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This morning United Airlines announced an order for 30 E-175 aircraft, plus 45 options.  Deliveries are set for 2014 and 2015.  The image below is what the airplane is set to look like when it enters service.

4-30-2013 11-38-00 AMWith winglet gives this away as the enhanced E-175.  Some issues are worth noting.

  • Once again we see an airline focus on the newest models.  Recall Garuda bought the CRJ over the E-190 because it was the newer airplane with better economics.
  • Bombardier’s CRJ lost this order for probably the same reasons.  Embraer was shocked at the Garuda loss.  This deal is probably due to concerns by United’s frequent flyers that the CRJ is simply not as comfortable as the E-175, which has significantly more room.
  • Leapfrogging can be expected to occur again, and will, with the larger CSeries, which is a different category of airplane.  But the tradeoff between lower operating costs, for which Bombardier has the advantage with the smaller airplane versus comfort, for which Embraer has the advantage, will remain the competitive battleground in the 70-100 seat category.
  • Consolidation in the USA means each order becomes more attractive because it is bigger. But it also means losing an order has a scary downside.  Missing out on an order wave could put an OEM or an aircraft program in jeopardy. Buying cycles in the new environment makes getting a good share of big wins almost mandatory to stay in the business.  Delta and American are both pondering new airplanes in this category.  The same is true for airlines overseas.  The jury is still out, and the competition is tight in the 70-90 seat class.

Consolidation in the USA also means a tougher environment for both labor and passengers.  Passengers are seeing a steady rise in fares. But labor has it worse, especially for pilots, who fear the growth of the 76-seat airplane over the 50-seater leading to more jobs to regional airlines.  Its the old mainline vs regional scope clause argument.  With both Embraer and Bombardier producing aircraft that seat over 100 passengers, will these new airplanes go to mainline or regional pilots.  Pilot unions are aware of the squeeze they face and want to retain every job they can for mainline operations. Despite the looming pilot shortage, pilot unions have valid fears.

Economic power has moved towards airline management in a compelling way.  Airline management is unlikely to let this power slip out of their hands any time soon.  This means lots of new negotiating styles.  OEMs and labor now face an emboldened airline management group in the age of mega-carrier consolidation.

Huge orders are a siren song for OEMs – they are must wins every time.  If Embraer is able to hold off Bombardier at American and Delta, Bombardier’s CRJ product line will face a tough environment.  Both OEMs know this and will aggressively fight for every order.   This is good news for airlines, who will get deals on regional airplanes at prices they have not seen in a long time.  Keep watching, as this battle will get interesting.

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