RJ builders flirting with the big boys

Paris Air Show » 2005
December 12, 2006, 9:17 AM

The chasm separating the realm of full-size airliners and regional airplanes has claimed another victim, swallowing the Boeing 717 as surely as it did the Fokker 100 and British Aerospace 146/Avro RJ. So who, you ask, would dare tempt fate again? All signs point to Canada’s Bombardier.

Now that it has officially sounded the death knell for the 717, Boeing has made it clear that it no longer wants to dabble in anything smaller than its 737 line. As for Airbus, the 131,000-pound-mtow A318 comes closest to filling the gap, but the relatively heavy 110-seat jet exists as more of a complement to the A320 line than a serious competitor in its own right.

That leaves Brazil’s Embraer and Bombardier, both of which have spent the better part of a decade fighting for 50- and 70-seat regional jet sales. Now, as the market for smaller jets saturates, the Western world’s last two RJ makers have little choice but to explore new frontiers–Embraer with its 98- to 108-seat 190/195 and Bombardier with its 110- to 135-seat C Series. But skeptics question how far they can go without stumbling into the no-man’s land that claimed so many before them.

Embraer appears to have kept a safe distance so far by holding the line at 108 seats in its four-seat-abreast 195. Bombardier, meanwhile, has taken aim at a self-defined “sweet spot” within which it believes neither Embraer nor the big two manufacturers hold a heavy stake. But with the A318 and the 737-700 in the same seating category as the bigger Bombardier airplane, the company can’t deny that it will encroach on the bottom of Boeing’s and Airbus’ territory.

Ever since Boeing swallowed the last remnant of McDonnell Douglas’ civil aircraft business, conventional wisdom has held that anyone with the nerve to challenge the airline industry’s two remaining manufacturers would more likely than not fail miserably.

The reasons vary, but one certainly lies with the perception that perhaps Bombardier and Embraer don’t possess the technical expertise to challenge companies with such long histories of research and development and access to big-budget military technology. The second centers on the proposition that they don’t control sophisticated enough supply and logistics chains and the accompanying business relationships to compete in the major airline market. The last and perhaps most convincing reason centers on the sheer amount of money needed to compete with the goliaths of aerospace.

‘Dumb’ Metals

“You know, you can fake it doing dumb metals for RJs, but when you get into the big leagues you have to get a bit more technically tricky to distinguish your product,” said Teal Group analyst Richard Aboulafia. “Number two, and probably the 800-pound gorilla, is raising the capital. That’s huge, especially for Bombardier. Investors don’t want to know.”

When Bombardier first began talking about its idea for the C Series, many thought it would present a chance to introduce an all-composite fuselage, á là Boeing’s 787. But once it became apparent that the costs would simply prove too high, Bombardier Commercial Aircraft president Gary Scott scrapped the idea in favor of a more traditional metal tube, a change that will place much more of a burden on the engines to meet the company’s 15-percent direct operating cost savings over other offerings in the same category. Today’s plans call for a composite content of around 20 percent of the airplane’s weight, appearing in part of the center and rear fuselages, tailcone, empennage and wings.

Taking on ‘Downsized’ 737s, A320s

But regardless of its technical attributes, the question remains, can the 130-seat version of the C Series draw business away from Boeing and Airbus? Scott thinks it can among airlines whose needs don’t extend into the higher capacity reaches of the 737s and A320 families. “If you look at what is serving this market segment today, it’s downsized 737s and downsized Airbus products,” he said. “If there’s a market designed for this segment today, it’s the [now defunct Boeing] 717.”

That said, Scott insists that the bulk of the C Series market exists outside the purview of Boeing in Airbus, and that its target sits squarely between today’s regional and mainline platforms.

Of course, Bombardier’s competitor from the regional sector sees things differently. “When you talk about a niche of 110 to 135 seats, this is just not real; it is not there,” said Embraer commercial vice president Fred Curado. “If you look at the 135-seater, this is an A319; this is the 737–not the -600, but the -700–this is the airplane; it’s the core of the Boeing and Airbus narrowbody family. So to put yourself in the position to bring a new product into the market by 2010 to compete with the A319 and the 737-700, and knowing that Boeing is launching a replacement of the 737 probably some time soon after that…it is not on our agenda to do that.”

Embraer Lays Down Gauntlet

Curado also took issue with Scott’s assertion that a lack of transcontinental range, four-seat-abreast cabin, smaller overhead bins and field performance limitations place the Embraer jets in a lesser category than the smallest C Series. “By [Bombardier] bringing a family into this market if they ever do, we will compete head-to-head with the 110-seater with the 190 and 195; there’s no question about it,” he said. “There’s no illusion on our side and there’s no illusion on their side.”

All illusions aside, market projections, no matter how accurate, can only measure an airplane’s potential success. Of course, the hardware too must meet expectations. Bombardier’s cost goals require an engine more efficient than any that exist today in the needed 23,000-pound-thrust class. But by the time the Bombardier board had issued authority to offer the airplane in March, neither of the two engine competitors–International Aero Engines and CFM International–had committed to the project.

Scott wants a completely new engine. Both CFM and IAE have flatly rejected that possibility, while partnership clauses prevent GE and Rolls-Royce from building engines in the thrust range needed for the C Series. That leaves Pratt & Whitney, which has offered a version of its PW6000, an engine Scott has already said couldn’t meet Bombardier’s fuel burn requirements.

“The product itself is poorly thought out on so many different levels,” said Aboulafia. “Probably the worst thing about it is if Canada spends all the money on this and Boeing and Airbus produce composite narrowbodies in five or six years, we’re looking at the end of Canada’s aerospace industries as we know them.”

More measured in his assessment, Velocity Group partner Doug Abbey preferred to withhold judgment until Bombardier unveils the final product. “In theory, the world will beat a path to your door if you’ve got a better mouse trap,” said Abbey. “Does it have to be the avant-garde airplane? I mean, does it have to be the technological move forward? That’s not generally how major carriers around the world work.”

Abbey also seemed more sanguine than others about the airplane’s ability to compete with Airbus and Boeing. “I’m not concerned about a smaller Airbus,” he said. “I think the A318 has proven the value of those. If Boeing’s going to produce a new-generation 737, that’s potentially problematic, but should not be a show stopper for Bombardier.”

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