- The Washington Times - Wednesday, May 21, 2003

Boeing Co. and other large-jet manufacturers are finding that the market that helped them build the world’s airlines is eroding.

Instead, carriers are buying more small aircraft to compete on short trips, built by foreign competitors.

Regional jets now make up about 23 percent of the commercial-aircraft fleets, up from 2.6 percent in 1997.

In the next 11 years, regional jets are expected to increase to 35 percent of U.S. airline fleets, according to the Federal Aviation Administration. Regional jets are planes that carry fewer than 100 passengers on trips of less than 1,200 miles.

Unless U.S. manufacturers change strategies, the growing market for regional jets will be lost to foreign competition. The top manufacturers of the smaller jets are Canada’s Bombardier Corp. and Brazil’s Embraer.

“I don’t know that Boeing made a mistake, but these other guys certainly made a correct decision,” said Darryl Jenkins, director of George Washington University’s Aviation Institute.

A $4.3 billion order for 170 regional jets announced last week by US Airways appears to spell trouble for the big-jet market.

Orders for large jets built by their two major manufacturers — Boeing Co. and European competitor Airbus — have been falling, according to the Aerospace Industries Association. The two delivered 682 large jets last year and are projected to produce 555 to 575 this year.

Meanwhile, the market for regional jets is being pumped by airlines that are reorganizing to compete for fewer riders during a weak economy and terrorism concerns.

Industry analysts say it would be difficult for Boeing to enter the regional jet market now that Bombardier and Embraer are entrenched.

“The two are pretty efficient right now,” said Ray Neidl, airline-industry analyst for the Wall Street financial firm Blaylock & Partners. “I don’t think you’ll see any expansion from American manufacturing companies.”

Boeing officials say they will switch to making regional jets only when their feasibility studies show a strong market.

“We’re trying to keep tabs on it, but have not sought to invest in it,” spokesman Peter Conte said.

So far, Boeing and Airbus have avoided the regional-jet market because of small profit margins, according to industry analysts.

Until recently, “the niche did not exist” for regional jets, said Howard Aylesworth, civil-aviation analyst for the Aerospace Industries Association, the trade group for aircraft manufacturers.

Manufacturers are concerned they would retool their factories for regional jets only to find that the trend that created the market for the smaller airplanes has disappeared, he said.

When customers indicate that they would buy regional jets from Boeing, the company is likely to produce them, he said.

Boeing wants to make certain that the airlines’ demand is permanent.

“It all depends on each airline’s business model and strategic direction,” Mr. Conte said. “Right now, a lot of airlines are restructuring, and there’s great transformation in the entire industry.”

Boeing’s decision to focus on large commercial jets dates back decades, said John Douglas, the Aerospace Industries Association’s spokesman.

“Some of the people that ran the aircraft business at that time felt that the future of the airline industry lay in the bigger airplanes,” Mr. Douglas said.

A few U.S. companies, such as Fairchild Airplane Manufacturing Co., tried to manufacture regional jets but went out of business after only a few years.

“It has been too marginal in the past,” Mr. Douglas said.

Until recent years, airline routing methods ensured strong demand for large jets.

Big airlines scheduled most flights using the “hub-and-spoke” routing method, in which flights are concentrated at large, urban airports for long-distance trips to other large, urban airports.

In recent years, low-cost carriers, such as Southwest Airlines and JetBlue Airways, have replaced the hub-and-spoke with the point-to-point system. The system offers more short trips between smaller airports and changes routes quickly, thereby providing customers with cheaper fares.

Although the hub-and-spoke system still is common, the point-to-point method is cutting deeply into large airlines’ profits and encouraging the market for regional jets.

As a result, US Airways, United Airlines and other major airlines are adding more point-to-point flights using regional jets.

US Airways emerged from Chapter 11 bankruptcy protection in March planning to restructure as a regional carrier. Among planned new routes are more trips to the Caribbean.

Boeing airplanes were designed to deliver profits by packing the most passengers on the longest flights. The Boeing 747-400 is the company’s biggest airplane. It can seat more than 400 passengers.

The smallest plane the company makes is a Boeing 717, which seats 100 passengers.

The company considered building a “very large airplane” but gave up the idea about three years ago when market studies showed too few customers were interested.

Airbus, owned by a European consortium, also plans to stick with producing only large carriers.

“Our expertise, paired with the efficiency and economy of the large jets we have developed, and their subsequent popularity with our customers worldwide, has proven to Airbus that the large commercial-aircraft market is the most appropriate market for us,” said Mary Anne Greczyn, Airbus North America spokeswoman.

The company makes planes that seat from 107 to 555 passengers.

Bombardier officials disagree that they are benefiting from only a short-term trend. Regional jets are more efficient on short trips, they say.

“Compared to having a Boeing or an Airbus that is half full on some routes, it is certainly preferable,” spokesman John Paul Macdonald said.

Bombardier has delivered about 220 regional jets to customers in the past year and expects to deliver the same number in the next year, he said.


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