Embraer’s E-Jets are coming to United Express, after the airline ordered 30 plus 40 options. Deliveries are slated to arrive in the second quarter of 2014.   The E-175 aircraft will be fitted to seat 76 passengers, the current limited under the scope clause in the pilots union contract.

The enhanced E-175 will provide significant improvements over the current E-175.  Embraer speaks of the airplane’s new wingtips, systems optimization and aerodynamic refinements that will lower fuel burn by as much as 5%. United Airlines expects their new E-175s to achieve fuel savings of 10 percent in comparison to the 50-seater regional jets they will replace.  The United order follows an order from American for 47 of the E-Jets.

Consolidation among the US airlines is making the competition fierce on competitive routes, but oligopolistic on non-stops.  OEMs and labor are not the only ones facing fewer options. Passengers can expect to see fares rise sharply after the third quarter 2013 as American Airlines and US Airways merger goes through.

Of the “Big Three” airlines left standing, Embraer has won business at American and United.  Bombardier won a competition at Delta.  The table shows the score today.

Embraer is clearly seeing growing interest in its updated airplane.  Bombardier won a competition at Garuda where its CRJ-1000 was competing with Embraer’s E-190. The loss came as a shock to Embraer.

Embraer had been reviewing its options in the 100-130 seat market after Bombardier announced its CSeries.  In facing a new competitor, Embraer had to consider its options: a new airplane (with a steep development cost) or re-engine and update the current model (cost effective and a faster turnaround).  Embraer decided on the second option. It is a less risky option and benefits from being able to offer a large consumer base a known product.

But with all the improvements, one aspect has remained largely overlooked.  Airlines have contracts with their pilots called Scope Clauses.  The clause is used by the union of a major airline to limit the number and/or size of aircraft this airline may contract out to a regional airline. Meaning the goal is to protect pilot jobs at the major airline from being eliminated by regional airlines operating larger aircraft.  The language airlines use when they talk about these orders is interesting – they point to 76 seats.

Major airline pilots have a right to be wary of the growth of regional airline flying. APA, the pilot union at American Airlines, notes “the large regional jet has changed the aviation industry in the United States. Other airlines have grown regional jet capacity by 140 percent since 2000, while domestic mainline capacity has shrunk by 35 percent.  More than 20 percent of all travel involves regional carriers. And among our network competitors, almost 25 percent of their total system capacity comes from regional jets.”

Major airline pilots are looking at the threat from larger airplanes in the hands of regional airlines from more than the seating capacity. This is smart because we have seen airlines discover ways to add more seats using clever cabin re-configurations.  For example Ryanair squeezes 189 seats into an airplane (737-800) that the manufacturer touts as normally seating 162. Facing such creativity means pilots should not focus their contracts on seating capacity, which is too elastic.

Unions cleverly have a clause in their Scope that limits regional airlines to flying aircraft weighing under 86,000 pounds MTOW.  Indeed 76 seats and 86,000lbs MTOW is the current “U.S. network carrier industry standard”.

The next table shows how the Embraer and Bombardier aircraft face off on this measurement.

Consider what happens when you update an airplane.  Embraer has yet to release any data on their enhanced E-175.  So we need to use a proxy.  For example the re-engined 737MAX is expected to have an MTOW 4% increase.  For the A320ceo to A320neo, MTOW is expected to increase 3%.  Using these re-engine programs as guides, we expect to see a re-engined E-175 have its MTOW rise.

The numbers in red are outside the scope agreements US pilots and airlines have. Even as Embraer is ahead in orders, it appears that the enhanced (certainly the re-engined version) E-175 will need to go on a diet to ensure the airplane fits into the current scope language.

While scope clause language can be changed, the pilots aren’t going to make concessions without an appropriate trade-off, which would likely result in economic impacts to both parties.  With aircraft from the two regional jet manufacturers now growing to more than 120 seats each for their largest models, the E-195 at 122 seats and the CS300 at a nominal 130 seats, future pressure may come to re-draw the line between regional and mainline operations.  While regional scope clauses certainly won’t rise to the 160 seats that the high density version of the CS300 can seat, the CS100 and E195 could be the next targets in future pilot contract negotiations to try and move the line from the current 76 seats to more than 100 seats.

As always, the Devil is in the details, and for the three US legacy carriers, by far the largest customers for regional jets, 86,000 pounds is the hurdle number today.  Until those contracts change, it looks like the new technology alternative from Embraer may need to be flown by mainline pilots.