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Ascend Consultancy Weekly Team Perspective: The Future of the E175 and the 70-Seater Regional Jets
In a significant move for Embraer, American Airlines’ recent firm order of 90 new E175-E1 aircraft boosts the OEM’s order book.
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By Alex Vathylakis, PhD, Principal valuations analyst, ISTAT appraiser, Cirium Ascend Consultancy
In a significant move for Embraer, American Airlines’ recent firm order of 90 new E175-E1 aircraft has not only boosted the OEM’s order book but also created another scope clause oxymoron: a past generation jet at the top of the OEM’s order book, accumulating a total of 190 orders which is almost 10 units more than the E195-E2. Based on American Airlines’ press release, the E175-E1 is expected to deliver through the early 2030s. As the Mitsubishi SpaceJet was already the first scope clause casualty, does the E175-E2 also now face the same threat? And how do the latest developments impact the existing fleet?
Historical fleet trends show that North America continues to increase its concentration of 30-to-70-seater aircraft, with limited appetite for smaller regional aircraft in other parts of the World.
At the same time, there seems to be no scope clause relaxation in sight, despite Embraer’s hope to deliver its first E175-E2 in the late 2020s. A substantial order from a non-US, perhaps Indian, operator would thus be the remaining hope for the programme, although this seems unlikely given the past long-term trends.
While Embraer may have more flexibility to keep a programme dormant for longer, it is presumably more challenging to keep Pratt & Whitney committed to produce a scaled-down GTF engine at smaller volumes than initially planned due to the SpaceJet’s termination. This would be in addition to the major challenges which the wider GTF programme is facing at present and for the years to come.
All of the above creates continued favourable winds for the larger scope clause compliant regional jets, and especially the most fuel-efficient, “Enhanced” winglet-equipped E175-E1 sub fleet. Despite the US concentration, they are expected to enjoy a solid liquidity advantage as well as better value retention compared to all other 50- to 70-seaters.
This is also supported by the fact that the 50-seater market will continue to contract, as US Majors United and American follow Delta in exiting the ERJ-145 and CRJ100/200 types.
At the same time, this is resulting in a reduction in flight frequencies on some routes or the complete cessation of others, making it remarkable that there is such inelasticity in the US market towards introducing turboprops, as perception, and arguably comfort, are not traded for greener, more fuel-efficient, and similarly sized turboprops.
This suggests a growing opportunity for a new aircraft to fill the gap as well as to bridge a wider range of market classes, which could be anything from a less risky new-gen turboprop, or an open-rotor aircraft family, to a hybrid-electric or hydrogen-powered aircraft. Until then, E175-E1 program will have reached its 30th production anniversary by the time the last of this recent American Airlines order are delivered, marking the longest production run of a commercial passenger jet of its generation.
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