Mixed views on CSeries impact; Regionals a separate niche. ISTAT conference wrap 2
Early panel sessions at the International Society of Transport Aircraft Traders (ISTAT) conference in Arizona this week suggested the CSeries was “nipping at the heels” of the A319-100 and the 737-700. But the lessors' panel had conflicting opinions on the CSeries, saying the up-gauging trend might force airlines back to Boeing and Airbus. However, it could benefit from the up-gauging trend from regional aircraft although scope clauses would have to change in order to achieve this.
However, GECAS CEO Norman Liu asked why airlines would go to the trouble of an entirely new family of aircraft with all the incumbent costs, when the 737-300 and NEO are there.
2011 a critical year for the CSeries
The panel indicated that Bombardier could benefit from a growing, worldwide trend for capping the age of aircraft. It also urged the finance community not to overlook older aircraft pointing to Delta’s move with the MD90 which has the same fuel burn as the 737-800, according to Air Lease Corp CEO Steven Udvar-Hazy. “A good used aircraft is a viable alternative, provided there is affordable financing,” he said.
The panel agreed that 2011 will be a critical year for the CSeries. “They have got to get contracts,” Mr Udvar-Hazy said, as other panelists added airlines will have to be induced to buy the aircraft by Bombardier concessions. “The key question will be the finance-ability compared to old aircraft.”
The largest problem with the CSeries said Mr Udvar-Hazy, is that no 100- to 150-seat aircraft has ever been successful before, naming a host of wannabes such as the Fokker 100, BAe 146 and A318. The panelists also indicated that the market is shrinking.
In discussing the CSeries the previous day, Bombardier Commercial Aircraft President Gary Scott said while the rest of the industry was focusing on the USD3 trillion very-large-aircraft market, the 100- to 150-seat segment still amounted to USD600 billion and 6,700 aircraft. Indeed, Mr Townend pointed out that operating lessors are attracted to the segment. He also indicated that, with the CSeries and the growing competition from other countries, the industry could easily go back to three airframers which, historically, is what it always had.
Embraer, however, were it to pursue the CSeries market would have a huge advantage given its built in customer base with mainlines in Europe and the Middle East, according to Mr Udvar Hazy, who partnered with Embraer to increase the number of airlines in the EJet portfolio by 100 as a replacement for Fokker 100s, MD80s, Avros and BAe 146s. He noted that even today the lease rates for the E-190 outclassed the A320. However, it must be pointed out that Bombardier is no slouch when it comes to an installed base.
His new company has already ordered the E-190/195. Later he indicated that large wide bodies are not a priority for his company but said the obvious next step for his company would be acquisitions of both the 787-9 and A350-9 in three to four years.
Suggesting Embraer wanted to remain independent, he did not see a merger with Boeing or Airbus but he did not reject the possibility that it could partner with either of the two giants in the 100+ market.
Up-gauging creating a regional niche
With an average annual growth rate of 2% in the size of aircraft, the entire panel agreed that the world is up-gauging, which bodes ill for US regionals who are far into their transition to larger regional jets because of the 70-seat scope cap. That will make regional aircraft of greater interest to the rest of the world, than the US.
Mr Udvar-Hazy called the 100-seat-and-below market a separate niche. Mr Liu agreed, noting GECAS, which financed many regional aircraft, to support engine sales, was now top heavy in the segment and was moving away from the market to balance its portfolio with more wide bodies. Mr Liu also cited the fact the market was growing more crowded with new aircraft entrants from Russia, China and Japan. They are also not using GE engines.
Mr Townend indicated that with all the new aircraft coming on the market the industry will be driven toward operating leases while Mr Udvar-Hazy suggested that the early years of these production lines will be dominated by their home markets forestalling western introduction until better, more advance models were ready.
“That’s when Boeing and Airbus will have to wake up and deal with it,” he said. “They will have lower costs so they’ll be like the Japanese auto companies. They bought their way into the market and that had a big impact on market share. The question is can they build a 120- to 140-seat aircraft the way we do today. Maybe. But they will have a different plant location and probably be non union and will offer a family of aircraft.”
Mr Udvar-Hazy said he was instrumental in changing the MRJ cross section by 7-8 centimeters to accommodate western passengers. He added the aircraft would not make it unless it created a 100+-seat aircraft. “Otherwise they won’t have the market penetration,” he concluded.
Turboprops attracting lessor attention
The group was bullish on turboprops, despite the fact Embraer rejected the idea of going back into turboprops the previous day.
“If you look at the cross sections of the ATR and the Q400, they look a lot like a single-aisle A320 or 737,” said CIT Transportation Finance President Jeff Knittel, who added CIT is looking closely at adding turboprops to its portfolio. “We believe there is an interesting opportunity.”
Mr Udvar-Hazy agreed, pointing to opportunities in the developing world. While Mr Townend rejected the idea of getting into turboprops because BOC didn’t want to spread itself too thin, Mr Udvar-Hazy, who has already added the ATR-72-600 to Air Lease Corporation’s portfolio, said, “We see multiple applications and these will be a small portion of our portfolio.”