The 100 seat aircraft market is undergoing a transition, as Sukoi, Embraer and Bombardier all have new aircraft available in that size category. At the same time, several aircraft types are aging dramatically or economically challenged that need replacement. And when new aircraft meet operator needs, sales should occur. What have we seen and what can we expect from this market?
The replacement aircraft candidates include the A318 from Airbus, the 737-600 and 717-200 from Boeing, the Fokker 100, and the BAe146/Avro RJ family. At the end of the second quarter 2017, there were 657 aircraft from these models still in service, with an average age of 21.5 years. Clearly, replacements will soon be in the works.
The table below shows that 516 aircraft are flown by the 47 carriers with a fleet size of 4 or more aircraft.
Seventeen airlines have a fleet of 10 or more aircraft in this category that need replacement and account for 359 of those aircraft. These are clearly the priority targets for the OEMs. In examining the fleets of these airlines, many have already made their new aircraft selection while others are likely to invite competition over the next year or two.
Management running marketing for the three OEMs no doubt have sales teams focused on Australia and Iran, each of which has substantial opportunities for fleet renewal. Let’s look at the largest carriers and opportunities.
Delta Air Lines is the 900-pound gorilla of this group, with 91 Boeing 717-200s, which it has already decided to replace with the Bombardier C Series, for which it has ordered 75 plus 50 options.
Next in size is Cobham Aviation in Australia with 20 717s and 10 BAe/Avro RJs that will need replacement. While its 717s are nearly 15 years old, the remaining aircraft average over 23 years old and will soon be in need of a replacement. This could be a two-tranche order for 10 in the next year or so, plus another 20 five to ten years later. We would suspect that Macquarie Leasing in Australia has targeted these folks as a potential customer for their C Series positions.
Hawaiian Air is next in size, with 20 Boeing 717s. The carrier is apparently quite satisfied with the aircraft, which average 14.4 years of age, and should remain in the fleet for 6-8 more years before replacement. Hawaiian moves to the back burner.
Air France operates 18 A318s. With the Airbus acquisition of the C Series, there is an opportunity to replace these less efficient aircraft, but they average only 12 years of age. This also looks like a 6-8 year opportunity.
Alliance Airlines in Australia, a Virgin Australia feeder, operates 18 Fokker 100s that average 26.1 years of age. These aircraft will be due for replacement quite soon, and present another in country opportunity for Macquarie Leasing.
Avianca Brazil operates both A318s and Fokker 100s. While the 12 A318s are young, at 9.3 years on average, the 6 Fokker 100s average 25.3 years of age and need replacement. This looks like another potential two tranche order scenario with 6 now and 12 later. Geographically, we would expect Embraer to have the inside track. But Avianca is a loyal Airbus customer, potentially giving the C Series a chance.
SAS operates 18 737-600s. Those aircraft average 18.4 years of age, and will soon be replaced by A320neos beginning in 2019. Might SAS decide that smaller airliners are still needed in its regional network?
Iran Aseman operates 17 Fokker 100s that average 23.7 years of age and needs replacement. While economic sanctions have been lifted for aircraft, the threat of a potential reinstatement looms for Iranian airlines, whose access to key aviation capital remains politically restricted. There is a strong opportunity here for Sukhoi should the Pratt & Whitney GTF engine that powers the E2 and C Series become subject to additional sanctions. Iran overall offers big opportunities because its fleet is so old.
Network Aviation operates a fleet of 17 Fokker 100s as a Qantas regional subsidiary based in Perth. With a fleet averaging 24.4 years of age, fleet replacement is likely in the near future as the Fokker 100s become increasingly uneconomic. Another Macquarie opportunity?
Volotea Airlines, a Spanish low-cost airline operates a fleet of 17 717s that average 13.8 years old. This appears to be an opportunity five to eight years from now, as the fleet remains young and fuel prices remain low.
Mahan Air in Iran operates a fleet of 16 BAe and AvroRJs that average 23.6 years old. These are candidates for replacement, pending political sanctions on capital and aircraft transactions. As mentioned, Iran is a big opportunity.
Citijet, based in Ireland, offers code-share and wet lease services to several major airlines in Europe. It operates 15Avro RJs that are scheduled for replacement by Sukhoi Superjets over the next 2-3 years.
Iran Air operates 15 Fokker 100s that average 24.1 years of age, and will soon be candidates for replacement, pending financial and aircraft sanctions. The airlines in Iran represent a significant potential, as their fleets are quite old and need rapid replacement.
Virgin Australia Regional, formerly Skywest, operates 14 Fokker 100s that average 24.6 years of age, and will soon be due for replacement. Another Macquarie opportunity?
WestJet, a Canadian low-cost carrier, operates an all-Boeing fleet including 13 Boeing 737-600 models that average 11.5 years of age. While these aircraft are economically inefficient compared to new technology, WestJet’s focus on commonality and a single aircraft type will be difficult to break. Nonetheless, there may be increasing political pressure in Canada with respect to their replacement in five to 10 years. Boeing has nothing to offer in the size, as Delta has pointed out. Meanwhile, the airline is now a Bombardier customer as it operates Q400s.
Braathens Regional, a Swedish regional carrier, operates 12 AvroRJs averaging 22 years of age and has selected the Bombardier C Series as a replacement, with 10 CS100s on order, with 10 options, to replace them. But there seems to be no rush to take deliveries.
Avianca, based in Colombia, operates 10 A318s that average 12.5 years of age. The Avianca-TACA group will likely order the same aircraft type for multiple operations, and currently are strong Airbus operators with A320 family aircraft. Avianca currently operates 12 Embraer E190 aircraft, and given its Latin American geography, we believe the E190-E2 has a potential advantage when the A318s need replacement during the next decade. As pointed out above this will be a classic Bombardier vs Embraer tussle.
Are there some quick wins for Embraer, Bombardier, and Sukhoi, all of whom could use additional orders to boost their programs? We believe so, and that Australia and Iran offer the quickest opportunity for success. Economic sanctions in Iran could benefit Sukhoi, while the competition in Australia is wide open.
Great research on that article. Well done! Thank!
Sorry Ernest, almost none of the Australian operators are candidates for a new 100 seater. The F100 operators (Network, VARA and Alliance) all primarily service the mining industry, which is not worried about fuel costs and more about reliability. So Alliance grew by adding an extra F100 each time they got a new contract, and likewise with the others. Their fleet utilisation is usually between four and eight hours a day, so the low ownership costs overcome the higher operating costs, and they have a lot of time for the mechs to work on them. In the case of Alliance, they also bought out Austrian Airlines’ fleet, and so have spares and engines to last them potentially for the next 10 years. Cobham are also wed to the Avro RJ/BAe 146 as they fit them with gravel kits and use them on rough runways.
More likely, the Aussie carriers will turn to the 100 seaters already in the market once their values reach the tipping point. F100s for $4 million a piece are hard to beat, but once E190s get below $10 million, they may be a tantalising prospect. A $20-$40 million new jet? Forget about it.
That’s not to say that there is no likelihood of sales – Qantas will eventually need to replace its 717s and additional frames of those are hard to come by. As a full-service carrier, they can justify the trade-off between capital cost and operating cost better as they will utilise them much more. But even then, I think that any competition is at least five years away.