Skies look brighter for t-prop market

 - February 5, 2007, 5:57 AM

The recent run of big orders for new turboprops has no doubt lifted the spirits of the two remaining builders of prop-driven airliners. In an industry segment that has seen nothing but contraction over the past decade, new business of the magnitude of Air Deccan’s 30-aircraft order for ATR 72s and Bombardier’s pair of recent orders for 27 Q400s from Flybe and Qantas harks back to the days when turboprops held absolute dominion over the regional aircraft market. If nothing else, it certainly validated claims that OEMs can occasionally still sell a case for large-scale turboprop operations, at least outside North America.

Could the spike in sales wind up being an isolated string of events? Perhaps. But even in the U.S. a quiet re-assessment of short-haul markets has raised faint signs of encouragement for companies such as Saab and BAE Systems, which, although out of the civil manufacturing business, still make a modest living leasing and shuffling around used equipment.

Continental Airlines has shown the greatest willingness to test passenger tolerance for turboprops in the States, starting with its enlistment of Plattsburgh, N.Y.-based CommutAir to fly Beech 1900s from Cleveland some two years ago. Six months later it signed SkyWest to fly Embraer Brasilias to eight Texas cities out of Houston.

Most recently, it sent SkyWest packing in favor of Colgan Air and its 34-seat Saab 340Bs, which are slated to start flying as Continental Connection in the spring. Now Continental is considering asking Colgan to fly at least seven 50-seat turboprops–notable because Continental Express carrier ExpressJet last year stopped taking deliveries of 50-seat Embraer ERJ-145s at the behest of its major partner.

The switch to Colgan will add at least another five seats on each flight to those eight Texas cities. In the summer, the switch should yield even more capacity because Houston’s hot, humid weather forced SkyWest to leave seats empty in its underpowered Brasilias last year. In terms of 50-seaters, de Havilland Dash 8-300s or ATR 42s seem the most likely candidates because little commonality exists between the Saab 340 and Saab 2000, but Colgan’s relationship with Saab might give the Swedish turboprops an outside chance.

Now flying 17 Saab 340s as US Airways Express, Colgan has just taken delivery of two 340Bs last flown by Mexico’s AeroLitoral. Those airplanes, originally meant to fly in US Airways colors, will now go to Houston to fly in the Continental network.

Whether Colgan opts to transfer more of its present Saab fleet to Houston or take new deliveries depends on the outcome of talks between it and US Airways over the scope of its US Airways Express operation. At press time that remained unclear.

“We are very excited about this,” said Saab Aircraft Leasing president Michael Magnusson. “There are a lot of interesting things happening at Continental and, of course, I think they’re doing the right thing.

“Many of us have been saying for a long time that RJs aren’t very cost-effective on routes of up to 300 miles,” he continued. “And many of the RJs that were delivered new…their honeymoon periods are over, their warranties are expiring and the true costs are starting to emerge.”

Meanwhile, a recent deal between Continental and South Florida’s Gulfstream Airlines returned to service ex-Atlantic Southeast Airlines Embraer Brasilias. Under the expanded code-share contract carried out on February 17, the five Brasilias and Gulfstream’s growing fleet of Beech 1900s opened new links between Fort Lauderdale and Andros Town on the Bahamian island of Andros. More new service connects Tampa with Pensacola and Fort Walton Beach, while the frequency of existing routes between Fort Lauderdale and the five other Bahamian destinations increased.

Before the Gulfstream deal took effect, Continental had already increased available seat miles in its partners’ turboprops by 8 percent last year. Turboprop departures now account for more than 15 percent of Continental’s offering, compared with 13 percent in 2003.

The trend doesn’t stop with Continental. Northwest and United Airlines each plan to maintain the number of turboprops its partners fly at about 65 each this year, while Alaska Airlines replaces Boeing 737s with Saab 340s on its route between Anchorage and Dutch Harbor, Alaska.

In January Northwest code-share partner and Mesaba Airlines subsidiary Big Sky Airlines moved to replace its eight Fairchild Metroliners with Beech 1900Ds leased from Mesa Air Group. Scheduled to take delivery of the airplanes within weeks, Big Sky plans to use the two extra airplanes to launch new service from Billings, Mont., to Denver and Sheridan, Wyo., early next month.

Even Mesa CEO Jonathan Ornstein voiced some optimism lately about his company’s Beech 1900 fleet. “With the completion of this transaction [with Big Sky], substantially all of our remaining 1900Ds flying will be in conjunction with the government-subsidized Essential Air Service program,” he said. “While not guaranteed, the program is designed to provide the operator a 5-percent profit on
a fully allocated basis. This compares to a fully allocated pretax loss of $9.8 million in our 1900D operation last fiscal year.”

Mesa can count itself among the scores of regional airlines that during the past 10 years have transformed themselves into virtual alter egos of their mainline partners, flying regional jets on routes once occupied only by full-size commercial airplanes. No longer fully dependent on pro-rate deals under which they flew turboprops at their own risk, Mesa and others turned most of their attention to the more predictable fee-per-departure contracts that nearly always accompany regional jet flying.

Unfortunately for the towns regional-jet converts abandoned, the so-called third-tier of airlines couldn’t generate enough interest from already preoccupied majors to make a difference.

Now, as fuel prices again approach $50 a barrel, the practice of using RJs to fly such short segments simply to match equipment flown by hub-raiding competitors looks untenable. But airlines such as Continental have not dismissed the value of small-market destinations. With opportunities for more RJ flying dwindling fast, the prospect of adding a point or two to mainline load factors with short-hop feed traffic looks worthwhile again.

Unfortunately for business travelers in places like Gary, Ind., and six other medium-size cities around Chicago and Indianapolis, Southwest Airlines and the newly reconstituted board of American Trans Air (ATA) apparently don’t think so. Only a month after Southwest bought ATA’s assets at Chicago Midway Airport, ATA Holdings announced it would shut down regional subsidiary Chicago Express Airlines effective March 31.

In what could amount to a reprieve for the communities and employees, however, ATA has begun to seek a buyer for the regional subsidiary. Former Eastern Airlines executive Jack Robinson has offered to take it over for a paltry $37,700, but the Boston investor has promised to invest heavily in the airline. Under his plan, Chicago Express would add as many as 30 Saab 340s and Saab 2000s to the 17 Swedish turboprops it already flies from Midway and Indianapolis.

Magnusson said he thinks ATA’s decision looks like an anomaly rather than a reversal of the turboprop market’s recent good fortune. “We are trying to understand why they are taking such a drastic step,” said the Saab executive.

In any case, it’s of minor concern to Saab because Chicago Express leases the airplanes from other parties. American Airlines owns six of them and various banks own the other 11. However, the availability of 17 more Saab 340Bs could give Colgan and others one more source of airplanes.

Contrary to showing any concern over an effect on residual values, Magnusson seemed eager to see what develops. “The 340B right now is an airplane that is in demand in many areas,” he said. “This can create interesting opportunities. This year has started very well for us…not that I have banked a bunch of [transactions] yet, but I’m very encouraged about the dialogue going on.”