AIAC Summit: Major OEMs still competing aggressively for market share

Presentations at the Aerospace Industries Association of Canada’s 2015 Canadian Aerospace Summit by Airbus, Boeing, Bombardier and Embraer suggest that although there seems to be plenty of business to go around, the major manufacturers continue to compete aggressively for market share.

Bombardier announced on Nov. 17 during the Summit in Ottawa that flight testing of its long-delayed CS100 airliner had been completed that very day. 

Ross Mitchell, vice president, Business Acquisition, Commercial Aircraft said data from 3,400 hours of testing since the CS100’s first flight in September 2013 had already been submitted to Transport Canada. The aircraft had met or exceeded all performance goals, he reported, with the most notable achievement being a better-than-expected fuel burn with its two Pratt & Whitney PW1500G high-bypass geared turbofans.

The CS100 managed 3,300 nautical miles from a full fuel load, a nearly 12 per cent improvement from its expected 2,950 nautical mile range, and had been “doing much better than expected” on high and short runways. 

The new clean-sheet jet, capable of seating 100 to125 passengers, continues to undergo “functional reliability testing” in the real world, with flights to and from key Canadian and U.S. hubs. Mitchell said that sets the stage for certification by year’s end, a target some sources suggest could be achieved earlier. Transport Canada told Skies on Nov. 27 that an announcement of this significance will likely be made jointly with Bombardier.

Certification of the larger CS300, which seats 120 to145 people and which first flew last February, is expected by mid-2016.  As of Sept. 30, there were only 53 firm orders for the 100 and 190 for the 300.

With a projected global market for 23,000 new aircraft over the next 20 years, Bombardier is focusing on opportunities for its Q400 turboprops, its trio of Regional Jets (CRJ700, 900 and 1000), and the C Series in the 60 to 220-seat market, the top end of which traditionally has been Boeing and Airbus territory. Mitchell said there have been many options in the RJ market, including Bombardier’s platforms and others no longer in production.

He explained Bombardier is interested in this market because there are opportunities for 2,900 aircraft at the low end of the seating spectrum and 4,400 at the higher end in the 60 to150-seat market.

Mitchell added that Bombardier expects to deliver 5,700 turboprops and RJs over the next 20 years. However, there were also opportunities in the 100 to150-seat market, where the average fleet age is 15.3 years, eventually offering room for replacements. “We expect 7,000 deliveries in the next 20 years in that market,” he said, noting that that segment is currently served by McDonnell Douglas aircraft, Airbus A319s and Boeing 737-700s “that are no longer competitive” going forward. “We are the only airframer in that market who’s bringing a new airplane to the market.”

Mitchell said the market for aircraft with 100 to150 seats is expected to generate $460 billion in revenues over the next 20 years, and that jets and turboprops seating 60 to100 passengers will add $190 billion, for a total of $650 billion. He explained that Airbus, Boeing, Embraer and Bombardier “slice and dice the market differently” because of their respective models. 

Boeing’s presentation was courtesy of Jeff Johnson, vice president, Global Sales and Marketing at Boeing Military Aircraft, who explained that he was just coming off a nearly five-year Middle East marketing assignment in Dubai, highlighted by the lavish launch of Boeing’s 777X wide-body in 2013.

Pointing out that Boeing would be celebrating its centennial next July, he suggested that the main challenge would be to sustain the success of that legacy while becoming “a truly global company,” as opposed to a U.S.-based exporter. 

“As we stand here today, Boeing’s commercial airplane business has never been stronger; we continue to experience an unprecedented growth in air travel around the world… Our current backlog stands at $485 billion and more than 5,700 airplanes.” 

However, he added, “we just can’t sit back and relax” because increased competition from China, Russia and “non-traditional” suppliers is inevitable. 

Turning to the military side of the business, Johnson noted it was “a little more complicated” than the commercial market, in that the U.S. and other defence customers are struggling with budget issues, even as global threats continued to evolve and become more complex. 

“I’ve never seen a more challenging business environment…yet we still forecast over $3 trillion in addressable global market for defence over the next decade.”

Johnson outlined Boeing’s commercial and military presence in 65 countries, fed by 160,000 direct employees and a supply chain of nearly 22,000 companies. In Canada, that presence comprises 2,000 employees in 14 locations, including Boeing workers embedded in the Royal Canadian Air Force (RCAF), along with a supplier base of more than 500 companies.

When he observed that the RCAF had become a “global authority” on how to manage its life-extended fleet of CF-188 Hornets, that prompted a question from the floor about “the elephant in the room:” a CF-188 Hornet replacement as Boeing prepares to wind down production of its bigger and more sophisticated F/A Super Hornet. 

Johnson pointed out that the U.S. Congress had authorized an expansion of the U.S. Navy’s carrier-based fighter fleet through the 2018 fiscal year, to address a capability shortfall. He said he was confident production would be extended “well past 2020,” implying that Boeing is ready to compete for the RCAF’s next generation of fighters.

Christian Scherer, head of Airbus Group International, lost no time in stating that the conglomerate is the “world’s No. 1” manufacturer in civil aviation, with its range of fixed-wing and rotary-wing aircraft, as well as “Europe’s No. 1” in defence and space, with more 138,000 employees. He said that of more than 14,530 commercial platforms ordered, nearly 8,000 had been delivered, leaving Airbus with a “healthy backlog.”

Turning to the military market, he trumpeted the “absolutely unique” four-engine A400M turboprop, which falls in between the Lockheed Martin Hercules and the Boeing C-17 Globemaster in size. 

He noted it was the “first time that Europe has a military aircraft system or solution that the USA don’t have.” He also said that the Eurofighter Typhoon delta-canard fighter has been Europe’s “most successful military aircraft program in the post-war period and would be “an absolutely suitable replacement for the RCAF’s Hornets.”

Scherer also noted that Airbus’ A330-based multi-role tanker transport “had yet to lose an open competition,” and that the maritime patrol variant of the C295, a version of which will be offered for the RCAF’s fixed-wing search and rescue (FWSAR) program, also could be an eventual option for the RCAF. “Fixed-wing SAR is very important for us,” he said.

As for the rotary market, he reported that Airbus Helicopters, already a “worldwide leader,” was in a strong position in the civil, commercial and military markets, having supplied 12,000 aircraft to 300 customers in 150 countries. 

Scherer offered a chart which showed that while Boeing topped the global aerospace revenue rankings in 2014 at the equivalent of €68.389 billion (Euros), Airbus Group came in second at €60.713 billion. Rounding out the list, in descending revenue order, were United Technologies, Lockheed Martin, BAE Systems, Northrop Grumman, Bombardier, Finnmeccanica, Thales, Embraer and Saab.

 “(These numbers) help me point out the fundamental difference there is between Airbus Group and our main competitors, who are mainly U.S. companies…that rely on or enjoy a very, very strong predominance (in their home market.)” In some cases, over half of Airbus’s revenues come from supplying the US government, Scherer noted.

He acknowledged that Airbus does have European government contracts, but not to the same degree as its American competitors. “Airbus is generally, by construct, a much more international business than our main competitors from the United States.” 

As proof, he said only 33 per cent of Airbus’ nearly €61 billion in 2014 revenues came from doing business in Europe, while 32 per cent was from the rapidly-growing Asian market, 15 per cent from North America, 11 per cent from the Middle East and eight per cent from Africa and Latin America. 

The Airbus order book was valued at some €857 billion as of November. Asian customers accounted for 31 per cent, followed by 23 per cent in Europe, 19 in North America, 13 in the Middle East and 14 in the other markets. 

Like Boeing, Airbus has a significant international footprint, including 11 production sites, four assembly line locations, 13 training centres, nine manufacturing and engineering centres, six customer support bases and 10 materials and logistics centres. 

Scherer said Airbus has “quite a solid presence” in Canada, providing some 2,000 or so jobs and spending $1 billion, including buying aerostructures from Bombardier. 

Overall, he said, it supports 17,000 jobs indirectly. South of the border, its U.S. presence involves less than 1,000 direct employees, and while he hopes to expand that, he said it was a “little bit of a fantasy” in today’s environment. 

Brazil-based Embraer’s AIAC report was presented by Nelson Salgado, vice-president, Institutional Relations and Sustainability, who admitted his homeland is “sometimes not as open” to imports as he would like, but that Embraer was “working very hard to be a real global company.” 

Its current focus is the North American market, where it goes head-to-head with Bombardier and has expressed concern about the Quebec government’s decision to pump more than $1 billion into the Montreal-based company’s C Series jet.

He explained that 82 per cent of Embraer, which is headquartered in São José dos Campos, is international. Of their 19,000 employees, only 18 per cent are Brazilian, but Salgado explained its “very interesting governance structure” guarantees that Brazilians would always direct it. 

Embraer has most recently invested in Portugal’s production capacity. It has also invested in China, and is most aggressively positioned in the U.S. It also has partnered with Montreal-based CAE for training on the Phenom 100 and 300 business jets.  

Salgado credited Embraer’s growing success to its willingness to invest in research and development: some four to five per cent of revenues. He said the investment has paid off, with 46 per cent of today’s revenues generated by products introduced in just the last four years. 

Embraer’s E-Jet family of four narrow-body medium range twins, launched in 1999, has seen 1,200 delivered with a backlog of some 200 firm orders, as well as several hundred options. 

Moreover, the manufacturer has begun developing a new three-platform E2 family, which Salgado said are “a bit bigger” and will involve new wings, engines and interiors, including improved avionics. 

“It took us a long time to decide what to do with the new products,” he said, explaining that there had been extensive discussions with current customers who tended to be satisfied with the original E-Jets. 

He said Embraer has invested some $1.7 billion in the development of the new E2 family, which could be considered “a modest amount. 

“The three developments are on schedule and we expect to introduce the 190E2 (the prototype fuselage and wings were ready to be mated as he spoke) by 2018, the 195 by 2019 and the 175 by 2020.”

 

Embraer has also made a big investment  in executive aviation, beginning with its Phenom 100 and 300 (Salgado said the latter was the best-selling business jet in the world), and moving up to its Legacy 450 and 500 platforms and its largest and most sumptuous offering, the Lineage 1000.

On the military side, the company has had growing success with its Super Tucano, which debuted in 2003, and is designed for training as well as light attack and counterinsurgency missions. They are in service with about a dozen air forces, including the U.S. Air Force, which bought 20 that underwent final assembly in Jacksonville, Fla.

 

Salgado expects Embraer’s largest homegrown design—its medium-sized KC-390 multi-mission twin-engine jet transport, with two prototypes flying—will be certified by 2017, setting the stage for deliveries the following year.

In addition to CAE and Sierra Nevada Corp., its partners on the USAF Tucano program, Embraer has steadily built a network of others, which Salgado volunteered had been “quite difficult” because of Embraer’s preference to have risk-sharing partners rather than traditional suppliers. 

That approach began with its ERJ-145 development because “we did not have the resources . . . and a lot of investment was required.” Although it was done “out of necessity, not strategy,” sharing the developmental risk evidently has paid off for everyone. 

The 2016 Canadian Aerospace Summit will be held from Nov. 15 to 16 in Ottawa. Programming will examine how innovative companies can emerge from down cycles, work effectively with governments, and capitalize on international opportunities, said the AIAC.