FLUG REVUE June 2002: Regional airline manufacturers face hard times

REGIONAL JET MANUFACTURERS SEEK STRATEGY FOR THE FUTURE

By Volker K. Thomalla

Fokker and Saab are history, so is the Avro family of regional jets. And the Chinese 100-seater, which many manufacturers dreamed of realising, is turning into a never-ending saga. Fairchild Dornier's insolvency move is only another proof of just how difficult the market really is for regional aircraft.

For some time regional aircraft seemed to be a good entry ticket for the development of a national aerospace industry. Brazil, Indonesia and Argentina all attempted to follow this route. Only the Brazilians succeeded. Embraer is today in one of the leading manufacturers in the segment, accounting for a large proportion of the south American state's exports.

For many years the regional jet market was characterised by a broad diversity of types. Until ten years ago, experts were agreed that this market would be a pure turboprop market. The success of the Canadair Regional Jet changed this view of things, passengers now prefer jets and the types specially developed for this market segment satisfy all the requirements for economic operation.

But no one knows exactly how big the market really is. The forecasts assume that huge numbers of 50- to 100-seaters will be required over the next 20 years, but whether they prove true is uncertain. Further consolidation seems unavoidable. But what form this should take is not clear. This too is illustrated by the example of Fairchild Dornier.

For Fairchild Dornier there are only three survival scenarios: a) either Boeing or Airbus acquires a financial stake in the company, b) Bombardier steps in at Fairchild Dornier, and c) the company finds new, independent investors to rescue the company. Each of these scenarios has arguments in its favour.

Boeing and Airbus could sensibly extend their product portfolios downwards by adding a family of regional jets. Their own products, the Boeing 717 and the Airbus A318, are not really typical regional jets. But the two giants are cautious. In Chicago they can still remember the nightmare adventure with De Havilland Canada, which once belonged to Boeing. And as for Airbus Industrie, whose majority shareholder is EADS, memories of the Dasa-Dornier debacle have not faded either.

On the other hand, if Bombardier were to purchase Fairchild Dornier, it could sensibly extend its range of products upwards. The Canadian conglomerate had seriously considered developing an aircraft family of its own some years ago, and its experiences of taking over insolvent or virtually insolvent companies Learjet, De Havilland and Shorts, were positive.

The third option, that Fairchild Dornier survives as an independent company with new investors, does not seem likely. For if a well-known company like Allianz cannot (or did not want to?) prevent the company from edging its way towards insolvency, then who can? The amount of effort and expense required to develop, certify and produce a regional jet is not much lower than for a large passenger aircraft. But regional jet prices are much lower, so that a manufacturer must have an extremely lean cost structure or it will not be able to survive against the competition.

If all three options fail, then it will almost certainly signify the end of Fairchild Dornier. Then Embraer would at least temporarily be the market leader, as the only manufacturer of a complete family of regional jets. But in that event, consolidation of the market would have overshot the objective. The airlines can live quite happily with two competitors in the market, but only one supplier in a monopoly position would definitely be too little for them.

From page 4 of FLUG REVUE 6/2002

Last updated 2 May 2002

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