With high fuel prices representing such a large portion of airline costs, many airlines are actively seeking to modernize their fleets with the latest in fuel-efficient aircraft technologies. Airlines are already lining up to order the The Boeing Company (NYSE:BA) 787, The Boeing Company (NYSE:BA) 737 MAX, and the Airbus 320NEO as solutions to their fuel consumption woes. But another aerospace manufacturer is making a move on the turf of The Boeing Company (NYSE:BA) and Airbus, a subsidiary of European Aeronautic Defence and Space.
Canadian aerospace
Based out of Montreal, Bombardier is best known for its private jets and the Canadair regional jets that are used on many short haul routes by regional airlines. Bombardier also has divisions focusing on buses and trains, but the main focus of this article rests on Bombardier’s potential to disrupt the 110-160 passenger aircraft segment.
By the end of June, Bombardier plans to show its C Series plane in flight with deliveries beginning in 2014. Until now, Bombardier has made planes in the private and regional segment but the C Series represents the manufacturer’s first move into this size of aircraft. The 110-160 passenger range has proven lucrative for The Boeing Company (NYSE:BA) and Airbus, which now dominate the segment and make up the majority of most large airline fleets. But perhaps even more important for Bombardier is the need to expand beyond their Canadair jet business to maintain sales to airlines.
No more mini jets!
It used to be that regional carriers, and sometimes major airlines themselves, flew a series of small regional jets to connect less-served airports to the main hub network. With low fuel prices, these small planes were profitable and airlines could afford to offer many different flights throughout the day on their fleet of small jets. But higher fuel costs, combined with airline expense cutting, have led to a trend toward the elimination of small jets (50 seats or smaller) from regional fleets. Not only is there little demand for new 50 seaters, but the market is becoming saturated with 50 seaters being dumped on it by other airlines driving down prices for these planes alongside sales.
Unfortunately for Bombardier, one of its Canadair jets, the CRJ-200, is a prime target of this regional jet rebalancing. Added to this is competition from Brazilian aircraft manufacturer, Embraer SA (ADR) (NYSE:ERJ), causing Bombardier to seek new markets for expansion.
Ready for flight
After nearly a decade of development and billions in development costs, Bombardier’s C Series is now available for orders by airlines. Orders have already come in from around the world from such customers as a Russian leasing company, Gulf Air, and Porter Airlines, a private Canadian airline purchasing jets for the first time. The CS 100 and larger CS 300 are already attracting these customers for their reduced fuel consumption and increased passenger comfort, stealing market share away from Boeing and Airbus in the process.
The two big manufacturers still hold a grip on the large airliner segment and should continue to hold a majority of the small airliner segment as well. But with a new fuel-efficient 110-160 passenger aircraft series, Bombardier could post stronger revenues and earnings as it moves into the territory traditionally controlled by Boeing and Airbus.
The article A New Threat to the Boeing-Airbus Duopoly originally appeared on Fool.com and is written by Alexander MacLennan.
Alexander MacLennan owns shares of Bombardier. The Motley Fool has no position in any of the stocks mentioned. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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