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Bombardier, Canadian Operators, Commercial Airliners, Major Airlines, Regional Aircraft, Regional Airlines

The US regional airline industry is changing, only 3 BIG Majors left who use regional airlines, and now at least 584 small 50 seat RJ’s are on their way out to be replaced by up to 346 larger 76 seat RJ’s coming in (1.7 : 1.0 ratio) and that means the total US regional airline fleet is heading for a 14% decline of around 238 RJ’s, and can all of the 8 US regional “airlines” survive the changes ? and what is going to happen to all those 50 seat RJ’s ?

It is time to take a good and serious look at the US regional airlines and the “small” 37 to 50 seat regional jet market (Bombardier’s CRJ line and Embraer’s ERJ line), globally numbers 1,445 active aircraft, of which 1,054 (73% of global fleet) are operated by 8 US regional airlines for 4 mainline US airlines (UA, DL, AA and US) and an additional 4 ERJ aircraft are operated by private operators on charters.

Sadly, 584 small regional jets are going to be withdrawn from service (55% of US fleet) leaving only 470 small regional jets in service within the next 3 years, many of them well before their “normal’ commercial retirement age of narrow body commercial jets (21-26 years old), in most cases less than 18 years old. While up to 346 new 76 seat RJ’s will join the US regionals, but aircraft numbers will go from 1,657 today to around 1,417 with 2.9% less total seating capacity than today.


The latest fleet plans of US regional airlines show that over the next 3 years at least 584 of the existing 1,054 of these 50 seat Regional Jets will be withdrawn from service, to be replaced by at least 346 newer 76 seat Regional Jets. These 50 seat RJ’s the CRJ-100/200 and the ERJ-145 (both above) still have life in them, they are NOT fuel guzzlers as this article shows, and they still have a good life in them, especially with much lower lease rates, that today are 30% of what they were 10 years ago.


Now, I have a problem with all the talk of how fuel inefficient the 50 seat jets are, and every article talks about how “rising costs have sucked the profitability out of the 50 seat regional jet market”.  So let’s put that argument to rest here and now, I have analyzed the fuel burns per sector and per passenger seat of the 50 seat CRJ-200, the 50 seat ERJ-145LR, the 70 seat CRJ-700 and the 88 seat CRJ-900 over stage lengths of 300 nm, 400 nm and 500 nm and you will see that it is not fuel inefficiencies that are killing the 50 seat RJ’s.

CRJ-200 Block Fuel (USG)/USG per seat           –    300 nm = 402 USG / 8.04 USG per seat,        400 nm = 494 USG / 9.88 USG/seat,          500 nm = 582 USG / 11.64 USG/seat.

ERJ-145LR Block Fuel (USG)/USG per seat      –    300 nm = 343 USG / 6.86 USG per seat,        400 nm = 494 USG / 8.67 USG/seat,          500 nm = 582 USG / 9.86 USG/seat.

CRJ-700 Block Fuel (USG)/USG per seat           –    300 nm = 541 USG / 7.73 USG per seat,         400 nm = 675 USG / 9.64 USG/seat,          500 nm = 782 USG / 11.17 USG/seat.

CRJ-900 Block Fuel (USG)/USG per seat           –    300 nm = 634 USG / 7.20 USG per seat,        400 nm = 728 USG / 8.27 USG/seat,          500 nm = 896 USG / 10.18 USG/seat.

As you can see the differences per seat are minimal, if I take the 500 nm sector and use the ERJ-145LR USG/seat as my BASE, then we have the CRJ-200’s +18%, CRJ-700 +13% and the CRJ-900 +3%. The fuel burn per seat is the highest for the CRJ-200 but even with 20 more seats the very popular CRJ-700 fuel burn per seat is ONLY 4% better than the CRJ-200.

So its not about the fuel costs, this industry is driven by seat costs and a 70 seater will have lower CASM than a 50 seater that is understandable, but its not about fuel, in fact this whole market is driven by pilot scope clauses, when operation of jets to 50 seats was allowed we had our boom in 50 seat RJ sales, now those scope clauses are moved to 76 seats and the boom on for large RJ’s. Now, early on in the boom days for CRJ’s and ERJ’s lease rates were $185,000+ in some cases now CRJ-200 lease rates are coming down, depending on year and times, it is as low as $35,000 a month and up to $60,000 a month., while ‘real’ values have dropped to $2.0 million to $5.0 million, lessors will have to come down on lease rates as up to 584 are being withdrawn in the US over the next 3 years, the desert will be flooded with CRJ-100/200’s and ERJ-135’s/140’s and 145’s ! As for ERJ-145’s values are between $2.2 million and $6.0 million with lease rates around $40,000 to $65,000 today.

Now lets assume you can get a a ERJ-145 for $45,000 instead of $165,000 per month, that is $1,440,000 annual saving in lease payments, over 2,500 block hours a year and you are looking at a reduction in DOC of $576 per block from the reduced lease, and now the economics start to look attractive no ? add in the fact that many small RJ will be scrapped/salvaged for parts and parts will come down in price and you start to have a good business case for a 50 seat RJ on routes where yields can produce a 50-60% break-even load factor. Anyway, its something to look at as aircraft get parked, some for good and many will be parted out worth more in parts then whole.

I have said my peace on the fuel inefficiency argument of the small RJ, they are not so bad, especially the ERJ-145 which is much better than the CRJ-200 and holds it owns against the bigger CRJ-700 and CRJ-900 on a fuel burn per seat basis, which is a good comparison to make.

The new pilot scope clauses allows for more 76 seat aircraft in 2 class configuration, and roughly 346 of these aircraft will be joining some of the 7 US regional airlines presently operating 761 “large” regional aircraft (CRJ 700/900, E170/175 and Q400 turboprop).

Where there are 1,657 regional jets (37-76 seats) flying in the US today of which 1,054 (64%) are small RJ’s and 603 (36%) are large RJ’s (51-76 seats), in 3 years there will be only 1,419 regional jets in total (reduction of 238 RJ’s), but only 470 small RJ’s (down to 33% of fleet a loss of 584 small RJ’s) and 949 large RJ’s (up to 67% of fleet a gain of 346 large RJ’s). The fleets are changing right now and over the next 3 years roughly 10 large RJ’s will enter the market for every 17 small RJs leaving for the desert, many will never fly again.


The Embraer ERJ-145 (above) has lower fuel burn (USG per seat) than the 70 seat CRJ-700 and even the 88 seat CRJ-900, these  aircraft are not “fuel guzzlers”, and with many heading for the desert for good, it is time for many regional airlines and start-ups to look at this aircraft especially as values and lease rates come down.


This is suppose to mean more connections over fewer hubs, revenue production is more efficient, capacity will grow through larger capacity RJ’s while improving economies of scale (spreading fixed costs over more seats).

So when I do the math the existing 1,657 RJ’s (36% large RJ’s) I have a total seating capacity of 98,528 seats (assuming 50 seats for ‘small’ RJ and 76 seats for ‘large” RJ, slight variations exist), and with the proposed 1,419 RJ’s (67% large RJ’s) I get 95,624 total seats (a decrease of 2.9% in seat capacity) with a 14.5% decrease in RJ’s.

The shift to fewer but larger regional airliners flying less frequencies has to be worrying for regional airline pilots, and the regional airlines themselves, as in the end roughly 238 less regional airliners will be operated by the US regionals in a market now very competitive.

Lease rates will take a dive as supply will greatly exceed any possible demand for the small regional jets, and with many to be parted out for parts, one can expect lower prices for many parts/components.

Let’s take a quick look at the global ‘small’ regional jet market:

  • Bombardier delivered 1,021 CRJ’s which is 53% of market deliveries (276 x CRJ-100’s, 709 x CRJ-200’s and 86 x CRJ-440’s), with only 723 in service today (71% of built), of which 517 (71% of fleet) is flying for the 4 main US airlines, where the CRJ has a 49% market share today.
  • Embraer delivered 890 ERJ’s which is 47% of market deliveries (108 x E135’s, 74 x E140’s and 708 x E145’s), with only 722 in service today (81% of built), of which 537 (74%) of fleet is flying for the 4 main US airlines, where the ERJ has a 51% market share today.
  • The current distribution of all small RJ’s is 78% in North/South America (1,135), 12% in Europe (171), 5% in Asia/ME (76) and 4% in Africa (63).
  • The biggest US ‘users’ of small RJ’s is UA with 370 at this time (92 CRJ’s, 278 ERJ’s), DL uses 318 small RJ’s (287 CRJ’s and 31 ERJ’s), AA uses 225 (12 CRJ’s and 213 ERJ’s) and US uses 141 (126 CRJ’s and 15 ERJ’s), so market share goes to ERJ with 534 aircraft (51%) versus 517 CRJ’s (49%).
  • As far as preference by the Major airlines, one can see DL prefers CRJ’s (90% of aircraft used), UA  prefers ERJ (75% of aircraft used), AA prefers ERJ (95%) and US prefers CRJ (89%).


 Canada has 44 CRJ-100/200’s in service (27 with Jazz, 6 with Air Georgian, 3 with R1 and 8 with Voyageur), as more are taken out of service in the US, lease rates could make them very attractive economically for long thin routes with high yields, like in the north, but runways need to be paved off course, and Bombardier has to deal with the maintenance costs for high time aircraft.


The low market penetration of small RJ’s outside of the US is currently only 387 aircraft (27% of global fleet), add in Canada’s 44 CRJ’s (27 x Jazz, 8 x Voyageur, 6 x Air Georgian, 3 x R1) you have only 342 outside of North America (24% of global fleet), which does not hold well for re-marketing the 584 small RJ’s being withdrawn in the next 3 years in the US market, a big problem for lessors and financial institutions that have CRJ’s and ERJ’s in their portfolios.

At this point I think worth looking at how the industry got to this point, where today due to 4 big mergers in the past 6 years (UA and CO, DL and NW, SW and FL – Air Tran and lastly AA and US), where now the 4 BIG players in the US market have 83% of the domestic capacity and they carried 414 million passengers in 2013 !

This has resulted in several hub closures, capacity rationalization and why we saw the industry very profitable in 2013 (except UA), the hub closures are a double edged sword as it has opened up opportunities for LCC’s and ULCC’s to move in and establish themselves in those markets while regional carriers networks were downsized.

With only 17% of the US domestic passenger market not controlled by the BIG 4 (really 3 as AA and US have come together), it leaves 8 other US airlines to fight for what is left of the 17% market share, it is a highly fragmented mix of airlines (LCC’s, ULCC’s and Hybrids):

JetBlue 31%, Alaska 20%, Spirit 12%, Frontier 11%, Hawaiian 11%, Allegiant 7%, Virgin America 6%, Sun Country 2%

With ULCC’s focusing on low yield leisure traffic, the BIG 3 now can focus on premium business travelers with a lot less competition today than 6 years ago.

With the BIG 4 now having so much market power over the US regionals, competition is very fierce for the business. The latest trend is for the BIG 3 mainline partners to buy the aircraft and allocate them to a regional airline under CPA’s (capacity purchase agreements).

For those that may not know how the relationship works between a regional and a mainline airline, I will give a brief overview.

Regional airlines enter a code share agreement with a major airline to fly on their behalf and to use the major airline’s two letter flight designator codes to identify the regional airline’s flights and fares in the CRS (central reservation systems). The code share obligates the major airline to provide services such as reservations, ticketing, ground support, gate access, while the regional airline provides designated flights from large cities to surrounding low traffic destinations with small regional aircraft (19 to 76 seats-usually). The financial arrangements between the regional airlines and their code-sharing partners usually involve one of two arrangements:

  1. FIXED-FEE ARRANGEMENT (better known as CPA – capacity purchase agreements)

The Major airline pays the regional airline a fixed fee for each cost driver:

i)              Block hours – crew wages/benefits, crew per diem, hotel, training

ii)             Flight hours – maintenance wages/benefits, engine overhaul, airframe and other maintenance

iii)            Departures or Cycles – engine LLP (life limited parts), landing gear and other maintenance

iv)           AC (aircraft) days – back office wages and benefits, other expenses and overhauls

v)            Pass-through costs – fuel, landing fees, rents, A/C ownership, insurance, taxes, these costs are paid by code share partner on actual amount of cost, the other cost drivers above are paid at pre-determined rates.

For regional airlines, they have low risk, no fuel exposure, airport costs, insurance, A/C ownership, passed to partner, high quality operations can get ‘bonus’. The regional airline is really not an airline, it is sheltered from most of the elements that cause volatility in airline financial performance like yields, load factors and fuel prices, they are ACMI operators, but now the Aircraft is being taken out as Majors buy the aircraft, Insurance is covered, some Maintenance is covered, so only Crew is left, drive that cost down and you have a competitive advantage (in fact Skywest Airlines salary, wage and benefits are 39% of total operating costs).

There is no upside to increased yields, load factors of decrease in fuel, because the Major partner absorbs most of the cost associated with the flight, the margin is lower on CPA’s as the regional airline has little or no risk.

So the US regional airline must control costs, make sure it is as low as possible and above what you get from your partner, for instance at Skywest the biggest US regional with $3.297 billion in revenue (flies for UA, DL, AA, US and AS-Alaska), operates 757 regional aircraft, average annual aircraft utilization is 3,152 block hours (8.8 hours per day average) and CASM is $0.082 (off course that is very low as it excludes a lot of costs, mainly fuel, etc.) and net RASM is $0.084 very tight margins indeed, net income margin was 4.64% in 2013 !

Air Canada has CPA arrangements with 4 regional airlines in Canada (Jazz, Sky Regional, Air Georgian and EVAS) which operate 19 passenger Beech 1900D’s to E175’s and Q400’s, and is slowly adopting the same competition oriented bidding process for new routes and aircraft that US mainline carriers are using to squeeze their 8 regional airlines to bid as low as possible. Jazz use to be the exclusive partner for Air Canada but not anymore, and the last 3 big deals (5 x Q400’s, 15 x E175’s and 6 x CRJ-200’s) did not go to Jazz, but to Sky Regional and Air Georgian.

The CPA responsibility for the Air Canada Express partners is the same as in the US, provide crews, flight operations, airframe maintenance and where required airport operations, while Air Canada determines routes, schedule, ticket prices and marketing. For Air Canada the benefits are cost advantage (AC claims -11% saving in operating costs in E175 operation after Sky regional took over the operation of all 15 from AC), flexibility and a big competitive advantage as Air Canada Express serves 60 destinations of which 31 are NOT served by WestJet (yet).

For The Air Canada Express partners they get to fly nice equipment, expand their business, have protection from cost volatility, have long term agreements and guarantees, where would EVAS or Air Georgian or Sky Regional be without Air Canada’s CPA ? its a wonderful opportunity and with Jazz/Chorus Aviation CPA to expire December 31, 2020 who knows what will happen in the next 6+ years ! Jazz lost out on the last 3 big deals (26 aircraft), and its 62 strong DHC-8 fleet is getting old and what of the 26 strong CRJ-200’s ? so there are questions about its future direction, though no one talks about it, but I do, it generates 99% of its revenue from Air Canada has also fallen on its face with the $15 million loss on the Pluna bankruptcy (Uruguayan airline) and the Thomas Cook operation of 6 x B757 for 5 years was cancelled after 2 years, we shall see but change is needed somewhere.

Embraer 170-1CRJ700

These are the new large RJ’s the E170 and CRJ-700 both can have two class seating for 65+ passengers, the two class cabin improves the economics of the aircraft as the Majors target premium yield passengers and a better product on connecting flights is needed, which was not really offered on the 50 seat RJ’s.



Here the major airline and the regional airline negotiate a proration formula, where the regional airline receives a percentage of the ticket revenues for those passengers travelling for one portion of their trip with the regional airline, all costs are borne by the regional airline. There is an upside if yield and load factors increase or fuel prices decrease, and also a downside, where the regional can be in a loss situation on its pro-rate flights. The Majors like this set up and want the regional airlines to do more pro-rate deals, but few takers for now.

In fact, Skywest to my knowledge is the biggest pro-rate regional with roughly 10% of its revenues coming from such an arrangement, leaving 90% for the almost risk free CPA flying.

Let’s look at the operators of small and large regional jets in the US:

1. Skywest with 515 small RJ’s, flies 341 for UA, 147 for DL, 12 for AA, 15 for US . Operates 205 Large RJ’s, 70 for UA, 30 for DL, 47 for AA and 58 for US.

2. Envoy (ex-American Eagle) with 198 small RJ’s for AA (soon down to 178). Operates 47 Large RJ’s all for AA

3. Endeavor Air (ex-Pinnacle now DL owned) recently had 140 small RJ’s now down to 96 and all gone by end of 2014. Operates 66 Large RJ’s with 15 due this year

4. Air Wisconsin with 71 small RJ’s, flies for US only, no plans at this time for large RJ’s, situation after the AA/US merger is unknown, there will be some bad news for some of the 6 US partners, airline has long history since 1965, bought Mississippi Valley Airlines, Aspen Airways and operated SD330/360’s, DHC-7’s, BAe 146-300 (only US operator), BAe ATP (only US operator), Do328, hate to see it go !

5. Republic with 70 small RJ’s, flies 12 UA, 31 for DL, 15 for AA, 12 for US . Operates 205 large RJ’s  in 2013 sold Frontier Airlines to Indigo Partners, had bought Midwest Airlines in 2009, roots go back to Chautaugua Airlines (1973)

6. PSA (old Pacific Southwest Airlines trade mark name), flies 35 small RJ’s for US and 15 large RJ’s for UA and will operate 29 x CRJ-900’s for AA in 2014

7.TransStates, operates 17 small RJ’s for UA and 3 for US  and 9 more ERJ-145 arriving, no large RJ’s operated but has order for 50 x 76 seat Mitsubishi MRJ70’s or 92 seat MRJ90’s plus 50 options, it also owns GoJet (25 CRJ-700’s for UA and 22 CRJ-700’s for DL) and Compass Airlines (42 E170/175’s for DL).

8. Mesa, operates 5 small RJ’s (fading them out now) and 20 large RJ’s for UA and 49 for AA/US


With so many airplanes coming and going in the US regional market lets look at the majors and how theire regional fleets will change shortly, note that as I write small RJ’s are being withdrawn and new large RJ’s are entering service, so these numbers will change almost weekly with the number of small RJ’s going down and large RJ’s going up 1.7:1.0 ratio (17 small RJ’s out for 10 large RJ’s coming in).

Delta Airlines, presently operates 318 small RJ’s (30% of small RJ’s), that will go down to 125 while it presently operates 255 large RJ’s (42% of large RJ’s) that will go up to 325, in terms of total RJ’s Delta will go from 573 to 450.

United Airlines, presently operates 370 small RJ’s (35% of small RJ’s), that will go down to 195 while it presently operates 182 large RJ’s (30% of large RJ’s) that will go up 255 RJ’s, in terms of total RJ’s United will go from 552 to 450.

American Airlines, presently operates 225 small RJ’s (21% of small RJ’s), that will go down to 75 while it presently operates 47 large RJ’s (8% of large RJ’s) that will go up to 250 RJ’s, in terms of total RJ’s, American will go from 272 to 325.

US Airways, presently operates 141 small RJ’s (13% of small RJ’s), that will go down to 75 while it presently operates 119 large RJ’s (20% of large RJ’s) that will remain at 119, in terms of total RJ’s, US Airways will go from 260 to 194.

The US regional airline industry is going through some big changes, the business model is changing, only 3 BIG customer (AA, UA, DL) and the competition is tough, probably not all 8 existing regional airlines will survive, Air Wisconsin is operating only small RJ’s while TransStates is flying ERJ-145 and “hoping’ that the new Mitusbishi MRJ 70 or MRJ 90 will be certified and wanted by one of the 3 Major airlines, though it’s GoJet and Compass subsidiaries operate 99 (CRJ-700’s, E170/175’s for UA and DL), its about who can drive costs lowest so that they can operate larger RJ’s and with new aircraft being bought by Majors, the regional airline has very little revenue to play with for better margins, I already noted that Skywest’s biggest cost is labor at 39%. The 50 seat era is gone, now bigger aircraft will dominate, but that means more destinations dropped, and maybe a new generation of airlines serving what the BIG players don’t want to serve, reminds me of the 1980’s after deregulation.

There is going to be a boom in 76 seat regional aircraft market for awhile, but in the end it looks like there will be fewer aircraft and fewer regional airlines, so many things on their plate, they have to deal with operational performance, changing regulatory environment, lack of qualified pilots, hub reductions, right sizing fleet, staying cost competitive yet offer safe operations, growing new pilots and attracting the industry’s best professionals when margins are tighter and pro-rate is being pushed by the Majors trying to shift more risk on the regional airlines. With Majors buying large RJ’s now they are shopping for the best deals, recent 60 x E175 order will NOT go to Envoy (ex-American Eagle) due to contract issues with pilots, United’s 30 x E175’s are going to Mesa after what I am sure was a heated bidding war and Delta is letting fully owned Endeavor to operate the latest 40 x CRJ-900’s, probably everyone bid but all Endeavor needed was to match the lowest bid, and surely a fully owned regional airline subsidiary at DL is something surely worrying for all  DL partners.

When the Major owns the aircraft, the CPA can now be shorter than before (good for the Major), will have lower margins for the regional airline as revenue decreases and its corresponding margin, and all regional airlines can bid on the new business, regardless of balance sheet strength which is needed for self financing, and lowest bidder wins, as Mesa did with UA after years of struggling out of Chapter 11 bankruptcy.

Now there is still more issues for the regional airlines,, CPA escalations are not keeping up with the cost of labor and maintenance costs, as CPA’s generally go up by change in CPI (consumer price index), new pilot contracts for instance have wage increases above the CPI, aging aircraft maintenance checks are very expensive, many engine LLP costs are coming up as well as engine overhauls many of these costs are not covered by Major, and lastly the small RJ leases and debt obligations extend beyond the term of some CPA’s another risk cost to be covered by the regional airline. The latest CPA Deals (UA Q400’s and AA E175’s) have matched aircraft obligations, which will hopefully be the norm and any extensions of current aircraft.

I wish all airlines and OEM’s much success, I do not wish anyone any bad, just write down what I believe may happen, I am a real student of the industry, and keep my eye out signals of trouble, and this could be big trouble for lessors, Bombardier and its residual value guarantees, etc.

Thank you again, comments always welcome-good ones preferred.





About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 30+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (50+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems in the business for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com I write a lot of Articles and Posts on LinkedIN: https://www.linkedin.com/in/tomas-chlumecky-3200a021/


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