Roll out of a plane does equate to a plane that will be bought
Incumbents have a number of existing assets/services = ADVANTAGE
Multiple articles have forewarned the impending doom of Boeing and Airbus, plus their respective partners, Embraer and Bombardier, due to the invasion of new manufacturers from China, Japan and China, which collectively are producing the above four regional jet aircraft:
The uniform theme of these analyses is that these new entrants pose a threat to the existing OEMs. The underlying assumption is that because there are real pictures of real planes really flying, these new aircraft will be certificated in the near future, will be produced soon, will be offered at lower prices and will be bought in abundance. Under that sunny scenario, Boeing/Embraer and Airbus/Bombardier will lose significant market share.
These predictions of success for the four new Regional Jets have overlooked many advantages inherent in the four incumbent companies. Their financial strength is mentioned, but even deep pockets in a competition is not THE determinant of the outcome. A healthy treasury is important, and the three companies challenging the “duopoly” are adequately financed, but the balance sheet strength also reflects important attributes like:
- They have been through certifications before, know the process, understand what it takes and have realistic expectations of the time consumed for this critical government approval.
- Only Sukhoi has full certification.
⇒This document is probably the OEM’s most valuable document.
- Their sales forces have developed relationships with most of the world’s airlines. They know the operational profiles of these potential customers and how their models relate to those needs.
- In fact, OEMs frequently involve the airlines in designing the performance of the next aircraft type.
- All have extensive records of their aircraft reliability and the airlines place value on that history.
- When an airline buys a new aircraft, its employees- most prominently–pilots, flight attendants, mechanics—need to learn the specifics of the addition to its fleet. Manuals in all languages and with a high level of clarity/precision are a must.
- The books are not enough. The OEMs provide training and simulators to prepare the crews.
- An important component, particularly as to a newly introduced type/model, is global support availability. An AOG means lost revenues, while the purchase payments are still due, plus the airline’s customer confidence declines.
These are installations which cannot be created easily on the first effort and they all matter in terms of airline revenue, operational and maintenance costs, efficiencies, etc.
These differences are well exemplified by this story–
Mexican carrier Interjet placed its first order for 28 Russian Sukhoi Superjet (SSJ) 100s in 2011 claiming to have made an unbeatably good deal, as they were offered for significantly cheaper than what was proposed by competitors such as Embraer and Bombardier. Looking back six years later, the airline has had more than just a few headaches with this model.
The issues with the SSJ caused them to ground members of the fleet on continuous occasions and even forced them to scrap aircraft by parts in order to keep its remaining fleet of Russian aircraft in service. Now, the airline announced it received compensation from Sukhoi to make up for these inconveniences.
First, XA-PBA, delivered to Interjet in 2014, was grounded as it sustained significant damage to its nose after an accident involving an air bridge in Mexico City Airport in 2015. Following weeks long repairs, the aircraft was eventually permanently refrained from flying in early 2017 after further defects were found on the aircraft’s stabilizers nodes through ground inspections across the whole fleet.
This measure was taken after the Russian Federal air transport agency grounded six of the aircraft, five operating for Aeroflot and one for fellow Russian carrier Ir Aereo, after metal fatigue was found in a tail component. The issue turned out to be a major problem with the aircraft’s stabilizer.
Earlier this year, media reports claimed that Interjet was forced to scrap by parts four of the grounded aircraft in order to keep the rest of the fleet working. According to Bloomberg, these aircraft had been stored in hangars around Mexico City International Airport. The move was questioned by aviation analysts due to its potential compromises over safety.
Given Sukhoi doesn’t have any single maintenance facility in the Americas, the airline has had a hard time finding replacements and tuning up aircraft that need repair. In order to ease maintenance problems, the airline signed a $ 7 million consignment stock with Sukhoi, where Interjet was able to get a hold of some key parts for aircraft replacement.
Later in 2017, the fleet was then grounded again as the SSJ100’s PowerJet SaM engines, developed by a joint venture between France’s Snecma and Russian’s NPO Saturn, required additional ground maintenance. Despite these major inconveniences, the airline’s CEO classified this aircraft type as “a money-making machine.”
For these reasons, the Interjet announced in a quarterly financial report that it received a compensation package of MXP 733.1 million, which is equivalent $39.6 million, from the Russian manufacturer. The airline says that the amount is an estimate of the contractual recovery of the maintenance and repair costs for aircraft.
The initial decision to acquire the aircraft was a departure from Interjet’s all-Airbus fleet consisting of 50 A320s and 12 A321s. Although it was set up in 2005 as Mexico’s first low-cost carrier, the airline has lost the battle to ultra-low-cost rivals such as Volaris and VivaAerobus as it is currently stuck in the middle between a low cost and a full-service carrier.
Despite a large route network from Mexico City, it hasn’t moved from its position as Mexico’s third largest carrier and the Sukhoi’s maintenance issues have caused the airline huge financial trouble. Combined with a failing strategy, Interjet is said to have substantially higher operating costs than its competitors, almost as high as flag carrier Aeromexico. In addition, it is rumored that the airline holds significant debts that put their financial operations at risk.
This is not to say that new entry is impossible, just that there is more to do than produce an attractive airplane. If one examines the histories of Bombardier and Embraer, it is clear that they spent tremendous effort to provide all of those collateral and critical services.
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