There are two sources for regional jets from Western sources.  Embraer and, until recently, Mitsubishi.  The latter has shrunk away from the market.  Now what?

Mitsubishi

The Mitsubishi SpaceJet program has been plagued with upsets from the start.  It has suffered over a decade of delays, critical design rework, numerous organizational resets, and, critically bad market assumptions about the US Scope Clause.  The airplane itself is not without merit.  Mitsubishi was the first OEM to select the GTF.  The airplane, when we viewed it, was impressive.  The flight deck was spacious and the level of detail impressive.  What you would expect from Japanese engineering.

The SpaceJet’s problems were not engineering, but just about everything else.  Among their challenges were certification know-how, production, and production support.  Arguably, the sizing of the Spacejet being the most glaring problem.  Mitsubishi would have been so much better off going with the 110-seat model from the get-go.  Hindsight is 20/20 vision.

Putting the SpaceJet on pause is overdue.  How the OEM now handles the deposits from firm orders becomes another financial burden it does not need.   The most recent order from Mesa Airlines turns out to be as amusing as it seemed when announced.   But perhaps this is the wrong time in the cycle to find amusement.

What is not being spoken about though is that Mitsubishi is not leaving the market.  Its Canadian operations, MHI RJ, supporting the CRJ line is expanding.  Yes, they are hiring people for their two US-based facilities.  Mitsubishi is doing what Bombardier could not, which is to fund the CRJ support system adequately.  This action is going to do a lot to restore confidence in the brand among the most important people of all to Mitsubishi – operators.  Including Mesa.

With a strong and stable network in place, a re-think on SpaceJet becomes a lesser concern.  Customers with firm orders probably don’t want deliveries anyway.  No airline is rushing deliveries of anything.  This is as perfect a time as any to do a program rethink.  Mitsubishi can do this while it shores up CRJ customers in the field.  While many 50-seat CRJs are being retired, it is the larger models like the CRJ-900 that Mitsubishi is focused on replacing one day.  Supporting the CRJ-900 gives Mitsubishi an insider view on the state of that fleet and when the optimal moment would be to start replacement talks.  There are about 700 aircraft (50/70/76 seaters) that will be retired over the next 10 years. Given the MRJ situation and, considering normal ramp-up time, Mitsubishi could lose on the replacement wave. Unless the MHI RJ team has something in the works.

Bear in mind that whereas the SpaceJet was a cash drain on Mitsubishi, the CRJ program is a revenue center.  In the current environment, rational management focuses on the revenue center and stops the bleeding in the former.

Embraer

At first glance the news about SpaceJet is excellent news for Embraer.  In normal times this means a monopoly on orders and a perfect time to firm pricing as competitive discounts disappear.  But these are not normal times.

Embraer is suffering from the same delay pushbacks as all the OEMs.  So, there are no orders to get excited about.  Price firming is a fantasy.   Besides Embraer has a lot of focus on moving previously owned aircraft to new operators.  They have been successful with, for example, moving aircraft to Alliance in Australia.  This was a big win during a tough time making any kind of win.  Embraer has had an especially hard 2020.  The Boeing deal collapse has caused significant disruption.  The competitive scenario now has Embraer facing Airbus, without anything like the resources or options to compete.  It is in competing with that Embraer needs to make an ROI on its latest models, the E2.

The military side of Embraer does not have a strong enough domestic customer base to keep it afloat.  The company’s deep talent pool will atrophy unless they have new projects to keep them busy.  The recent public display of this image was cute.  But note “For illustration only”.

If Embraer decides to go back into the market, they face off against two established competitors.  It has been a long time since Embraer last sold a turboprop.  Besides, Embraer likely needs a partner to undertake such a program.  This is not as attractive a market as it might appear.  The hurdles are big and the resource requirements appropriately demanding.  Does Embraer have the resources?  People wise yes, but probably not the funding.

Despite its enviable reputation for program development, who has the stomach to invest in aviation now?  Any investor would be wise to wait because the price will come down.  As we saw this week with the deal between Bombardier and Spirit.

That Embraer wants and needs to signal to the market that it is viable and robust is understandable.  Boeing also sent a signal this past week about a new airplane.  Does anyone think this is real?  Not too many we have spoken with. We fear the Embraer picture falls into that same category.

Embraer shared this with us: “No decision has been taken of course but we are firmly looking for partners in the market to fund the program and make it real.  And there have been a number of countries willing to develop its own aeronautical industry, really interested in the program.”

The regional jet market has seen some fundamental changes in 2020.  While everyone saw Embraer as the uncontested leader in the market through February, that has changed now.  The confidence in Embraer has eased post the failed merger with Boeing.  Whereas Mitsubishi was stumbling and weak, we now see maybe not.   Besides, MHI RJ and MITAC have a parent that can handle the current severe downturn.  Embraer does not have such a  parent.

In Embraer’s defense, in the regional jet market, they are perhaps a decade away from strong competition from Mitsubishi in the form of a new aircraft. Considering the time Mitsubishi might require to resume the SpaceJet program, certify it (much more difficult after MAX), start producing and ramping up. A decade of a less competitive regional jet market for Embraer could be a game-changer.  What is MHI RJ doing in Canada? They are awfully quiet.

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