines are likely to be heavier than the PowerJet engines on the current SSJ.

But these are technical questions that have technical solutions.  The Russian aerospace industry has shown that with the MC-21 they can produce a world class composite wing that is light and efficient.  SCAC also mentioned that they are considering adding MC-21 flight deck upgrades to this new SSJ.   To get an idea of how influential the MC-21 is, the new SSJ even might be named the MC-21-75.

Assuming the new model SSJ moves forward, the real challenge is this: getting that aircraft certified by the FAA.   Until this happens, no US regional can consider it.  Is that a “bridge too far”?  The answer is no.  The US regionals are “bottom feeders.” Their margins are razor thin and any aircraft that brings with it complexity and high cost are not easily adopted.  But at the same time, these airlines want lower fuel burn and improved efficiencies.  Which is why they ordered the MRJ and E175-E2.  The demand is there.  SCAC ‘s decision to consider this market is not a bad choice at all.

The next step for SCAC is to confirm they can provide a better wing solution, utilize the GTF and meet those key scope limits.  The market is attractive because US scope does not look like easing until 2025 at the earliest.  But there is one more challenge that must be met.  The US regionals are big and buy lots of aircraft – can SCAC produce fast enough?  As one US regional airline president told us “If I want the SSJ, they’ll get it certified”.

The Bottom Line:  SCAC is aiming at the right market segment.  But it’s a challenging road to get to the right solution.  This challenge is primarily technical, including obtaining FAA certification  (not impossible since the SSJ has EASA certification), getting the aircraft scope compliant, having at least a 10% economic improvement over the incumbents, pricing the aircraft attractively, and ensuring certainty in a production schedule.  If SCAC can accomplish all this, their chances of winning major orders will be quite good.

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Premium 2018.5 – The remarkable Embraer E2 program

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