Boeing Embraer Consolidation.jpg

Regional Boost From OEM Consolidation: Kroll

Consultancy says fleet renewal case strengthened due to operators of regional aircraft facing challenges around managing ageing fleets and their corresponding maintenance costs.

Moves by Airbus and Boeing to acquire the commercial operations of Bombardier and Embraer respectively were undoubtedly the most significant events in aviation last year.

Airbus’s completed takeover of the CSeries (now Airbus A220) program already appears to be paying off with big orders from several US airlines, while Brazil’s government has given Boeing the all-clear to buy 80% of Embraer’s commercial aircraft business.

Although the tie-ups only reinforce the de facto duopoly in commercial aircraft production, they should be positive for customers since economies of scale should allow the new owners to cut supply chain and manufacturing costs, something Airbus has already promised for the CSeries.

Cost pressures on Bombardier and Embraer had contributed to poor (or loss-leading) sales on their newest aircraft, but if Airbus and Boeing manage to get the pricing right, airlines should have better capacity options on thinner routes, where in many markets they continue to use aircraft too large for the job.

Taking this into account, Kroll Bond Rating Agency has released a positive outlook for the regional aircraft market, with China and the rest Asia set to be a significant source of demand.

Nonetheless, the US market remains crucial, with North America holding 38% of the in-service regional fleet – much of it in need of renewal.

Kroll notes that many operators of regional aircraft face challenges managing ageing fleets and their corresponding maintenance costs, which strengthens the case for renewal.

However, it also points out that the newest regional jets – the A220 and Embraer E2 – have untested liquidity in the secondary markets, not to mention the potential for teething issues as they enter service, and it remains cautious about their values in distressed markets.

TAGS: Airframe
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