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CRJ900 vs. E-175: microcosm of Bombardier’s troubles

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As Bombardier was undergoing a major shakeup, Embraer was the scene of a warm, champagne-soaked celebration.

Bombardier reported a $1.25 billion 2014 net loss, announced Pierre Beaudoin was stepping down as president and CEO and unveiled plans to raise $600 million in new equity and $1.5 billion in new debt—all in one day last week.

For months, the Canadian manufacturer had been maintaining all was well even as the CSeries program endured delays and continuing sales problems, the Learjet 85 business aircraft program was put on “pause” and various executives exited the company. But the dramatic developments of February 12 served as a boldfaced admission by Bombardier of what had become plainly obvious: the Montreal-based company is hurting badly.

Just a day before Bombardier announced it was bringing in outsider Alaine Bellemare—formerly the president of Pratt & Whitney Canada among other assignments at United Technologies Crop.—to take over as president and CEO, I happened to be down at Embraer’s headquarters in São José dos Campos, Brazil, for the delivery of American Airlines’ first E-175. Similar to the contrast in weather between Montreal and São José dos Campos (the dead of winter in the former, the height of summer in the latter), as Bombardier was undergoing a major shakeup, Embraer was the scene of a warm, champagne-soaked celebration to mark the delivery of the first of 60 E-175s American has on firm order.

The sales battle between the CRJ900 and the E-175, which in the last two years has significantly swung from Bombardier’s to Embraer’s favor, is a microcosm of Bombardier’s problems. Other, more high-profile missteps, such as Bombardier getting caught by surprise by re-engining programs at Boeing, Airbus and Embraer, have received more attention. But the rapidity with which the E-175 has overtaken the CRJ900 as the airliner of choice in the 75-90-seat jet sector (even Embraer executives are astonished by it) is something Bellemare should carefully study as he endeavors to figure out how to steady the ship at Bombardier.

The CRJ900 and E-175 entered service in 2003 and 2004, respectively, and through 2012 Bombardier held a sizable edge in sales, with the CRJ900 winning 314 orders compared to just 181 for the E-175. But for the past two-plus years, Embraer has dominated the sales competition, winning 240 E-175 orders compared to only 70 CRJ900 orders. The E-175 has vaulted past the CRJ900 in lifetime orders, now leading 421 to 384.

Why did this happen? Embraer modified the E-175’s wing to lower fuel burn by 6.4% and airlines looking for 75-90-seat regional jets increasingly gravitated to the Embraer aircraft over the CRJ900.

Embraer added bigger wingtips to the E-175 and extended the jet’s wing size by nearly 9 ft. to more than 92 ft. It also made reinforcements in the wing skin. Embraer had originally told airlines that these aerodynamic modifications would improve the E-175’s fuel burn by 5.5%, but the Brazilian manufacturer bested that figure by nearly a percentage point to its own surprise.

The first modified E-175 was rolled out in March 2014 and the more efficient jets are now in operation in the US market. While in Brazil, I saw a Fuji Dream Airlines E-175 on the assembly line—the Japanese airline will soon become the first non-US carrier to operate a modified E-175.

“Some would say the [modified] wing on the E-175 is a new wing,” an Embraer executive observed. “There was no time for a reaction from our competitor.”

Bombardier did finally announce aerodynamic improvements on the CRJ900 in May 2014. However, the Canadian manufacturer’s move came after Embraer’s and was not as robust; the CRJ900 modifications yielded a 5.5% fuel burn gain.

“We already had the [better] cabin,” Embraer Commercial Aviation president and CEO Paulo Cesar Silva told me last week. “However, we needed to improve the economics of the airplane. We saw an opportunity to increase the fuel efficiency … That [improved efficiency is] the key to our current success.”

Embraer expects a wave of 50-seat jet retirements in the US market over the next several years and is confident 76-seat E-175s will be the primary replacements for those aircraft. The CRJ900 will certainly get a share, but Embraer executives believe the E-175 could comprise 80% of the replacements or more.

That’s because Bombardier was caught flat-footed and put in the position of playing catch up in the 75-90-seat regional jet sector (which it handily controlled a little more than two years ago), perhaps in part because the manufacturer was distracted by its costly CSeries venture, on which it has already spent $4 billion without yet bringing the aircraft to market. What will happen in the 75-90-seat jet sector in 2020 when the E-175-E2, which promises a 16% fuel burn improvement, enters service? How will the CRJ900, already losing ground to the current generation E-175, continue to compete? That is just one in a long list of difficult questions Alaine Bellemare will have to answer.

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