E175 ‘sweet spot’ threatened if scope clauses change: AFJ North America 2020
The Embraer E175 position at the “sweet spot” for regional aircraft in the USA may come under threat if airlines are able to renegotiate their scope clauses amid the Covid-19 pandemic, appraisers have agreed.
Speaking at the Airfinance Journal North America 2020 virtual conference on 29 July, Doug Kelly, senior vice president, asset valuation, Avitas says that the E175 is a well-positioned aircraft to remain in demand in North American markets.
This is because of the scope clauses that airlines have negotiated with unions that limit the number and size of aircraft that may be flown on regional routes.
Other types such as the E170, E190 and E195 may face a much more “limited market”, Kelly believes.
“It doesn’t mean there is no market for the E170 but we have talked about their being an oversupply of aircraft across the board, nobody is looking to add lift right now,” he says.
Olga Razzhivina, senior ISTAT appraiser, Oriel agreed that the E175 hits the “sweet spot”, but warns this may not be the case if scope clauses change.
“If US airlines take the Chapter 11 route and renegotiate their scope clauses, in the longer-term the sweet spot could be under threat,” she warns.
Simon Finn, director aviation research, at MUFG agrees, noting that in previous crises US airlines have succeeded in renegotiating scope clauses.
“I wouldn’t exclude them being renegotiated,” he says, but adds that even in this situation the aircraft remain “well positioned” in current market conditions.
Razzhivina says the prospects for such types as the E190 are more challenging, due to their large size and higher engine maintenance costs, which General Electric was not able to alleviate quickly enough.
She sees potential demand for the E170 in certain emerging markets, such as in Africa.
Referencing earlier comments from Cowen’s Helane Becker, Kelly says much will depend on the speed with which domestic, visiting friends and relatives and business traffic recovers in the USA and elsewhere.