Regional turboprops hold their own in a tough market

 - March 28, 2007, 6:32 AM

Last year saw reasonably brisk activity in the regional turboprop business, as the Western world’s remaining players scrambled to hold their positions during a period of continuing sluggishness in the air-transport sector. Although deliveries of new regional turboprops have sunk to historic lows, Bombardier’s de Havilland division registered a fairly significant sales increase over the year before, while ATR managed to mitigate a negligible decline with a relatively large order early this year. No longer involved in manufacturing, Saab, BAE Systems and Raytheon Aircraft kept busy in asset management and aftermarket support–businesses that in many ways look far more dynamic than the market for new airplanes.

To wit, Bombardier watched deliveries fall to 19 last year from 29 in 2002, forcing it to close the assembly line from December 2002 to February last year and furlough more than 1,300 employees. However, unit sales rose from 10 to 35 on the strength of a 17-aircraft firm order from the UK’s Flybe, raising the de Havilland division’s Q-series backlog to 34 and temporarily assuaging fears of more layoffs.

Unfortunately for Bombardier, conversion of a letter of intent signed by would-be startup carrier REGCO for 10 Q400s now appears unlikely, after the Toronto City Council halted construction of a bridge to the island on which Toronto City Center Airport sits. The airline has sued the city, claiming damages for time and money spent on preparations based on the existence of the bridge.

Meanwhile, Bombardier’s only competitor in the new turboprop market–France’s ATR–wrestled with adversity of its own when the collapse of Algeria’s Khalifa Airways halted shipment of five ATR 42s, resulting in a more precipitous decline in deliveries than originally expected, from 19 in 2002 to nine last year. ATR also saw its sales total drop from 16 to 10.

However, a January order for six new ATR 72-500s from Spanish regional Binter Canarias softened the blow considerably. In fact, if it had settled on terms for the order just three weeks earlier, last year’s numbers would have equaled those of 2002. Until recently targeting an annual production rate of some 20 airplanes for the next decade, ATR has since had to lower its sights somewhat as a growing surplus of good used turboprops overwhelms the new-aircraft market.

Second-hand Market Heats Up for ATR

Consistent with the trend produced by the explosion in sales of new regional jets, ATR saw much more activity in the second-hand market, where it registered 43 aircraft transactions (31 ATR 42s and 12 ATR 72s), including 15 cash sales. As has become the case throughout the industry, ATR’s concern with “protecting value” of such assets consumes much of its energy and resources. For example, in 2002 the company introduced a new large cargo door for the ATR 42, a program that yielded its first returns with last year’s launch order from Alaska’s Northern Air Cargo.

Other “value protecting” activities included the launch of a customer-loyalty program called ICARE, under which catalog prices on spare parts dropped by an average of 8 percent, and the introduction of the high-end “Elegance” interior option. ATR also opened a new office in Beijing to support operators in China, Mongolia, Korea and Japan.

Following ATR’s lead in cultivating its own resale market, Raytheon Aircraft completed a demonstrator of a corporate shuttle based on the Beech 1900D. It also launched a new-technology upgrade program, including the development of T2CAS (TCAS/ TAWS) retrofit installations for the Beech 1900Cs and Ds.

Last year Raytheon delivered 61 second-hand airplanes, including 30 Beech 1900Cs, 29 1900Ds and a pair of Beech 99s. The deliveries–all executed with outside financing– opened new markets for Raytheon in Panama, Pakistan and Japan. RAAS also placed 1900D airliners into countries such as Nigeria (Overland Airways) and in Indonesia (Indonesia Police) with financing support from the U.S. ExIm Bank. Deliveries in the U.S. involved Continental Connection carrier CommutAir and US Airways Express affiliate Colgan Air.

Saab Maintains Its Share

Another major dealer in used turboprops–Saab Aircraft Leasing–managed to maintain its market share by placing 13 Saab 340s and five Saab 2000s with eight new customers. In all, Saab signed transactions involving 42 airplanes, including a lease contract on behalf of Bank of America to Puerto Rican carrier Fina Air. The deal represented Saab’s first under a new agreement that gives SAL responsibility for all Saab 340 marketing activities on behalf of the bank. Meanwhile, Saab’s continued diversification efforts resulted in sales of an executive- shuttle-configured Saab 340 to Vee Neal Aviation of Latrobe, Pa., and a pair of Saab 340 personnel transports to the Swedish Defense Materiel Administration.

Of the five main market participants, BAE Systems ended the year with the fewest turboprop placements, delivering just 11 last year, including six Jetstream 31s, two J32s and four ATPs. However, all that activity occurred in the fourth quarter, perhaps signaling a more active 2004.

Last year BAE signed ATP freighter-conversion contracts with British European Aviation Services for interior conversions and Romania’s Romaero for large-freight-door provisions. It also strengthened its position in the turboprop maintenance and logistics arena, signing a deal with England’s Eastern Airways for J41 spares support. Of course, BAE remains considerably more active in asset management and support of BAe 146 quad-jets, and recently partnered with Fairchild Dornier successor AvCraft for maintenance and spares support for the 328JET.