Bombardier’s regional aircraft market to heat up

Analysts foresee an order resurgence from US airlines.

June 11, 2012   by CANADIAN PRESS

MONTREAL: A lull in regional aircraft orders won by Bombardier Inc. may be nearing an end as demand is expected to heat up from US airlines, industry analysts said.

The Montreal-based manufacturer last year received orders for only four regional jets and seven Q400 turboprops.

So far this year, orders have rebounded, with WestJet Airlines leading the six customers that have placed 43 firm orders and 57 options.

The Calgary-based carrier has ordered 20 turboprops to launch its regional service and has options for 25 more aircraft.

Orders have also come from Horizon Air, Garuda Indonesia, Ethiopian Airlines, Eurolot and RwandAir.

“The regional aircraft order outlook is shaping up better than expected,” says Cameron Doerksen of National Bank Financial.

He foresees an order resurgence from US airlines as the large American market is showing signs of life for the first time in years.

Orders are being driven by the need for carriers to replace aging 50-seat jets and high fuel prices that have made routes using those smaller aircraft unprofitable, said Bombardier spokesman Marc Duchesne.

“As North American carriers continue to regain financial strengths, the inefficiency of their aging fleets will be the Achilles’ heel of their long restructuring efforts,” he said.

“Fuel-efficient Bombardier aircraft with great operating economics will undoubtedly be favoured in the next fleet renewal cycle.”

The company’s Brazilian rival Embraer has recently indicated that it is in talks with five carriers for as many as 500 new regional aircraft orders and Doerksen says Bombardier is likely speaking to the same airlines.

Among the potential buyers are Delta Airlines, SkyWest Airlines, American Airlines and US Airways.

Doerksen said the potential order opportunity from SkyWest is “enormous.”
That regional service for several major airlines is the largest operator of Bombardier-built aircraft in the world. It flies CRJ700 and CRJ900 planes and no Embraer E-170 and E-190s.

SkyWest is seeking to replace a large portion of the 512 50-seat jets it operates.

“If Bombardier were to win a sizable order from SkyWest, it has the potential to support a higher production rate for both CRJs and Q400s for a multi-year period,” he said.

Air Canada could also order more smaller planes if it wins scope relief as part of an arbitrated labour settlement with pilots, Doerksen added in a report. Scope clauses limit the number and size of aircraft that can be contracted out to a regional airline, such as Chorus Aviation (TSX:CHR).

More Toronto-assembled Q400s could be ordered if Chorus exercises 15 options and Garuda adds turboprops to its fleet.

The Russian market also holds promise for new and used aircraft since Bombardier recently received type certification for the Q400 in that country.

Doerksen expects 53 regional aircraft deliveries in 2012 – 23 CRJs and 30 Q400s – down from 78 in 2011. Deliveries should rebound modestly to 65 in 2013, but could be higher if it wins any of the possible large-scale orders, he added.

Any such increase would lead to a rebound in production rates and help margins.
Walter Spracklin of RBC Capital Markets also says the order potential is heating up, with SkyWest burning brightest on his gauge of potential buyers.

He said the order of 100 to 200 planes will likely be split between Bombardier and Embraer, with ATR having an “outside chance” of winning turboprop orders.
Orders could be place in the second half of the year with deliveries through 2018-2020.

He also says a Chinese airline, EgyptAir, Singapore’s Silk Air, Illyushin leasing, AtlasJet of Turkey and EastJet could potentially place orders for the new CSeries.

“We expect increased sales and marketing activity heading into the Farnborough air show in July to raise the prospects that a sizable order could be announced for Bombardier.”

Spracklin said a CSeries order from a Chinese or Middle Eastern carrier could be announced along with “sizable orders” from emerging and developed market carriers.

Meanwhile, Bombardier confirmed that it submitted a proposal June 1 to the Moroccan government for approval to build a $200-million manufacturing facility in the Nouacer zone near the Casablanca airport.

Entry into the zone allows Bombardier not to pay taxes for five years, followed by a rate of 8.75% for 20 years.

“We did submit an application to the government for the free zone there but…we still have not signed any agreements for land or anything like that,”said Haley Dunne, another Bombardier official.

Construction will begin later this year, with manufacturing to start in 2013. It is looking at small simple structure assemblies like floor sections, panels and flight control services.

© 2012 The Canadian Press

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