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FAIRCHILD DORNIER CANCELS 428JET PROGRAMME

After an in-depth "face reality" review of all of the company's activities, chief executive Chuck Pieper was in no doubt as to the course of action that was required. "The 428JET programme, although technically on schedule, is not economically viable," he announced on 8 August. Instead of investing further millions of dollars' worth of scarce resources in the stretched 328JET, the board of Fairchild Dornier has therefore decided to concentrate on the more promising 728JET and 928JET projects.

At first sight the abrupt termination of the 428JET programme is surprising since the manufacturer already had orders in hand from Atlantic Coast Airlines (30 firm orders and 55 options), Skyway Airlines (5 firm orders) and Air Alps Aviation (5 firm orders plus 3 options). It was only at the beginning of June, at the Berlin air show that the Austrian airline signed a contract.

But these orders were evidently not enough, as Fairchild Dornier has meanwhile downrated the market prospects for the 428JET. "The market has changed in the last year," explained Chuck Pieper. "The American airline industry has undergone consolidation, resulting in many orders being placed with only a few companies." Moreover, the recent agreement between pilots and management of the national carriers means that feeder airlines can now operate 50-seat jets as well. The result is that the 428JET would now have to "compete with established models like the ERJ-145 and CRJ200. This would increase the pressure on prices," according to Pieper. "Taken together, these factors have significantly skrunk the expected profit margins."

But lower profit margins would have been highly risky for Fairchild Dornier since, unlike its other programmes, the 428JET did not have any partners who would have borne their share of the costs. On top of this it became apparent that the development costs had been considerably underestimated. The modifications required to the baseline 328JET were more extensive than had initially been appreciated.

Another factor contributing to termination of the programme was staff shortages at Fairchild Dornier, as a result of which the company had been forced to sub-contract a high proportion of the work to Israel Aircraft Industries. Originally the plan was that IAI would provide development support and handle the certification process. But last September the scope of work to be undertaken by the Israelis was expanded to include design and manufacture of the fuselage and final assembly. Only internal cabin finishing would have stayed in Oberpfaffenhofen.

It is Israel Aircraft Industries which thus emerges the real loser from cancellation of the 428JET, as the volume of work which was to have come its way was estimated at over DM1.2 billion ($550 million). Whether it will seek compensation is not yet clear. One possibility is that the Israelis might play a greater role on the 728JET and 928JET programmes.

The airlines concerned will no doubt have little problem finding a replacement for the 428JET, especially as deliveries were not planned to commence before the end of 2002/start of 2003. Atlantic Coast Airlines has already responded by placing additional orders for Bombardier's CRJ200.

Fairchild Dornier now faces the task of containing the loss of image. The cancellation decision may well make marketing of the 328JET more difficult. Potential customers may now be deterred by the absence of a larger family member when planning their fleets, whereas, for example, Embraer offers no less than three models in the 35- to 50-seat range.

On the positive side, it has not been necessary to make any staff redundant. "All our available resources will now be used to support the 328 and the 328JET and the 728JET and 928JET development programmes," explained Chuck Pieper. Just keeping up with the schedules on those projects will give them plenty to do. KARL SCHWARZ

From page 34 of FLUG REVUE 10/2000