One frequently hears the 100 seat segment is gone. Airlines are up-sizing we are told. And depending on the segment, we hear an equal number of arguments that airlines are right sizing. It seems the truth is somewhat hazy – don’t take as the final word somebody selling aircraft. They have a job that requires selecting the argument to support the deal in play.
Now take a look at this interesting story from Bloomberg. Throughout the story there is a thread – the 100 seat market has not gone away at all. We see airlines that use and seek these aircraft, specifically the 717, and they want more. And its not just the 717, Embraer is talking about production increases. Embraer is looking at the popularity of its E-175 in the US as well as other larger models beyond the US. The market from 76 to 100 seats is quite active it seems.
Airbus and Boeing have nothing to offer in the segment. Airbus has not had an A318 airline sale in some time. Even though Boeing owns 103 717s, it offers nothing newer.
Our takeaway from this is that the 100 seat segment is more robust than many believe. Embraer ‘s order book speaks for itself as does the second had value of 717s. The market is also waiting for the CS100 to get going. As the E2 and CS100 catch their stride we expect to see the 717 fade.
Yes, the 717 shuffle between SouthWest/AirTran and Delta was just a stop-gap measure to wait for “what’s next” (wait for more possibilities like cheap/used A319s or wait for CS100/300 in service performances/EIS data). Allegiant is starting to move into Airbus world (from the MD-8x). So, a lot of stop-gaps in place. And lots of manufacturing capacity coming online for Bombardier. My Bombardier shares have been crushed lately but I stick to them (I’m still far from retirement) because I believe that not having jumped on the “gazillion plane orders” very early in the program (and sell at crazy discounts) was the right thing to do. Once they start cranking out those planes, I’ll want to see more orders to make sure they always have at least 2+ year backlog (which they certainly have now). And I have little doubt they will be able to maintain (a catalist would be if the WTO does something about those crazy plane discounts/dumping to kill off competition from new market entrants like Bombardier). The timing might be perfect. When you look at AirCanada shedding half their Embraers and keeping the other half because those ones are too young (and to delay a decision on something like a CS100), you can imagine where this is going when they shed the second half in the coming years. Their A319s are all going to AirCanada Rouge. The way I see it, all the pieces are aligning up. Well, I hope.