Air Canada: Cant Find Business Case For C-Series

LAXintl · Wed Jan 20, 2016 4:19 am

Story out tonight that Air Canada President Ben Smith lauds the C-series as a "fantastic plane", but the carrier has not been able to find a "proper business case" to acquire it.

Regarding the CS100 Smith says Air Canada did not have the best experience trying to make the economics of 100-seater aircraft work and still has a relative young remaining E190 fleet, while for the CS300 is identical in capacity to the A319 which will be rolled over in favor larger 737MAX. Should AC still require something with 118 seats it could always keep the A319s longer.

Smith mentions one of the additional things driving decision is also desire for simplicity and adding another fleet type adds more complexity and would be "tall order".

So while the C-series future is not closed at AC, Smith says company has plenty of flexibility with its existing fleet and also has ability to act "creatively" with Airbus and Boeing. He basically says AC will continue to study and see how the C-series fit in the marketplace in 2016 and beyond.

Air Canada Is Still Studying the C Series
http://aviationweek.com/awincommerci...air-canada-still-studying-c-series

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Well sounds pretty clear that one should not be expecting any orders from Air Canada in the short run to help save C-series sales prospects.
This is probably not the message BBD wants to hear from its hometown carrier.

YVRLTN · Wed Jan 20, 2016 4:31 am

Quoting LAXintl (Thread starter):
still has a relative young remaining E190 fleet,

Which they are getting rid of.

Quoting LAXintl (Thread starter):
while for the CS300 is identical in capacity to the A319

Which are all going to Rouge in a higher density layout and are also old.

So that leaves a pretty big gap between the E175 and 738. Even the E190 if they stick around.

As Canada is a fairly long and thin kind of market outside the trunk routes, that means to me confirmation of one of two things (or both) neither of which are a surprise - 1) more Rouge flying or 2) the 190's will go over to Sky Regional and there will be an E2 order.

While I always thought the C would have more of a shot over at WS, with the 737-8 baseline and E190 retirements over at AC it was beginning to seem the stage was being set.

Huge blow to BBD IMO. That really had the potential to be 50-70 frames.

Viscount724 · Wed Jan 20, 2016 4:41 am

Quoting YVRLTN (Reply 1):
Quoting LAXintl (Thread starter):
still has a relative young remaining E190 fleet,

Which they are getting rid of.

I thought AC said they were keeping the 25 E190s that aren't going to Boeing (and then DL) for the foreseeable future, or has that changed? That's what their CEO said a year or so ago.

thekorean · Wed Jan 20, 2016 4:44 am

If AC doesn't want to be patriotic Canadian government should open the flood gate and let ME3 run wild lol.

LAXintl · Wed Jan 20, 2016 4:45 am

Yes AC will keep 25 E190s.

This article states:
“Having 45 E190s in a country like Canada wasn’t the most optimal fleet makeup for us,” Smith said, “We can easily live with 25.”

Also hence why he sees no case for the CS100 at the moment.

mercure1 · Wed Jan 20, 2016 4:46 am

Classic example of why Bombardier has a problem. Mr. Smith explains it very well and honestly.

Its simply easier/cheaper for airlines to stick with existing types than introduce something new, especially in small quantities.

Airbus, Boeing and Embraer have existing products that are well established that fill the market segments, so Bombardier in reality brings nothing new to the table that worth trouble changing for.

Only thing BBD can really do is to price aircraft so cheaply airlines are willing to ignore the main points but this likely digs BBD an even deeper financial hole which its already trying to climb out of.

[Edited 2016-01-19 20:47:43]

N1120A · Wed Jan 20, 2016 5:01 am

If BBD can find a way to buy out and place those E190s, I'd guess they can induce AC.

INFINITI329 · Wed Jan 20, 2016 5:15 am

Quoting YVRLTN (Reply 1):
2) the 190's will go over to Sky Regional and there will be an E2 order.

Doubt it, pretty sure it would be against AC scope.

cedarjet · Wed Jan 20, 2016 5:39 am

One wonders why Bombardier committed billions of dollars to a programme without really knowing who would buy the plane. And btw, who will buy it?

Thenoflyzone · Wed Jan 20, 2016 6:01 am

Quoting cedarjet (Reply 8):
And btw, who will buy it?

Those airlines that need planes in a few years, and realize A and B can't give them any until 2022+ because their backlogs are full

http://www.fool.com/investing/genera...g-backlog-and-that-could-be-a.aspx

YVRLTN · Wed Jan 20, 2016 6:09 am

Quoting infiniti329 (Reply 7):
Doubt it, pretty sure it would be against AC scope.

It has been suggested for discussion AFAIK

LAXintl · Wed Jan 20, 2016 6:17 am

Quoting thenoflyzone (Reply 9):
Those airlines that need planes in a few years, and realize A and B can't give them any until 2022+ because their backlogs are full

But aircraft lessor have 1,400+ of that backlog.

So these companies are also out there competing to find homes for their A and B frames.

Look at Virgin America - in December they agreed on the NEO and are slated to receive the first frame in mere 14-months via GECAS order.

Aither · Wed Jan 20, 2016 6:28 am

The issue for the C-serie is that it would often be a sub fleet : airlines increasingly need bigger A320/737s so they would continue to order these aircraft. For the smaller routes you have the choice to:
- operate the bigger single aisle with less frequencies (like LCCs)
- operate a smaller single aisle of the same type (A319)
- operate a new type (Cserie)

Unfortunately for Bombardier for most airlines they will be the third preferred choice unless they provide outstanding economics.

CRJ900 · Wed Jan 20, 2016 8:56 am

Quoting YVRLTN (Reply 1):
Which are all going to Rouge in a higher density layout and are also old.

The CS300 would be great for Rouge, 140-148 seats, big overhead bins, long range.

nighthawk · Wed Jan 20, 2016 2:54 pm

Quoting cedarjet (Reply 8):
One wonders why Bombardier committed billions of dollars to a programme without really knowing who would buy the plane. And btw, who will buy it?

presumably the 18 customers that have already ordered 243 frames? You're talking as if this aircraft doesnt have a single order...

Quoting Aither (Reply 12):
The issue for the C-serie is that it would often be a sub fleet : airlines increasingly need bigger A320/737s so they would continue to order these aircraft. For the smaller routes you have the choice to:
- operate the bigger single aisle with less frequencies (like LCCs)
- operate a smaller single aisle of the same type (A319)
- operate a new type (Cserie)

there are more airlines out there than just the majors. An aircraft like this is ideal for smaller, regional operators who want to add a larger aircraft, but dont want to go as large as a Boeing/Airbus. Airlines like Porter, CityJet, VLM, Eastern, bmi regional. All of these are potential customers that could be looking at the C series. There may also be many majors that may consider it too, Lufthansa, Gulf, Korean and Swiss have all ordered the aircraft. Clearly they feel it is worth adding as a sub type.

Polot · Wed Jan 20, 2016 3:04 pm

Quoting nighthawk (Reply 14):
presumably the 18 customers that have already ordered 243 frames? You're talking as if this aircraft doesnt have a single order...

Now look to see how many of those are actually secure and likely to be delivered....

We are also talking about a plane that received 0 orders last year.

Quoting nighthawk (Reply 14):
Lufthansa, Gulf, Korean and Swiss have all ordered the aircraft. Clearly they feel it is worth adding as a sub type.

LH is not adding any C Series to their fleet. All 30 C Series (20 CS100, 10 CS300) the LH group has on order are going to LX.

scbriml · Wed Jan 20, 2016 3:14 pm

Quoting thenoflyzone (Reply 9):
Those airlines that need planes in a few years, and realize A and B can't give them any until 2022+ because their backlogs are full

Only if they need something smaller than Airbus or Boeing is offering AND doesn't cause issues with pilot agreements.

Quoting LAXintl (Reply 11):
Look at Virgin America - in December they agreed on the NEO and are slated to receive the first frame in mere 14-months via GECAS order.

Huh? VX was the launch customer for the neo in Dec 2010!

Polot · Wed Jan 20, 2016 3:24 pm

Quoting scbriml (Reply 16):
Huh? VX was the launch customer for the neo in Dec 2010!

VX leased 10 A321neos in Dec 2015 (from GECAS) that are arriving starting in the 1Q 2017. This is in addition to the 30 A320neos they ordered in 2010. VX deferred delivery of those to 2020-2022 from 2016-2019 back in 2012.

Aither · Wed Jan 20, 2016 3:29 pm

Quoting nighthawk (Reply 14):
Airlines like Porter, CityJet, VLM, Eastern, bmi regional. All of these are potential customers that could be looking at the C series.

What's the future for these type of airlines vs. LCCs ?

nighthawk · Wed Jan 20, 2016 3:41 pm

Quoting Aither (Reply 18):
What's the future for these type of airlines vs. LCCs ?

I don't have my crystal ball to hand right now, but airlines like this will be around for a long time. There will always be niche markets that the LCCs cant operate, such as out of LCY/YTZ, thin regional routes, connections into major hubs from the regions etc.

neromancer · Wed Jan 20, 2016 4:11 pm

Quoting LAXintl (Reply 4):
Yes AC will keep 25 E190s.

This article states:
“Having 45 E190s in a country like Canada wasn’t the most optimal fleet makeup for us,” Smith said, “We can easily live with 25.”

Also hence why he sees no case for the CS100 at the moment.

While I agree with you that the CS100 doesn't have a place at Air Canada (at the moment). There is still a gap between the E190s and the 737-8MAX

Currently Air Canada has orders for 61 737-8 and -9 to replace 74 A319/320/321 aircraft. Now while Air Canada does have options to purchase more 737's they haven't expressed a desire to exercise them either.

I could see the possibility of Air Canada ordering ~15 CS300 to fill in the gap of the A319 in the not to distant future (next couple of years). And then several years down the road adding the CS100 to eventually replace the 25 E190's.

I could also see Air Canada placing them with Rouge in a high density configuration when the A319's at Rouge become over ripe.

[Edited 2016-01-20 08:12:43]

Thomaas · Wed Jan 20, 2016 4:15 pm

I find it hard to believe they don't need anything below the 738MAX given that Canada has many long and thin routes. YEG is particularly heavy on the E190 and I can't see the market sustaining the 738. Although they're keeping 25 E190s for now, I think they'd sell them at the first opportunity they have just like they did during their Boeing order.

Keeping the A319s doesn't make sense either as they'll be retiring their Airbus fleet and sending it to rouge, they also have some of the oldest frames out there.

At the end of the day they know best what their strategy is going forward, they seem to favour flying larger planes in general as they now have a sizeable 77W fleet and are replacing 763s with 789s. I still think they need something smaller than the 738s but only time will they do on thinner routes.

AirbusCanada · Wed Jan 20, 2016 4:39 pm

Quoting thekorean (Reply 3):
f AC doesn't want to be patriotic Canadian government should open the flood gate and let ME3 run wild lol.

Feds should offer access to Canadian market to M3s and their subsidiaries in exchange for large Cseries order.

Amiga500 · Wed Jan 20, 2016 4:44 pm

Quoting Aither (Reply 12):
The issue for the C-serie is that it would often be a sub fleet :

Indeed, I believe that BBD is really suffering for not having a CS500 in the works.

The initial launch should have been 300, then gauging market response, do the 100 or 500.

longhauler · Wed Jan 20, 2016 4:59 pm

Quoting Neromancer (Reply 20):
While I agree with you that the CS100 doesn't have a place at Air Canada (at the moment). There is still a gap between the E190s and the 737-8MAX

The current fleet plan shows 25 E190s and 16 A319s for the duration of the plan. Several additional A319s are being transferred back from Rouge to Air Canada as new A321s are being delivered to Rouge. (With more A321s in the future for Rouge, requiring that more A319s be transferred back to Air Canada.)

As Mr. Smith suggests, the A319s could stay longer at Air Canada than we realize.

While the A320 series at AC is often mentioned as one fleet. It appears that as new MAXs start to arrive, the first to go will be early built A320s. The last to go will be the A321s and A319s. That fleet may remain for quite a while as new narrowbody aircraft are negotiated. And my guess is that those new narrowbodies will be more MAXs.

Quoting YVRLTN (Reply 10):
It has been suggested for discussion AFAIK

Discussion by who? Certainly not the pilots. The scope clause as it stands is not open to negotiation.

LAXintl · Wed Jan 20, 2016 5:27 pm

Quoting Neromancer (Reply 20):
I could see the possibility of Air Canada ordering ~15 CS300 to fill in the gap of the A319 in the not to distant future (next couple of years). And then several years down the road adding the CS100 to eventually replace the 25 E190's.

I think you overlooked his aversion to add complexity and take on another new fleet type. Orphan fleet of 15 CS300s would be immensely costly to support.

Also as he states both Airbus and Boeing offer flexibility and would allow AC to act "creatively" with its fleet plans.
Maybe the best replacement for A319 is another A319 if that is the size they need, or some 737-MAX7s?

Quoting Amiga500 (Reply 23):
The initial launch should have been 300, then gauging market response, do the 100 or 500.

Would have been even worse. How many people are buying new A319 and 737-700s? The 120 seat market barely exist today.

The 100-seat market is much more alive, just BBD is having a heck of a time trying to get in the door.

Amiga500 · Wed Jan 20, 2016 5:39 pm

Quoting LAXintl (Reply 25):
Would have been even worse. How many people are buying new A319 and 737-700s? The 120 seat market barely exist today.

The 100-seat market is much more alive, just BBD is having a heck of a time trying to get in the door.

53 CS100 orders
190 CS300 orders

How many more orders would there be if BBD could offer a family up to 190 seats? [Bearing in mind "heart of market" is still in around 190 seats.]

Polot · Wed Jan 20, 2016 5:44 pm

Take the current C-series response from Airbus/Boeing and amp it up a few notches. That is what would have happened if BBD had targeted the A319/73G, and showed any suggestion of a CS500 following shortly thereafter, at project launch.

The CS100, and focus on 100-120 seats, was BBD's way of trying not to rock the boat too much.

[Edited 2016-01-20 09:45:31]

Amiga500 · Wed Jan 20, 2016 5:46 pm

Quoting polot (Reply 27):
Take the current C-series response from Airbus/Boeing and amp it up a few notches.

Like what?

Selling at a loss? 'cos they are pretty much selling for no profit as it is.

mercure1 · Wed Jan 20, 2016 5:50 pm

BBD would be committing suicide to have from the start launch a larger craft to go against A320 + 738 family.

Would have been nuclear war with Airbus and Boeing with zero change BBD winning.

Launching something small was idea to come under the radar without attracting too much attention from A+B.

Any yes the 100-seater market today generates larger demand then the 120-140 seat range. For mainline jets the size has moved up and left the A319/737-700 category.

Amiga500 · Wed Jan 20, 2016 5:52 pm

A & B are already in the middle of nuclear war with BBD.

Unfortunately BBD took a knife (CS100) and a gun (CS300) to an ICBM fight.

KaiTak747 · Wed Jan 20, 2016 6:23 pm

Quoting LAXintl (Reply 25):
Would have been even worse. How many people are buying new A319 and 737-700s? The 120 seat market barely exist today.

The 100-seat market is much more alive, just BBD is having a heck of a time trying to get in the door.

Isn't that partly because the difference in operating costs between the A319/A320 and 737/738, are fairly similar? I've heard that the A319 and 737-700 are suboptimal shrinks.

I would imagine that the CS300 would be far more economical than the A319/737-700.

Alias1024 · Wed Jan 20, 2016 6:39 pm

Quoting LAXintl (Reply 25):
I think you overlooked his aversion to add complexity and take on another new fleet type. Orphan fleet of 15 CS300s would be immensely costly to support.

Indeed. The rationale of a CSeries order at AC was always that the family could replace both the E190 and A319. Replacing one or the other only probably doesn't make a lot of sense with all the expenses incurred in adding a new fleet type. If AC has decided against the CS300 as A319 replacement, it's tough to justify tossing out the EJet infrastructure and replacing it with the CS for a fleet of 25 aircraft, especially with the E2 around the corner. AC can replace their E190s down the road with new E2 EJets at much lower transition costs than a CS100 order.

Amiga500 · Wed Jan 20, 2016 6:42 pm

Quoting KaiTak747 (Reply 31):
Isn't that partly because the difference in operating costs between the A319/A320 and 737/738, are fairly similar? I've heard that the A319 and 737-700 are suboptimal shrinks.

Indeed. From recollection, your looking at around 5-6% fuel burn delta from A319 to A320.

But that is at passenger delta of around 20%. So take that 3.5 tonnes or so out and your real difference is even less.

astuteman · Wed Jan 20, 2016 6:45 pm

Quoting Amiga500 (Reply 28):
Selling at a loss? 'cos they are pretty much selling for no profit as it is.

Have I misunderstood you?
There's no way on this planet that Airbus and Boeing are selling the NEO and MAX at zero profit.

Recognising that the mean seat count is rising, and will continue to, all they've done is quietly vacated the 737-700/A319 space (yes, they still sell them), and proceeded to develop cheap derivatives of the A320 and 737,and produce and sell them at prodigious rates that BBD can never match, and which allow them sell cheaply, but at healthy margin.

The NEO cost about 1/4 of the CSeries to develop and has sold about 20x the amount.
That's really hard to fight.

Rgds

thekorean · Wed Jan 20, 2016 6:48 pm

Quoting AirbusCanada (Reply 22):

That works too. Either way Air Canada gets punished lol.

Amiga500 · Wed Jan 20, 2016 6:51 pm

Quoting astuteman (Reply 34):
There's no way on this planet that Airbus and Boeing are selling the NEO and MAX at zero profit.

No, not zero profit.

But not a million miles away from it.

[Edited 2016-01-20 10:52:04]

wrongwayup · Wed Jan 20, 2016 9:33 pm

If AC were able to redesign their fleet from scratch, I'm confident that an aircraft like the CS100/300 would make a great fit for the current and future needs. Canadian markets in general are smaller, longer, and yet still demand frequency that a smaller aircraft would provide. That said there is a lot of "friction" in changing from an existing fleet to something clean-sheet - and the fleet plan in their case may be as much a function of the starting point as the optimal fleet.

sixtyseven · Wed Jan 20, 2016 9:56 pm

Quoting AirbusCanada (Reply 22):
Feds should offer access to Canadian market to M3s and their subsidiaries in exchange for large Cseries order.

The best quote I have ever read. It captures everything it means to be Canadian aviation buff.

Scary thing is you might actually be serious.

longhauler · Wed Jan 20, 2016 10:42 pm

Quoting sixtyseven (Reply 38):
Scary thing is you might actually be serious.

It appears so ... or maybe this one?

Quoting thekorean (Reply 35):

That works too. Either way Air Canada gets punished lol.

Because the main thing here is that Air Canada gets punished!

As I have said in other threads, the last time Air Canada bought an aircraft that could be perceived as not the best choice due to governmental pressure was the Canadair DC-4M North Star.

Air Canada is a public corporation. The best way to serve Canada's flying public and it's shareholders is to always do what is best for the airline. And that goes up to and including always buying the right aircraft for the job.

Devilfish · Wed Jan 20, 2016 11:02 pm

Quoting longhauler (Reply 39):
As I have said in other threads, the last time Air Canada bought an aircraft that could be perceived as not the best choice due to governmental pressure was the Canadair DC-4M North Star.

Air Canada is a public corporation. The best way to serve Canada's flying public and it's shareholders is to always do what is best for the airline.

Maybe this is Air Canada's way to pressure BBD to lower the CSeries' price?

yyz717 · Wed Jan 20, 2016 11:09 pm

All this means is that AC can't find a business case in 2016. It says nothing about 2017 or 2027 etc. Over a possible 20 or 30 year production run of the C-series in its current and future forms, there remains plenty of time for an AC C-series order.

AC did not order the 77W until 10 years after it's launch, and did not order the 737 until ~45 years after its initial launch.

thekorean · Thu Jan 21, 2016 12:00 am

Quoting longhauler (Reply 39):

Yea except profit they make don't go to tax payers, whose taxes support the government who somehow think is its ok to limit competition for AC.

threepoint · Thu Jan 21, 2016 12:01 am

Quoting yyz717 (Reply 41):
All this means is that AC can't find a business case in 2016. It says nothing about 2017 or 2027 etc. Over a possible 20 or 30 year production run of the C-series in its current and future forms, there remains plenty of time for an AC C-series order.

With 243 orders and not exactly a booming market for the type, AC had better not be counting on a 20 year production run.

Quoting yyz717 (Reply 41):
AC did not order the 77W until 10 years after it's launch, and did not order the 737 until ~45 years after its initial launch.

Really? The first 77W was delivered in 2004; AC received its first in 2008. Keep in mind the 77W is a vastly different beast than the original 777-300.
Same for the 737 family, you'd have a difficult time convincing anybody the 737MAX resembles the original 737 in any way except for outward appearance.

longhauler · Thu Jan 21, 2016 12:47 am

Quoting thekorean (Reply 42):
Yea except profit they make don't go to tax payers, whose taxes support the government who somehow think is its ok to limit competition for AC.

So you feel that Air Canada making bad business decisions helps the tax payer better? Why not Westjet? Why not Air Transat? Should they too be "punished" for not buying unnecessary Canadian airframes?

I don't know how things work in South Korea, but in Canada if the "tax payer" is not happy with the government and its decisions, they get voted out. Canada has a clear and transparent policy with regard to bi-lateral agreements with other countries. That policy is very clear ... there has to be a demand between two countries (O&D) before further and enhanced access is allowed.

These policies are between countries, not between airlines. You can think it is to protect AC, but you would be very wrong. Because if you looked at some airline examples .... CX has full access to Canada, KL has full access to Canada ... you would see that those airlines, representing those countries carry far more passengers between their respective countries than AC. Should the government restrict them as well? (You know the answer).

Why haven't they restricted them? Because Canada's bi-lateral policy allows it. And under that policy, any country is allowed further access to Canada when they prove the (O&D) demand exists.

ElPistolero · Thu Jan 21, 2016 12:55 am

Quoting longhauler (Reply 39):
Air Canada is a public corporation. The best way to serve Canada's flying public and it's shareholders is to always do what is best for the airline

The best way to serve Canada's flying public is not, in fact, to do what is best for the airline; it is to do what is best for consumers. Econ 101, I think.

Should AC be forced to buy BBD? The obvious answer is 'no'. It's economically unsound.

However, one could just as easily frame it in a different way:

If company X demands consumers should have their choice limited to prop up company X, then it stands to reason that company X should have its choice restricted to to prop up company Y. After all, the (economically unsound) rationale for propping up company X also applies to company Y.

Doublespeak and hypocrisy: the gifts that keep on giving.

sixtyseven · Thu Jan 21, 2016 1:11 am

Quoting ElPistolero (Reply 45):
Doublespeak and hypocrisy: the gifts that keep on giving.

Passive aggressiveness on the internet. The gifts that keep eyes rolling.

At least you werent using the $3 words from the previous thread, or adding flair by going all Shakespeare on us.

Thanks for the ECON 101 lecture. I think the people making these decisions are a bit past that.

ElPistolero · Thu Jan 21, 2016 1:28 am

Quoting longhauler (Reply 44):
These policies are between countries, not between airlines. You can think it is to protect AC, but you would be very wrong. Because if you looked at some airline examples .... CX has full access to Canada, KL has full access to Canada ... you would see that those airlines, representing those countries carry far more passengers between their respective countries than AC. Should the government restrict them as well? (You know the answer).

Why haven't they restricted them? Because Canada's bi-lateral policy allows it. And under that policy, any country is allowed further access to Canada when they prove the (O&D) demand exists.

According to AC, 70% of KL traffic is 6th freedom. Yet they managed to prove O&D existed, while France couldn't prove O&D when AF wanted to go to YVR before the EU open skies agreement. And then there's Iceland. Lots of O&D there, I hear.

It's hard to pretend that AC isn't doing everything to get protectionist policies, especially when it starts demanding the same treatment as dairy supply management. Nothing illegal about that, but if AC promotes a policy, it should be subjected to it too, no?

That aside, yes, WS and TS should also be forced to buy Canadian according to the argument. Logic dictates that anyway.

Viscount724 · Thu Jan 21, 2016 1:39 am

Quoting threepoint (Reply 43):
With 243 orders and not exactly a booming market for the type, AC had better not be counting on a 20 year production run

At the time the first 737NG was delivered in late 1997, Boeing only had 259 orders.

dc10lover · Thu Jan 21, 2016 1:47 am

Air Canada simply doesn't want to "gamble" with the C - Series.

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