The Regional Jet Market: A Victim of its Own Success?

Bombardier is still trying to emulate the kind of success that it experienced with the CRJ200.

"The line of the economic growth in India is exactly the same as the traffic growth," explains Filippo Bagnato, ATR's chief executive officer. "The only limit could be the level of speed that the Indian system is able to apply to the [development of the] infrastructure."

ATR is at the forefront of aggressive fleet growth by Indian carriers, such as Air Deccan and Kingfisher Airways. Air Deccan announced plans in January 2005 to acquire 30 new ATR 72-500 aircraft and six second-hand aircraft, while Kingfisher Airways placed firm orders for 15 aircraft and took options on 20 more at this year's Farnborough Air Show. It was this order and one from Finncomm for three ATR 72-500sthat allowed the manufacturer to announce a successful half-year turnover.

ATR has received 50 orders in 2006 at a value of $684.9 million.

Bagnato did not hide his glee about China's recent change in attitude towards the regional market. Lao Airlines already flies two ATR 72s and the demand for turboprop aircraft is growing. Some of ATR's fuselage sections are constructed at the Shaanxi aerospace facility in Xian as part of a long collaboration with the region.

The manufacturer's plans for China include the installation of a mechanical centre, a maintenance centre and a customer support centre in China. A similar set up already exists for India.

In addition to India and China, Bagnato confesses that the Africanmarket was a "great surprise" for ATR.

"It is now a priority," he beams, adding that the manufacturer hasalready had success there, with Tanzanian airline Precision Air ordering six ATRs. "Africa is another potential market and we should not forget that, in 2005, traffic growth in the region was 11%."

Commenting on the outlook for ATR, Bagnato says: "There is a need for between 1,000 and 1,200 airplanes over the next 10 years. The average requirement is for 100 to 120 planes a year. The turboprop, in particular, has a good future."

Being Brazilian

In January Embraer convinced shareholders that a corporate make-over would help transform the regional jet manufacturer into an independent group with a global presence.

Empresa Brasileira de Aeronautica (old Embraer) merged with Rio Han Empreendimentos e Participacoes to become new Embraer in April 2006.

New Embraer is registered with Comissao de Valores Mobiliarios (CV-M) and is listed on the Novo Mercado segment of the Sao Paulo Stock Exchange. The company's American depositary shares are also listed onthe New York Stock Exchange.

Before the merger, Embraer's book value amounted to R$4.8 billion ($2.2 billion). Consequently, the increase in the capital stock of new Embraer arising from the merger will be of R$3.8 billion.

Embraer's corporate restructuring happened at the same time as themanufacturer was rolling out its new regional aircraft. The Embraer 190 was designed for the 70- to 110-seat market and the Embraer 195, launched in January last year, was designed for the 100- to 110-seat market. These aircraft have scored highly among investors and financiers.

Embraer has received 253 firm orders for the ERJ 190 aircraft, while the ERJ 195 has received 36 firm orders.

In addition to the success of these aircraft, Republic Airlines inthe US has bought 30 ERJ 175s, bringing to 78 firm and 75 options the total number of E-Jets on order for Republic.

These aircraft were originally options under the amended and reinstated purchase agreement between Embraer and US Airways. US Airways has transferred to Republic its right to purchase these aircraft.

During the first half of 2006, Embraer delivered nine ERJ 145 aircraft, 17 Embraer 170 aircraft and five Embraer 175 aircraft.

In total, the number of deliveries for Embraer's commercial aviation section reached 51 for the first half of the year.

The 145 family has 864 firm orders. "There is additional potentialfor this aircraft in many parts of the world," says Luis Sergio Chiessi, director of market forecasting at Embraer. "The US and European markets are saturated with 50-seater jets. We are seeing the development of a secondary market, with aircraft moving from one obligation or airline to another."

The secondary market arises from the movement of aircraft from thenorthern hemisphere and into southern hemisphere countries that are willing to accept used aircraft at a lower price.

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