Big orders setting stage for turboprop encore

Paris Air Show » 2005
December 12, 2006, 10:16 AM

The so-called regional jet revolution has in the minds of many rendered turboprops a quaint throwback to the days of “commuter” airlines. But this year’s spate of big orders for new turboprops has turned conventional wisdom on its ear, giving the last two Western builders of prop-driven airliners a renewed sense of vitality. If nothing else, it certainly validated claims that OEMs can occasionally still sell a case for large-scale turboprop operations, at least outside North America.

Could the spike in sales amount to an isolated string of events? Perhaps. New business of the magnitude of Air Deccan’s 30-aircraft order for ATR 72s and Bombardier’s pair of orders for 27 Q400s from Flybe and Qantas certainly represent a departure from the trends of the last decade. But as oil prices threaten to reach $60 a barrel, the practice of using regional jets to fly 200-mile segments simply to match equipment flown by hub-raiding competitors now looks untenable, prompting even U.S. carriers to re-assess hub-feeding strategies.

Meanwhile, an apparent recognition that turboprops make sense not only in hub-and-spoke applications, but in point-to-point, discount-fare operations has opened new possibilities in Europe and beyond. In fact, this year’s two biggest customers for turboprops–the UK’s FlyBE and India’s Air Deccan–market themselves as low-fare, no-frills carriers.

With the Air Deccan order, ATR’s backlog rose to 55 airplanes, its highest since the mid-1990s. From an all-time low of nine deliveries in 2003, its output rose to 13 last year. This year it expects to deliver “at least 15” airplanes, followed by “more than 20” in both 2006 and 2007. Bombardier, meanwhile, carried a backlog of 70 turboprops, its highest since the first quarter of 2001. As late as April 2003, Bombardier’s turboprop backlog stood at only 15 airplanes.

In a pre-show interview with Aviation International News, ATR chief executive Filippo Bagnato removed any doubt that indeed a recovery has begun at least for his company, confirming the existence of new orders from European airlines whose identities ATR plans to reveal here today and tomorrow. Last year, he said, ATR saw a 15-percent jump in year-over-year revenues, to more than $400 million, due both to more new airplane deliveries and record activity in the used market, where the company signed more than 50 contracts last year.

Oil a Major Factor

“For sure, the cost of oil is one important element,” said Bagnato. “Now the airlines are reconsidering because today the fight is for ticket prices…they are taking care of every single penny.”

In places like India, government-owned airlines didn’t always spend their pennies wisely. Today, as a middle class starts to emerge in the subcontinent and more and more people can afford to fly, privately owned airlines such as Jet Airways and Air Deccan have introduced a more sophisticated, free-market-driven approach to route and fleet planning. Thankfully for them, the so-called “turboprop avoidance factor” doesn’t enter the cost equation in India. Able to base their decisions on sound economics, they can benefit from the cost efficiencies turboprops bring to routes shorter than 300 miles.

Bagnato sees the same thing happening soon elsewhere. “I am convinced that the Chinese, who are very, very sensible, sooner or later will follow,” he said. “Today, still the deep understanding of utilization of regional airplanes hasn’t arrived in China, but it will arrive.”

Even in Russia, where exorbitant import and value-added taxes have effectively barred Western turboprops from entering airline service, reason for optimism has emerged. Earlier this year the Iron Curtain finally fell for ATR, when Siberian regional airline UTAir signed a deal with Bank of America to lease a pair of ex-Continental Airlines ATR 42s. ATR has agreed to provide spares support and flight crew training, while UTAir general director Andrei Martirosov assesses the Franco-Italian turboprops’ performance before committing to as many as 15 ATRs to replace 30 An-24s and Yak-40s on intra-Siberian and northern Russian feeder routes.

For wholly different reasons, the market for turboprops in the U.S. over the past half decade has looked as barren as Siberia itself. But even there, where regional jets account for close to 70 percent of all regional airline capacity, a quiet reassessment of short-haul markets has raised faint signs of encouragement for companies such as Saab, which, although out of the civil manufacturing business, still makes a living leasing and shuffling around used equipment.

Continental Connection

Continental Airlines has shown the most willingness to test passenger tolerance for turboprops in the U.S., enlisting regional partner CommutAir to fly Beech 1900s from Cleveland, Ohio, and, most recently, Colgan Air Saab 340s from Houston, Texas. Meanwhile, a recent deal between Continental and south Florida’s Gulfstream Airlines returned to service ex-Atlantic Southeast Airlines Embraer Brasilias. Before the Gulfstream deal took effect, Continental had already increased available seat miles in its partners’ turboprop networks by 8 percent last year. Turboprop departures now account for more than 15 percent of Continental’s offering, compared with 13 percent in 2003.

Now, Continental is considering adding at least seven 50-seat turboprops–notable because Continental Express carrier ExpressJet last year stopped taking deliveries of 50-seat Embraer ERJ 145s at the behest of its major partner. In fact, St. George, Utah-based SkyWest Airlines earlier this year parted ways with Continental because the major airline wanted its regional partner to fly Saab 2000s, SkyWest CEO Jerry Atkin told AIN. Unwilling to fly the Swedish turboprops, SkyWest ceded its Houston feeder service, performed with 29-seat Embraer Brasilias, to Colgan Air. Now Continental has begun shopping for another partner to fly the 50-seat turboprops from Houston.

“We are very excited about this,” said Saab Aircraft Leasing president Michael Magnusson. “There are a lot of interesting things happening at Continental and, of course, I think they’re doing the right thing.”

Elsewhere in the U.S., both Northwest and United Airlines plan to maintain the number of turboprops its partners fly at about 65 each this year, while Alaska Airlines replaces Boeing 737s with Saab 340s in Alaska.

“Many of us have been saying for a long time that regional jets aren’t very cost effective on routes of up to 300 miles,” said Magnusson. “And many of the RJs that were delivered new…their honeymoon periods are over, their warranties are expiring and the true costs are starting to emerge...This year has started very well for us…not that I have banked a bunch of transactions yet, but I’m very encouraged about the dialogue going on.”

Aside from fuel prices and maintenance costs, Bagnato also pointed to growing environmental awareness as potentially another factor that augurs well for the future of turboprops. “We are not to forget that after the Kyoto protocol, the sensibility of the people to noise and emissions is increasing,” he said. “It’s not today the main driver, but you’ll see in the future it will be.”

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