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Surajeet Das Gupta |
May 01, 2004
It's a new, deadly dogfight that's breaking out over Indian skies.
Swooping in from Canada is giant multinational Bombardier with its fleet of three 50- to 110-seater CRJ jets. And diving out of the sky with all guns blazing is Brazilian Embraer that's hoping Indians will soon be criss-crossing the subcontinent in its south American-made aeroplanes.
Embraer is already stepping up the pressure in this new duel. Last fortnight the aircraft company unveiled its Embraer 170 -- a 70-seater that has received rave reviews around the world. Top airline executives from companies like Jet Airways and Air Sahara were invited for a 45-minute demonstration flight around Delhi to get a feel of the new machine.
In the passenger jet industry the clash of the titans has always been between Seattle-based Boeing and the European Airbus Industrie. But the new slugfest between Bombardier and Embraer is also turning into a global duel that will run and run and run.
What are the stakes the two companies are fighting for in India? Bombardier believes India will need over 500 aircraft in the 20- to 90-seater category in the next 10 years. What's more, it reckons that 40 per cent of these orders will be placed in the next two to three years.
"India has been identified as one of the three strategic international markets for Bombardier, the others being China and Russia," says Barry MacKinnon vice president, marketing and airline analysis, Bombardier Aerospace, Regional Aircraft.
The Brazilian company too has some ambitious targets. It has calculated that in the next 20 years the Asia-Pacific region will need 1,115 jets in the below 100-seater category.
The biggest market for the planes will, of course, be China which it reckons will need 635 such planes.
It believes India will be the second biggest market in the region but does not give specific numbers.
Embraer has already been hardselling its planes to all the key Indian players including Indian Airlines, Jet Airways, and Air Deccan. In fact, Jet signed an agreement in 2002 to buy 10 Embraers but the airline says the deal is off for the time being.
But Bombardier has a slight edge over its rival. It has already sold seven 50-seater CRJ-200s to Air Sahara and negotiations are underway for more.
Both companies are circling over Indian skies because they believe the country's domestic carriers will soon move to connect short-haul routes around the country (like Coimbatore to Chennai or Ludhiana to Chandigarh). To do so they will obviously need smaller 50- to 100-seater aircraft.
Says Kapil Kaul, senior vice-president, Centre for Asia-Pacific Aviation, an aviation consultancy firm: "Increasingly, airlines will use a hub-and-spoke concept to grow the market. So regional smaller jets will be used to connect short distances. Boeings and Airbuses would be uneconomical on these routes."
That's not all. The two regional jet giants are confident the new aviation policy will encourage new airline companies to take off in the near future -- and, in fact, three or four are expected to launch very soon. What's more, these companies are likely to focus on regional markets and connectivity rather than slug it out on the metro routes with big players.
Both Bombardier and Embraer reckon that regional connectivity will need smaller planes. "In developing countries the passenger load is not sufficient to put up wide-bodied aircraft on various routes. Our planes offer the right size, matching the demand," says J Bruce Peddle, director, civil aviation market, Asia Pacific, Embraer.
Certainly, fewer passengers are needed to make a profit in the smaller aeroplanes. For instance, passenger breakevens on the 70-seater Bombardier are around 48 per cent -- that means it needs to get less than 35 passengers to fly into profit. Compare that to around 60 per cent on a Boeing or an Airbus.
Added to that, the government is offering sops for smaller planes: under 80-seater aircraft don't have to pay landing charges under the new policy. Also, route navigational charges are much lower than for wide-bodied aircraft.
What is the market that these aeroplane manufacturers see in India? Industry estimates are that nearly 20 per cent of the 13 million passengers annually who travel by air connect embark from non-metro destinations. And that could rise to over one-third in the next two years as more small cities get on the air map. All these routes will have enough demand to fill up smaller short-haul aircraft -- but they won't fill the larger Boeings and Airbuses for a long time to come.
At another level, the total domestic travel market is 167 million -- so air travellers constitute less than 8 per cent of this market. But a dramatic shift could take place if more cities are brought onto the air map and if fares fall close to levels charged by the railways for AC second class. That, in fact, is what the discount airlines are planning to charge.
Of course, the 50- 100-seater jets also fill up a much-needed vacuum in the market. At the moment most domestic carriers use either the under 50-seater ATR turbo-prop or above 100-seater Boeings and Airbuses. Says an industry analyst: "There are over 40 turbo-prop aircraft in the country which are old and need to be replaced or upgraded. Bombardier and Embraer provide the right alternative."
What planes are the two companies hawking around the world? Bombardier has both turbo-props and jets and its smallest jet is a 50-seater going up to 90.
Embraer, by contrast, has two families of jets on offer. There is the ERJ 145 family of three aircraft that seat between 34 and 50 people. Then, there's the newer Embraer 170/190 family of four jets with seating capacities of between 70 and 110.
Says Peddle: "Unlike our competitors who stretched their 50-seater into a 70-seater we spend $1 billion to build a new family of 70-seater aircraft from scratch. We provide more comfort and better cost economics to the carriers".
For an airline the aeroplane maker's family of products can be important. Take Air Sahara, which has bought 50-seater Bombardiers.
Says the executive: "We wanted to start with the 50-seater and then move to the 70-seaters once load grows. But we wanted the aircraft to be within the same family -- so that spare parts and training costs are common and therefore lower."
Inevitably, both aircraft makers say their planes are better than the ones being sold by their rivals. Embraer, for instance, insists that its aircraft score on customer comforts on virtually every front.
Says Peddle: "Our aisle width is 19.2 inches compared to 16 inches in the CRJ 700-90. Our seats have over once inch of more width and compared to our cabin height of 2 metres the CRJ is 1.89 metre." More importantly, he points out, the aircraft of the E-jet family (70-seaters to 110-seaters) have 86 per cent commonality in spare parts and 100 per cent in terms of crew training.
Bombardier executives have their counter to these points. They argue that the slightly reduced cabin space makes for good economics. Most importantly, they say that their planes have a lower breakeven factor.
Argues MacKinnon: "By offering less wider cabin we are able to get a better fuel efficiency and consequently lower operating cost. So our breakeven is 48 per cent compared to 51 per cent for Embraer in a 70-seater."
Mackinnon also claims that the CRJ 200 burns 10 per cent less fuel than the 50-seater Embraer, while the 70-seater CRJ burns 11 per cent less fuel than its challengers.
But are the domestic carriers listening as the two companies turn up the volume of their sales pitch? The answer is yes and no. Says Faisal Wahid, director, East West Airlines, which has recently requested permission to restart flights: "Yes, we will need small aircraft under 100-seater to connect regional routes. But today I can lease a Boeing 737-300 which is seven years old for $100,000 annually compared to $150,000 for a Bombardier. So why should I go for them?"
Similarly, Air Deccan looked in another direction when it bought its first planes. It went for the turbo-prop ATRs because they were cheaper than jets. The domestic carrier known for its cheap fares was able to lease the ATRs at a price 10 per cent cheaper than what Bombardier and Embraer were offering.
Secondly, ATR was able to ensure quick delivery. Both Bombardier and Embraer presently have long waiting lists. For instance, if you order immediately Embraer will only deliver around June 2005.
Air Deccan, for one, isn't immediately looking at either of the regional jet rivals. It is currently planning to buy new under-100-seater aircraft.
But says Capt G R Gopinath, managing director, Air Deccan: "We will talk to Bombardier and Embraer. But we are also negotiating with ATR for the ATR 320. We already have pilots trained in this family of aircraft and have maintenance support. So the jets have to offer us a very attractive price for us to change to them."
Aviation experts also say that the leasing cost of the Bombardiers and the Embraers could be a dampener. Says Kaul: "I don't know whether you can make money in running these aircraft considering the high lease costs of around over $150,000."
But that is not deterring the two companies from making an aggressive pitch in India. And with Bombardier and Embraer flying high on India, they could well change the mind of domestic carriers in a fast-changing market.
Why small is in
Is small about to become beautiful in the international aviation industry?
For over three decades airlines around the world have criss-crossed the globe in aeroplanes like the 737 which can seat anywhere between 110 to 150 people depending on how you configure it.
But as larger numbers of people take to the air, the dynamics of the aviation industry are changing. Airlines are flying to newer and smaller destinations, and flying more flights on the same route in smaller aircraft.
And new low-cost airlines that are springing up in different parts of the world are looking at an entirely new style of operations.
That's why picking the right plane has suddenly become more complicated for airlines around the world. For the last 30 years they usually had a straightforward choice between Boeing and Airbus.
Alternatively, there were the below-50-seater turboprop aircraft manufactured by companies like ATR, Fokker, British Aerospace, Saab and also Bombardier.
Now the airlines are looking at regional jets which usually seat between 50 and 110 people -- and which are much more comfortable than the turboprops. In this category the two big boys fighting for a piece of action around the globe are Brazilian based Embraer and Canadian giant Bombardier.
Embraer was created by the Brazilian government in 1969 and privatised 30 years later in 1999. But the aircraft manufacturer has come under fierce attack from rivals like Bombardier in the WTO who say it is heavily backed by government subsidies.
Subsidies or not, the company has delivered over 60 jets (of its new Embraer series 170\190) across the globe. Even more importantly, it has firm orders for over 200 planes. The buyers range from discount airline JetBlue Airways and LOT to US Airways.
Bombardier still has a big lead over its Brazilian rival. But there's clearly a tough battle ahead. The Canadian company, which was founded in 1942 and made tracked vehicles for transport in snow covered terrain, is a diversified group and has already delivered over 1,000 small jets across the globe to customers like Air Canada, Austrian Airlines group and China United Airlines.
Both believe the future belongs to smaller jets. According to Embraer in the US 60 per cent of domestic flights are suited for 70-110 seaters. Equally importantly, more than one-third of the world's aircraft in the 60-120-seat capacity are 20 years old and need to be replaced by new machines.
Bombardier estimates that around 8,345 planes in the 20-100 categories will be needed between 2001-20 (this includes turboprops).
Of course, two-third of this market will be in the US and Europe. Their rivals Embraer make almost the same predictions: between 2004-23 it expects a demand for over 8,450 30-120 seaters out of which 14 per cent will be sold in Asia Pacific.