As new markets open up, the major OEMs Airbus and Boeing are seemingly happily ceding part of the market to the smaller manufacturers. Bombardier with its CSeries and now Embraer with its second generation E-Jets are equally content to take advantage of any opening. Others, like the Sukhoi, along with COMAC, Antonov and Mitsubishi, are also moving to occupy some of the vacuum.
Paris smiled on Embraer this month. Despite Bombardier's four year lead on Embraer in launching its new aircraft family, Embraer’s second generation E-Jets have already matched the CSeries in the order books. The Brazilian manufacturer formally launched the E-Jets E2 programme at the Paris Air Show. It has already booked 215 orders, commitments and letters of intent for the re-worked aircraft, from seven different customers, just bettering the CSeries’ total of 214 firm orders and commitments.
Embraer's track record has helped and most of the orders were from one source. SkyWest Airlines, the largest regional carrier in the US, announced a firm order for 100 aircraft, as well as another 100 purchase rights. This is in addition to SkyWest’s previous order in May-2013 for up to 200 current generation E-175 aircraft.
Leasing company ILFC also signed a LoI for 50 aircraft in Paris, covering 25 E-190 E2s and 25 E-195 E2s, in addition to options for 25 more of each. Added to this, Embraer announced it has signed letters of intent with five undisclosed airlines from Africa, Asia, Europe and Latin America for 65 orders for the second generation E-Jets.
Embraer has the advantage of building on a proven platform
Embraer’s second generation of its E-Jets combines the proven family architecture with a number of technological enhancements, to meet the continual demands by airlines for more efficient aircraft. Given that fuel accounts for around 32% of airline costs globally, airlines and aircraft manufacturers have a tremendous incentive to improve the fuel efficiency of their aircraft.
According to IATA, global airline fuel expenses have increased from USD44 billion in 2003 to USD210 billion in 2012.
Fuel as a percentage of global airline costs: 2003 to 2013
The reworked E-Jets E2 is more than a simple minimal change re-engine, the path taken by Airbus and Boeing. The E2 aircraft will feature new wings, improved systems and avionics, including full fly-by-wire flight controls, and Pratt & Whitney 'PurePower' geared turbofan engines. The aircraft will also posses cockpit commonality with current generation E-Jets, a major selling point for existing Embraer regional jet operators.
Embraer expects the improvements to result in double-digit reductions in fuel consumption, emissions, noise and maintenance costs, and increased aircraft availability. Pratt & Whitney projects that the new PW1700G/PW1900G engines alone will produce a 12% improvement in fuel consumption, along with a 50% reduction in noise and emissions and a 40% reduction in maintenance costs, without including the other enhancements Embraer is delivering for the regional jet family.
Like Bombardier with its CSeries, Embraer is marketing the second generation E-Jets as being capable of achieving similar costs per seat of larger re-engined narrowbody aircraft, with significantly lower costs per trip, thus creating new opportunities for lower risk development of new markets and fleet right-sizing by airlines. Embraer Commercial Aviation president and CEO Paulo Cesar Silva said the company’s strategy with its second generation E-Jets (E-Jets E2) is to “offer all the benefits of a clean-sheet design, but with the reliability of a mature platform and commonality with current generation E-Jets.”
The E-Jets E2 programme will comprise three aircraft, with Embraer dropping the smallest member of the E-Jets family – the 70 to 80 seat E-170 – as airlines continue to favour up-gauging of regional jets and switch to turboprops for smaller routes. The launch model will be the E190-E2, which is expected to enter service in 1H2018, followed by the E195-E2 in 2019 and the E175-E2 in 2020.
Launching with the E-190 E2 makes sense for Embraer. The current E-190 is far and away the most popular of the E-jets family, accounting for a little under 50% of all orders for the aircraft family. The E190-E2 retains the same capacity as the existing E-190, offering up to 106 seats in a single class configuration.
Embraer E-jet orders and deliveries by type: to 31-Mar-2013
While Embraer is retaining the existing configuration for the E-190 E2, it has decided to add seating capacity for both the smallest and largest versions of the second generation aircraft family. The E-175 E2 will be stretched by one seat row compared to the current generation E-175, increasing capacity up to around 88 passengers.
The E-195 E2 will feature a larger stretch, adding three rows of seating compared to the current E-195. This will allow the aircraft to accommodate up to 132 seats, putting it firmly into competition with Bombardier’s CSeries, as well as the smallest versions of the various narrowbody aircraft, including the A319neo and 737-7 MAX.
Manufacturers' reduced risk appetite is increasingly apparent
Embraer’s decision to develop a re-worked and stretched version of its E-Jets family rather than go with an all-new aircraft attests to the reduced risk appetite among the major commercial aircraft manufacturers. Working with an existing platform reduces the tremendous research and development expenditure necessary to create an all-new aircraft, as well as eliminating many of the perils involved in introducing new technologies – as exemplified by the three-year delay with the 787 and the temporary grounding of the aircraft due to problems with lithium-ion batteries.
Boeing and Airbus have successfully marketed re-worked versions of their existing narrowbody aircraft, banking on the combination of new engines alloyed to proven platforms, creating a minimum change option that customers have leapt at. Boeing is also poised to develop the 777X, an updated version of its successful 777 family featuring new engines, wings and systems, but sticking with traditional aluminium for the fuselage, rather than the carbon fibre of the 787. Airbus’ A350 XWB, due to go to customers from mid-2014, may well be the last all-new widebody aircraft to enter service for the remainder of the decade.
Bombardier’s decision to go with an all-new aircraft therefore required a bigger leap of faith than the decisions made by its competition. The CSeries has no established user base and an all new airframe comes with greater risk in testing – potentially leading to delays – and also at service entry, something that airlines have become understandably sensitive to. The aircraft programme has already suffered a six-month delay, although the aircraft’s maiden test flight is on track for this month.
Bombardier is betting big on the CSeries. Programme development costs are around USD3.5-3.7 billion. By comparison, Embraer plans to spend less than half that: it estimates its total investments on the new E-Jets E2 models to be USD1.7 billion over the next eight years. Airbus’ costs for the A320neo development are around USD1.3 billion for the airframe only, not counting the cost of new engine development. Estimates for the 737 MAX family’s development costs are USD2-3 billion, reflecting the greater amount of changes necessary to fit new engines to the 737 airframe.
For Bombardier, the reward for its higher risk and greater investment is increased efficiency for its customers. Bombardier touts its all-new aircraft as offering a 20% fuel burn advantage over its competitors in the 100-149 seat range, thanks to the clean sheet design, optimised to work with next generation engines and the use of advanced structural materials and other technologies. But, with an all-new aircraft, the biggest hurdle is often the first – getting a good sized client order into the sky.
Airbus and Boeing relinquish the lower end of the narrowbody market segment
The CSeries, with a two-variant family, effectively bridges the gap between the existing higher capacity regional jets and the narrowbody aircraft offered by Airbus and Boeing. The CS100, the smaller launch version of the CSeries, offers seating configurations with 108 to 125 seats. The CS300, a stretched follow-on due to enter service around 12 months after the initial version, features 130 to 150 seats in standard configuration. In addition to this, Bombardier has reacted to customers’ demands for a larger aircraft by unveiling a CS300 with a 160-seat high-density configuration.
Current and future generation regional jets and small narrowbodies
Selling the CSeries has been hard graft for Bombardier. Just under five years after launching its new aircraft programme, Bombardier has 177 firm orders for its new aircraft. It has purchase commitments for another 37 aircraft that are still to be finalised. The manufacturer has been confident that it will reach its order target of 300 firm orders from 20 customers before the aircraft begins its deliveries to customers.
In comparison, Airbus and Boeing’s re-worked narrowbodies have gathered orders at record pace. The A320neo, which is due to enter service in Oct-2015, has almost 2,250 firm orders. The 737 MAX, due to go to customers some time 2H2017, has over 1,300 firm orders.
With Sukhoi, COMAC, Antonov and Mitsubishi all entering or planning to enter the regional jet market with new products, the lower end of the commercial jet market is becoming increasingly crowded and competitive.
By creating the CSeries, Bombardier saw an opportunity to bring a new product to the market, moving itself towards larger aircraft. The intention was to step away from its regional jet competitors and into the large aircraft market, but hopefully without finding itself treading on the same ground as Airbus and Boeing by offering a direct competitor to the existing narrowbody aircraft.
To some extent, Boeing and Airbus have been willing to oblige and cede the lower-capacity end of the market to Bombardier. When the major manufacturers launched their re-worked narrowbody aircraft, neither addressed the lower capacity end of the market space, instead mostly focussing on the much bigger and established market for larger aircraft. Airbus’ smallest version of its new engine option family, the A319, offers 124-156 seats. Boeing’s counterpart, the 737-7 MAX, will offer a typical configuration of around 126 to 148 seats.
Over the last decade, sales of 110-140 seat narrowbodies have become scarce. Airbus’ smallest aircraft, the 107 to 132 seat A318, ended production this year with just 79 orders, many of which went to corporate customers. Ignominiously, the final two A318 orders were cancelled. Boeing managed just 69 sales with its 737-600, the smallest version of the 737NG family, which offered capacity for 108 to 130 seats.
Bombardier and Embraer are hoping that upsizing by regional jet operators will see more sales in the segment. Bombardier Aerospace president Guy Hachey has commented that he is not concerned about the impact the new Embraer jets would have on CSeries sales. Bombardier expects 6,900 sales of passenger aircraft with 100 to 149 seats globally over the next 20 years, and is aiming for a 50% slice of this market, worth USD460 billion.
Competition grows fast at the smaller jet end of the market
Complicating the future picture in the narrowbody market is the new entrants from China and Russia. China has ambitions to develop its own large commercial aircraft manufacturing industry, under the Commercial Aircraft Corporation of China (COMAC). China's initial attempt, the ARJ-21 has been delayed for more than seven years. Its main effort is focused on the C919, a direct next-generation narrowbody competitor in the 148-168 seat range, due to enter service around 2016.
According to the Civil Aviation Administration of China (CAAC), COMAC has so far received 215 orders from 10 buyers for the aircraft. Only one customer, leasing company GECAS, is based outside China. Whether the C919 will be able to attract non-Chinese customers will be the big challenge, especially in an increasingly competitive market segment.
Russia is also attempting to enter the narrowbody aircraft market and revitalise its ailing commercial aircraft industry. Its initial foray into the regional jet market, the Sukhoi SuperJet 100 which was developed in partnership with Alenia Aeronautica, has been a partial success. Nearly 250 aircraft have been ordered by 21 customers, including carriers based in Southeast Asia, Latin America and Western Europe, although service entry has been bumpy.
Russia’s follow-on effort is the Irkut MS-21. Due to enter service in 2017, the aircraft reflects Russia’s greater experience with building large aircraft compared to China. The aircraft will be offered in three versions, delivering capacity for as few as 136 seats in the smallest variant and up to 230 seats in a high density configuration for the largest version. The Russian government has already indicated an increased willingness to support the development of the new aircraft, moving to shoulder up to 75% funding costs for the aircraft.
The next couple of years will be a good indicator of who will be winners and losers
The global commercial aircraft market is seemingly near limitless, talk of bubbles or not. Boeing expects deliveries of 35,300 new jet aircraft over the next 20 years, valued at USD4.8 trillion. ATR and Bombardier forecast the turboprop market at around 2,850 to 2,950 aircraft, worth another USD71-102 billion over the same 20-year period.
However, more competitors are entering the fray, squeezing competitors and forcing adjustments to strategies. Boeing and Airbus have admitted that the days of their narrowbody market duopoly are over. The position of the two established manufacturers in the widebody market remains unchallenged for the time being. China and Russia are both eyeing the upper end of the market, but they will not get there within the decade.
In the regional jet market, Bombardier and Embraer also have a dominant position, but other competitors have been piling in over the last five years. These have diverted hundreds of potential sales from the two main manufacturers. Sukhoi's firm orders for the SSJ100 may balloon out to more than 350 once recent tentative orders are confirmed. COMAC has more than 300 orders for the ARJ-21, despite reservations from customers outside China about the aircraft’s capabilities and the ongoing delays in the programme. Antonov has around 110 orders for the An-148/158. Mitsubishi has orders for 165 MRJs and options for another 160.
Embraer has reacted by sticking to the regional market space and improving the performance of its existing product. Bombardier’s reaction, moving into the same territory as Airbus and Boeing, is riskier and more expensive, but in the long run the promise of the superior performance of the CSeries may prove a winner. The takeoff has been a long one, but things may change once the aircraft is in the air.