Mitsubishi’s recent aerospace efforts show mixed results. The SpaceJet was fumbled pretty badly and cost the company a lot of money. The program is now in limbo. As a follow up to that program, and as a way to end a lawsuit with Bombardier, Mitsubishi bought the CRJ program. The latter move was smart. It created a revenue center and exposed a customer base to the Mitsubishi culture and resources. The focus remained on the regional jet business, and that had to be encouraging to CRJ operators as well as E-Jet operators who surely feared facing an Embraer monopoly.
The regional airline business remains the toughest place to trade in the US airline industry. But it is also a crucial part of the industry – it connects small communities to the large networks, it operates at low costs, and, more than anything else, it works well.
In the US regional airline market, the Bombardier CRJ started to see declining market share several years ago. Bombardier’s C Series took up so much of the company’s resources that its CRJ and Q400 programs suffered. The C Series turned out to be a winner – for Airbus, not Bombardier. The Q400 went to Longview Capital and lives on as the Dash8. The CRJ went to Mitsubishi and this is the program we need to look at. Because whatever Mitsubishi does next, it most likely starts with the CRJ program.
As of 3Q20, this is what the active CRJ fleet looked like.
The active CRJ fleet was 34% CRJ-900, 31% CRJ-200, and 23% CRJ-700. The CRJ-700 is amid a refresh as the CRJ-550 and launch customer United appears pleased with the result. The CRJ-200 lives on as a 50-seater but becomes less useful in the US and finds a second life abroad. The same applies to the Embraer 50-seater regional jets. A side question is what are regional airlines going to do to replace 50-seaters? There are about 900 of these still flying. The 50-seater segment serves an important role at the bottom of the market and there’s nothing “state of the art” for operators to consider. This is surely an opportunity.
The CRJ model with the most potential for a refresh in the US is the CRJ-900. There are 263 active CRJ-900s and 30 parked for the US market. Worldwide there are 401 active CRJ-900s and 57 parked. We think the CRJ-700 should be added and this potentially provides a market for over 700 aircraft.
As we have seen with the CRJ-550, the basic airframe lends itself to a cabin refresh. Indeed, Bombardier made a big splash of their own CRJ-900 cabin refresh in 2018. The program, now owned by Mitsubishi, is ripe for some tweaks. Whereas Bombardier could only afford superficial updates, Mitsubishi is in a whole different situation.
What might the most useful tweaks include? Given that customers need to operate an aircraft with the lowest seat production costs, the focus needs to be on weight reduction and improved fuel burn. There are other items like avionics updates that might be worthy of consideration. Bombardier was looking at a winglet tweak and a general drag cleanup near the end of their ownership. Whereas Bombardier lacked resources, Mitsubishi does not.
The most obvious place to start, in our view, would engines. The CRJ series utilizes the CF34, which dates back to 1982. The engine has over 80 million hours and is being proposed by GE for the re-engine program on the B-52. It is a workhorse. But for the CRJ-900 perhaps a re-engine could produce something novel.
The CRJ is rear-engined and that means engine weight becomes more of an issue than usual. The table above lists the current engine and two state of the art alternatives. The last column lays out the weight impact on a CRJ-900 from an engine switch. These engines offer slightly better thrust. Their dimensions differ; the Rolls-Royce Pearl is a lot longer and heavier which makes it less attractive. But the Pratt & Whitney PW815 appears dimensionally suitable and its weight impact is, happily, able to keep the CRJ-900 within US Scope Clause. Scope clause requires the CRJ-900 to remain under 86,000 pounds.
Removing the CF34s and adding PW800s at the above weights brings the CRJ-900 to 85,150 pounds – still inside the Scope limits. It should be noted that if ever scope was going to ease, current circumstances would surely bring that about. Since the scope clause is not even being discussed, we can assume it won’t change for the foreseeable future. This is a very important factor in favor of Mitsubishi and tweaking the CRJ. It is much less helpful to Embraer and its E175-E2 which is beyond scope weight allowances.
Mitsubishi might consider using a variant of the PW815. The PW815 is used on the Gulfstream G600. Regional jet engines are abused while long-range business jet engines spend hours at cruise. Even so, we believe that Pratt & Whitney Canada could develop a version of the PW800 that would fit the requirements of the CRJ-900. After all, just based on the raw numbers, the additional weight of the PW815 compared to the CF34-8C5 might not be such a big hurdle.
Mitsubishi has no re-engine plan under consideration. Pratt & Whitney Canada advised: “While we do not comment on speculative programs, we will be sure to proactively reach out to you when we do have news to share.”
What might the PW800 offer the CRJ-900? We estimate the fuel burn on the PW800 would be at least 15% better than the CF34. For regional operations that is a very big number.
We estimate PW800 engines would cost about $5m per CRJ-900. Given typical aircraft values are in the $10-15m range, new engines are a significant cost. But, for operators approaching time on their CF34s, having a re-engine option is useful. Re-engine programs didn’t have a great track record, but then came the NEO and MAX. On the other hand, we see how long Delta and American held on to their MD-80s despite high fuel burn, so CRJ-900 operators might undertake the same strategy. A re-engine idea on the CRJ-900 is, for now, just an idea.
How would Pratt & Whitney react to the opportunity to add a program for the PW800? Are potentially 1,400 engines attractive enough? Is a stream of spares or PBH revenue attractive? Given the soft commercial aircraft market for the foreseeable future, the idea is disruptive. The only big visible PW800 market is the re-engine of the B-52, where it will compete against the CF34. A re-engine of the CRJ-700 and -900 could bring useful revenue for Pratt & Whitney while creating a deeper relationship with Mitsubishi that previously focused on the GTF for the SpaceJet. Mitsubishi was, after all, the launch customer for the GTF.
Operating the CRJ-900 costs $2,126 per air hour. Its only competitor, the E-175, costs $2,261 per air hour. The CRJ-900 average fuel burn is 665 gallons/hour and the E-175 is 625 gallons/hour. At a 15% lower fuel burn, the CRJ-900 would come in at ~565 gallons/hour – close to 10% better than the E-175. Any other tweaks and that number can be improved. Tweaks are necessary because Embraer will keep improving its E-175, even as it works on the E175-E2 certification. But Embraer won’t do too much to the E-175 because it is focused on the E175-E2 as the successor. Embraer has said it can continue to produce the E-175 on the same line as it uses for the E2.
While one can go through several economic scenarios tweaking the CRJ-700 and -900, there is another, probably bigger, factor to consider.
Mitsubishi bought the CRJ program not for the aircraft but for its customer base, its people, and the MRO capabilities plus revenue stream. With the SpaceJet program on hold, Mitsubishi’s regional jet ambitions are now focused on the CRJ program. One would think Mitsubishi must do whatever it can to stay close to its customers so that they do not bleed off to Embraer. Most of the large US-based CRJ operators also have E-175s. The threat of losing customers is real, even as concern about monopoly pricing exists.
The Embraer E-175 is the benchmark regional jet, and Embraer has an improved E175-E2 in flight test. But that aircraft will be unable to serve the world’s largest regional market in the US because of Scope Clause. Embraer is also distracted. It has to focus on sales of the E2 family, which are slow. The collapse of the Boeing merger left a lot of dust to settle. Embraer is talking about a new turboprop and also has defense and business jet programs.
Mitsubishi is not nearly as distracted, plus it is a conglomerate with a wide footprint. This scale allows Mitsubishi to handle the current commercial aviation slump better than most companies. But even with this scale, Mitsubishi cannot allow the CRJ to age – they must keep the aircraft economically effective. Failure to do this will almost certainly see CRJ customers switch to Embraer. That switch might occur faster than Mitsubishi can restart the SpaceJet. So time is of the essence.
Not keeping the CRJ economically effective puts the entire investment in the CRJ at risk – which came with an initial price of $550m. Not only is there capital investment risk, but Mitsubishi also needs to protect the revenue stream that the MRO provides. Leaving the CRJ program static also is likely to see its best regional jet people seek jobs elsewhere. A lot is riding on the CRJ program that isn’t obvious. The pressure to “do something” is significant and growing.
For Mitsubishi to remain a commercial OEM in its own right visibility on the future of the CRJ program would be useful.