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It appears the commercial aerospace world has coalesced into two camps.  We have called these the big and small duopolies.  However the line between these two is growing blurry.  This was something we first heard from Embraer’s John Slattery in February, when he described a world that was more nuanced than a split market might indicate.

What do these two segments look like?

As of 1Q16, there were 31,068 commercial aircraft in service.  The next chart lays out the share between the biggest players.  The “Other” category includes the OEMs in the smaller chart.  The big four account for 85% of the market. Continue reading

The huge backlogs Airbus and Boeing have for single aisle aircraft are well known.  Both firms have backlogs of about seven years at current production levels.  Both firms are talking about and planning to increase their production rates to bring down the backlogs. We think this bubble keeps building.

As readers know, we have been of the view that an order bubble exists and we are not alone in this view.  But this view is not held by the two big OEMs; they are confident that ordered aircraft will be delivered and production increases are justified.

What evidence can we offer to support our bubble thesis?  Take a look at the next two charts.  Start with the blue lines showing deliveries and then consider the orange lines showing retirements.  You would likely agree; retirements are relatively low compared to deliveries. Continue reading

In Part 2, we go up a segment to 101-200 sets, looking list prices and seat count.  This segment is where most commercial aircraft are sold, with the 150-180 seat sub-segment being the sweet spot. Up until June this year, the segment has been the exclusive preserve of the big duopoly. This segment has been the traditional play ground for Airbus and Boeing; it is where their “bread & butter” models compete.

However, in June when SWISS takes delivery of their first CS100, the playground grows.  As the chart illustrates, the segment could have been defined differently – we might have started at 120 seats.  Traditionally there was a “no man’s land” between regional jets and mainline jets.  Typically the 100 seat marker was the watershed.  The arrival of the CSeries and E2 shake things up.  The CSeries is buying its way in at steep discounts because it is truly a new aircraft.  The E2 is a refresh and will build on a customer base with over 1,000 E-Jets in service.  Embraer may find though, that this foundation does not protect it from also offering aggressive pricing.  As Bombardier and Embraer enter the mainline arena, they are about to face a considerably nastier market environment. Continue reading

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