The CRJ550 – context considering the possible Mitsubishi acquisition |

As we await the “big news” set for Monday, June 17th at 14:30 (probably the biggest news for the show), there are is one item that must not be forgotten. That is the revised CRJ700 to CRJ550 set to be delivered to United Airlines before year-end. Let’s start with this table. Here we have the active CRJ700s in US service. These three airlines represent about 73% of the world fleet. United liked the argument made by Bombardier to solve its scope clause limits. Essentially the airline could deploy 50 reworked CRJ700s configured into a three-class LOPA. This enables United to retire some older CRJ200s. The move has already impacted the market, with CRJ700s being sought all over the world. There are about 350 extant. However, since the CRJ550 announcement, the market has changed. Bombardier is in exclusive negotiations with Mitsubishi for the latter to acquire the CRJ program. Mitsubishi wants the CRJ talent pool, not the aircraft. But there is going to be some significant amount of time before the revised MRJ70 is ready for delivery. Bombardier’s Alain Bellemare has used the word “partnership” – so we have an interest in seeing how the CRJ/MRJ deal breaks down. Here’s a more recent tidbit to titillate. You can see why that Monday session is going to be big news. That means United’s disruptive move continues and the downstream impact will roll on. What does United hope to achieve? The most obvious target is revenue. The regional jet market in the US is moribund. Something is needed to dislodge the scope clause limits and creativity is the way around it. Regional passengers start (and end) trips in secondary cities. Typically, this means a first and last leg using a 50-seat regional jet to and from the nearest hub. The current 50-seaters are aging – and regional jets get tired faster than bigger aircraft because of their high number of cycles. The optimal solution is to recycle a larger regional jet, open the LOPA and create a higher revenue opportunity. If an airline can offer the market, from a secondary city and back, a real premium seat, that market will respond. This has worked among the majors as they developed three-class service on single aisles. The idea works. United is the first to see the opportunity in the regional market. The key here is the first mover advantage. If a customer wants a better ride and is willing to buy up, s/he is going to move revenue to United. Which means away from American and Delta. Until they try to match the product. Game theory writ large. The CRJ700 has operating costs that are higher than the CRJ200 or ERJ145. But the revenue opportunity more than offsets this. Move one passenger per flight to a premium seat and the annual revenue impact quickly goes into the millions of dollars. The case for the CRJ550 isn’t in range or operating costs. After all, they are taking out seats from the CRJ700. The big driver here is that new revenue. Back to Mitsubishi. If Mitsubishi wants the CRJ talent it will likely have to buy the package. After all, Mitsubishi needs customer relationships, too. Having United as a built-in customer is wonderful. Especially when one considers United’s significant ties to Embraer. The CRJ550 offers Bombardier a way to recycle the CRJ700s into a better revenue performing tool. Mitsubishi gets to acquire this, and the attendant relationships listed in the table above. Incidentally, it is interesting to note the MRJ70 as we know it now will not be scope compliant as a 50-seater at United where there is a 65,000lb weight limit. The airline industry remains highly competitive and can be expected to react - American and Delta are not going to United a penny without a fight. So the other CRJ700s are likely to also get tweaked.

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