RJX orders in limbo as BAE shuts down program

 - May 29, 2008, 8:14 AM

BAE Systems may have to build another 14 of its Avro RJX regional jets, despite announcing its intention to scrap the program in late November. The UK manufacturer is now seeking to renegotiate contracts with launch customers British European Airways (BEA) and Druk Air of Bhutan. The British operator placed an order for 12 RJXs and options for another eight, and Druk Air holds a firm order for two.  

In its surprise November 27 announcement, BAE said it would immediately cease development of the 85- to 115-seat RJX, which had been due to complete certification within the next three months.The company added that it would finish four of the existing RJ models currently in production and find buyers for those.

As of early December, British European Airlines indicated that it still intends to take delivery of the RJXs, starting in April. Druk has since indicated it may cancel its order and opt for Airbus A319s.

A BAE spokesman said the company would be willing to build all 14 new RJXs if the customers wish to proceed with the orders. However, it will likely offer both operators Avro RJs from the lease portfolio of its Asset Management division.

An important issue for the manufacturer involves the timeframe for the RJX deliveries. British European had been due to receive its 12 aircraft over the next five years. This is not likely to be a viable proposition for BAE, which will not want to keep an otherwise redundant production line open for what has become an orphan aircraft type.

The BAE board’s decision to abandon the $100 million RJX development followed a wide-ranging review of the group’s businesses in the light of the drastically worsened trading conditions since September 11. Evidently the decision was made suddenly because in the December edition of BAE’s in-house publication, Response, chief executive John Weston declared, “The RJX program remains pivotal [to its Aircraft Services Group].” In the November 27 statement he said: “Regrettably, it has been concluded that our regional-jet business is no longer viable in this environment.”

As recently as November 8, BAE flew the RJX-85 flight-test aircraft to Mexico City’s Toluca Airport for hot-and-high trials. Also during November, the company flew the larger RJX-100 model into London City Airport to demonstrate its compatability with the facility’s 5.5-deg steep approach and 3,900-ft runway.

Even before September 11, it was clear that the RJX had been struggling to gain any significant ground on the rival regional jet families from Brazil’s Embraer, Canada’s Bombardier and the U.S.-German venture Fairchild Dornier. Several industry observers reflected privately to AIN that BAE had delayed too long in bringing the RJX to market–allowing its competitors to mop up hundreds of orders during the regional airline boom of the late 1990s and 2000.

BAE had been contemplating the RJX since at least 1998 but took until March 2000 to formally launch the program. In addition to the firm orders from BEA and Druk for 14 airplanes, the only other support for the aircraft came in the shape of the eight BEA options and six more options placed by British Airways franchise operator CityFlyer Express in July 2000.

Nick Godwin, senior vice president of marketing and communications with BAE’s Aircraft Services Group, acknowledged that the RJX had become a victim of a crowded regional-jet marketplace. “In spite of every effort to drive down costs,” he said in a statement to the press, “the price the market currently expects to pay for aircraft of this type [roughly $30 million apiece] means we would incur a significant loss on each one sold.”

The RJX was offered as a third-generation version of the 146 dynasty, which was launched in 1978. The original 146 was powered by four Textron Lycoming ALF502 engines, subsequently replaced by LF507 turbofans for the 1993-launched Avro RJs.

Re-engined with Honeywell’s new AS977 engines and with some minor aerodynamic improvements, the RJX promised a fuel-burn reduction of up to 15 percent compared with the Avro RJ, as well as 20 percent lower maintenance expenses and a range improvement of 17 percent. At 18 dB below Stage 3 limits, the new turbofans are less noisy.     

To date, BAE has delivered 385 copies of the family (219 BAe 146s and 166 Avro RJs). The company has indicated that it will continue to provide full support for the in-service aircraft, many of which are in the asset management lease portfolio.

Axing Avro RJ production will eliminate about 1,000 jobs at BAE’s Woodford factory in northwest England. Nearly 700 other positions have also just been cut at BAE as a result of reduced work for Boeing, Airbus and Raytheon.

The closure marks the end of commercial aircraft production and final assembly in the UK. In May 1997, BAE closed production of the Jetstream twin-turboprop regional airliner. In 1994 it sold the Hawker business jet division to Raytheon, although its Chester factory in north west England continues to produce fuselages for the U.S. company, as well as wings for Airbus.

Regional aircraft have proved to be something of a poisoned chalice for BAE. In 1992 the group almost went bankrupt due to heavy debt exposure resulting from its practice of subleasing regional aircraft at unsustainable rates to cash-strapped carriers. The manufacturer essentially sold aircraft to finance companies, which then leased them back to BAE for it to remarket them to airlines on short, flexible subleases.

With a serious recession biting hard in 1992, too many aircraft were returned early with significantly depleted values and little prospect of finding new customers at sustainable rates. This inflicted an exceptional £1 billion (approximately $1.5 billion) write-off on BAE’s battered bottom line.

BAE’s subsequent mid-1990s venture with the French-Italian Avions de Transport Regional (the short-lived Aero International Regional) fell apart. This left the Aircraft Services Group to fend for itself in an increasingly competitive regional aircraft market at a time when the BAE board had become almost completely preoccupied with the group’s long-term future as one of the world’s few remaining major defense contractors.