This Revolutionary Plane Needs to Get Bigger to Compete

At last week's Paris Air Show, Airbus, Boeing (NYSE: BA  ) , and Embraer (NYSE: ERJ  ) each sold billions of dollars of commercial airplanes to airlines and leasing companies looking to take advantage of new fuel-saving technologies. The highest-profile aircraft this year were Boeing's 787 Dreamliner (the largest version of which officially launched at the air show), Airbus's A350 (which achieved its first flight earlier this month), and the second-generation of Embraer's popular E-Jets (which also launched at the air show).

All of these new aircraft -- but especially the Boeing and Airbus offerings -- make heavy use of lightweight composite materials. By reducing the weight of the aircraft, these materials improve range, payload, and fuel efficiency.

Yet there is a fourth major competitor in the commercial aircraft market -- Bombardier (NASDAQOTH: BDRAF  ) -- and it has its own advanced-technology airplane. The company's CSeries plane is expected to make its first flight as early as this week. Yet the CSeries put up a goose egg at the Paris Air Show, failing to notch a single order. While Bombardier has nearly 200 firm orders for the CSeries, the company will rapidly burn through that backlog once it starts CSeries mass production.

Bombardier's CS100 jet (photo courtesy of Bombardier)

Bombardier claims that the CSeries will offer 15% lower cash operating costs than competing aircraft, due to its advanced technology. Whereas Airbus and Boeing made heavy use of composite materials for their new widebodies (the 787 and A350), only Bombardier is doing the same in the narrowbody market. So with order backlogs at Boeing, Airbus, and Embraer swelling, why is Bombardier's CSeries falling flat? One reason may be its awkward "in-between" size; it is small for a mainline jet, but larger than regional jets. Adding a larger model would greatly increase the CSeries' competitiveness, and could lead to significantly more orders.

Commonality is key
The CSeries will primarily compete with Embraer's E-Jets, Boeing's 737 family, and Airbus' A320 family. All three of these aircraft families have current-production models that will be superseded by new versions later this decade. Bombardier opted for a "clean sheet" design to maximize performance, whereas all three competitors are updating current models with new engines and wings while minimizing other changes.

A significant problem for Bombardier is that while its design may have a performance advantage relative to competitors, most airlines like to keep their fleets as simple as possible. The new Airbus, Boeing, and Embraer models will all maintain "commonality" with the current generation aircraft. Airlines currently operating Boeing 737 Next Generation aircraft will not need to retrain pilots to fly Boeing 737 MAX planes when they arrive.

Furthermore, while the smallest versions of the Airbus and Boeing families go head-to-head with the CSeries, Bombardier does not offer a plane that competes with larger variants of the Boeing 737 and Airbus A320 families. Whereas the largest CSeries plane has a maximum capacity of 160 passengers, the Airbus A320 seats up to 180 and the A321 has a maximum capacity of 220. Similarly, the Boeing 737-800 seats up to 189 passengers and the 737-900ER maxes out at 220.

This means that Airbus and Boeing customers can order different-sized aircraft that use the same technology, simplifying crew scheduling and maintenance, while allowing the airlines to match capacity to demand on various routes. Recently, the most popular models have tended to be the larger ones, as they offer lower unit costs. The models comparable in size to the two CSeries models have seen weak demand recently.

Time to move up
While Bombardier has constantly dismissed speculation that it will offer a stretched version of the CSeries soon, it looks like this may be the company's best bet. CSeries jets may offer lower costs than directly competing models like the 737-700 and the A319, but airlines increasingly prefer the larger 737-800/900-ER and A320/A321 models anyway. As long as airlines are buying large narrowbodies from Boeing and Airbus, they will usually prefer to stay within the same family for small to medium size narrowbodies, due to the advantages of commonality.

By stretching the CSeries to compete directly with the 737-800 and A320, Bombardier could enter the highest-volume segment of the narrowbody market while also enhancing the appeal of the smaller CSeries models. Airlines that today are choosing Boeing and Airbus over Bombardier due to the benefits of commonality might find the CSeries more appealing if it would cover most or all of their narrowbody needs.

Foolish bottom line
Bombardier has stated that it expects to sell thousands of CSeries aircraft over the next 20 years. To do that, it probably needs to offer a larger version of the plane. Right now, Bombardier is stuck in the smallest and lowest-volume segments of the narrowbody market. Even if the CSeries objectively outperforms competing aircraft from Boeing, Airbus, and Embraer, it suffers from the disadvantage that it is the only "all-new" design, which increases training costs and complexity.

By offering a larger CSeries, Bombardier would be able to cover more of the narrowbody market, gaining some of the benefits of commonality for itself. Airlines might be more willing to add an unfamiliar aircraft type to their fleets if it covered a larger proportion of their aircraft needs. If Bombardier wants to compete with Boeing and Airbus, it needs to go all the way!

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Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 25, 2013, at 2:34 PM, rsjolly wrote:

    There is a limit to the length of the CSeries. The author argues it should be longer, but doesn't seem to investigate if that is even possible.

  • Report this Comment On June 25, 2013, at 3:33 PM, TMFGemHunter wrote:

    @rsjolly: Thanks for the comment.

    I'm not an engineer, so I can't personally evaluate the technical feasibility of stretching the CSeries. However, manufacturers stretch airplane designs after the fact all the time. Additionally, Bombardier has trademarked CS500 and CS900 (the two existing models are CS100 and CS300). That suggests at a minimum that Bombardier has not ruled out stretching the CSeries.

    A number of airline analysts have suggested that Bombardier might stretch the CSeries over the past several years, so this isn't exactly a radical new idea. Bombardier has always refused to comment on speculation, but they have never said anything to suggest that the CS300 is the biggest aircraft they can build.

    Hope that helps.

    Adam

  • Report this Comment On June 25, 2013, at 6:20 PM, neamakri wrote:

    "By reducing the weight of the aircraft, these materials improve range, payload, and fuel efficiency."

    So if they increase payload so that plane+payload weighs the same as before, how does that improve range and fuel efficiency? I don't think so!

  • Report this Comment On June 25, 2013, at 6:31 PM, pigle36278 wrote:

    They need to scale up. A plug ahead of the wing, one behind it..maybe some more powerful engines, that is about it. This thing CANNOT compete with pencil-thin regional jets, or the bigger -37/320. They sized it just..WRONG. 'How much you 'wanna bet someone get's fired over this!

  • Report this Comment On June 25, 2013, at 7:59 PM, TMFGemHunter wrote:

    @neamakri: I think you answered your own question. There's a tradeoff. But you can carry more payload (i.e. the same total weight) the same distance on the same amount of fuel. Or you can fly the same payload further without extra fuel. Or you can do something in between.

    @pigle36278: Right now, CSeries looks to be slightly more successful than the similarly-sized MD-95/Boeing 717, but not very much. It's ultimately competing in the same small mainline narrowbody market. I agree that it's not very surprising it's taking a while to nail down orders.

    Perhaps somebody will come along who has been looking for exactly this size aircraft. ValuJet/AirTran basically salvaged the MD-95/717 in that way.

    Adam

  • Report this Comment On June 26, 2013, at 6:09 AM, amj2626 wrote:

    GET YAHOO TO CHANGE THE TAG LINE TO THIS ARTICLE!!!! THE WORDS "CRASH AND BURN" AT PARIS AIR SHOW ARE INEXCUSABLE !!!!!!! I am a aircraft engineer and Bombardier maybe a little later tot he party but this is a huge market....if this aircraft has the rugged designs like the Dash-7 and Dash-8, it will be a winner that Airbus and Boeing can not compete with.

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