Air Transport World

Flying a bit under the weather: Regional airlines stayed healthy even as their Major partners went on the critical list, but now they may be coming down with a case of the sniffles.

There used to be a saying among seasoned Regional airline insiders regarding the pitfalls of codesharing relationships with larger carriers: "When the big airline coughs, the Regional gets pneumonia." That didn't happen after 9/11, however. Most of the big airlines got pneumonia but the disease wasn't very contagious. As network carriers slashed schedules, parked aircraft and dropped service to many cities, Regional partners were invited to pick up much of the slack. Growth and profitability of the segment remained surprisingly strong, particularly in the US where the industry was hardest hit by the downturn.

And despite the paucity of new orders over the past 20 months, the two big regional aircraft manufacturers, Bombardier Aerospace and Embraer, managed until recently to hang onto their existing backlog without too much dislocation.

But this year a few Regionals have gotten the sniffles and it's their suppliers who appear to be afraid of catching something worse. One of the first signs of potential trouble came in February when ExpressJet, Continental Airlines' fast-growing Regional subsidiary and codeshare partner, announced it would defer 27 ERJ-145XRs from 2003-04 to 2005-06, reducing deliveries in the earlier period to 57 from the 84 previously scheduled.

The move set off alarm bells at Credit Suisse First Boston, whose lead airline equities analyst, James Higgins, called it a "seminal event," noting it was the first time a Major airline with "virtually unrestrained access to regional let feed" bad backed down on its growth plan. To Higgins, this was evidence that "the industry's supply and demand are so imbalanced that even small aircraft added at relatively low plane-mile costs are reaching saturation." He warned: "Those who have seen unfettered growth for RJs as far as the horizon stretches have got to take notice of this event."

This was followed in late March by the news that Swiss International Air Lines, launch customer for the Embraer 170/190 program, was deferring deliveries from 2003 to 2004 and cutting its firm orders in half, from 60 to 30, while slashing options from 100 to 20.

That same month Bombardier Aerospace announced it was laying off 3,000 workers even though it has not reported any RJ order cancellations in the past year. President and COO Pierre Beaudoin stated at the time that the cuts were in response to "challenging market conditions. …

Log in to your account to read this article – and millions more.