New Entrants Race to Build Small Airplanes

Ever since Boeing (BA) bought McDonnell Douglas in 1997, most aircraft manufacturing has been dominated by two players. Today, however, several new entrants are seeing opportunity and trying to get in. Most of these are unlikely to get much traction. For my last week of posts on BNET, I'm taking a look at the airplane market. Today, I'll look at the sub-100 seat market. In my last post, I'll look at the 100 to 200 seat market.

The 50-Seat Market is Dead
Bombardier and Embraer used to be known for making propeller-driven regional aircraft, but they struck gold in the early to mid 1990s when they launched their 50 seat regional jets. Airlines jumped at the chance to buy them when customers showed a strong preference (and willingness to pay) for jet airplanes. But it's all been downhill since.

When the airlines went on buying sprees back in the 1990s, oil was cheap. So most of them must have overlooked the fact that the economics on these 50 seaters aren't pretty. They over-ordered and have spent the last decade trying to shed many of these airplanes. The prospects for growth in the market in the future is slim to none, and that's why nobody is interested in entering challenging the two leaders. Instead, the challengers are going slightly bigger.

The Hot 70 to 100 Seat Market
Bombardier and Embraer both moved on from the 50 seat market into the 70 seat market and grew from there. Bombardier went with a stretched and bulked up version of its 50 seater that went to 70, 90, and now 100 seats. Embraer went a different route and created a new family of airplanes for that purpose instead, but both have had success. And the airlines love these airplanes, especially when operated by the low cost regional airlines.

This hasn't gone unnoticed, and now two unlikely entrants have decided to move in. Sukhoi, out of Russia, has worked with several partners to create the childlishly-named Superjet, an airplane that competes directly in this space. Knowing the stigma of operating a Russian-built airplane (it's not good), the Italian partner Alenia has been taking the lead on selling this to the western world. So far, the results have been fairly weak.

The airplane by all accounts should be a good one, but it hasn't sold well. Other than the usual suspects in Russia and former Soviet Republics, there have been only a few orders in places like Indonesia and Thailand to smaller airlines. But things have picked up a little lately, notably with an order for 15 from Mexico's Interjet. I can't imagine what kind of amazing deal was given to Interjet, but it could be the push the Superjet needs to start opening up sales in the West. There is still a big uphill battle ahead.

The other new entrant in this segment is Mitsubishi with the MRJ. Now you can buy your TV, your car, and your airplane from the same company. In fact, you could have done that for years as Mitsubishi has long made airplanes, including parts for Boeing airplanes and the infamous Zeroes that were used by kamikaze pilots in World War II. But Mitsubishi now sees the opportunity to get into the commercial market on its own.

Mitsubishi is further behind the Superjet in the production process and its orderbook is noticeably thinner, as you would assume. Other than the obligatory order from hometown airline ANA, only little Trans States Airlines in the US has ordered the airplane. That's another one where the pricing must have been insanely good. There's still plenty of skepticism around whether or not this airplane ever gets delivered to Trans States and if it does, who Trans States will fly it for. (The airline currently flies as United and US Airways Express.)

Mitsubishi's chances for success seem fairly thin. It's a crowded market where airlines already have their preferred suppliers. The only way to "unstick" those airlines is to offer a superior airplane at a great price. Sukhoi appears to already be doing that, and that airplane is far ahead of where Mitsubishi's is. The original plan for Mitsubishi to make an all-composite airframe has fallen by the wayside, and it will now have traditional aluminum for some key parts.

It's always possible that both of these manufacturers could be breakthrough successes, but the odds are against them both.

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Photo via Flickr user gm.newsted/CC 2.0

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