Used Jets Glut Tests an Airline's Ability to Get New OnesBy and
Who wants secondhand regional aircraft over updated models?
Aerolineas Argentinas seeks larger planes as routes get busier
Aerolineas Argentinas SA is looking to replace its 26 Embraer E190s with larger planes. Problem is, they need to unload the old fleet and there’s little demand out there for used regional jets.
Embraer is preparing to start production of upgraded versions of its best-selling planes at the same time rivals from Canada to Japan are ramping up their own offerings of 90- to 100-seaters.
“This space is getting very crowded,” said George Ferguson, an analyst at Bloomberg Intelligence, citing the new options from Bombardier Inc., Mitsubishi Aircraft Corp. and Sukhoi Civil Aircraft. “The problem you get when you are crowded from a new product standpoint is everybody starts discounting a new product and that means all the used products get beaten down too.”
Aerolineas is shopping around for new aircraft at several planemakers including Embraer SA, Airbus SE and Boeing Co., betting that demand will rise as the Argentine economy inches toward recovery and air travel increases.
"In a growing market like ours, everything indicates the E190 isn’t the right plane," Aerolineas Argentinas Chief Financial Officer Abbott Reynal said in an interview. "If you have a market that consumes more, it doesn’t make sense to fly with a small plane and the same number of pilots, mechanics and so on."
That said, if Aerolineas can’t get a good price for its Embraers, the fleet update could be in jeopardy, he said. Out of the 26 E190 they operate, 22 belong to the airline and four are leased.
Aerolineas’ best route could be to sell back to Embraer and trade up for newer models, BI’s Ferguson said. The E195-E2 -- with a maximum of almost 150 seats -- is expected to start flying commercially in 2019.
“My guess is that Embraer may actually be the best place to go, considering it needs a backlog,” Ferguson said. The company reported a backlog of 285 of its second-generation regional jets as of June 30, of which 102 are for the biggest version. That compares with Bombardier’s backlog of 346 for its new C Series aircraft; it has delivered 14 new jets since introducing the plane.
Embraer signaled it’s open to discussion with Aerolineas, the company said in a reply to a request for comment.
It could be a “natural evolution as routes mature” to add the new E-Jets to the Aerolineas Argentinas, Reinaldo Krugner, Embraer’s vice president for commercial aviation in Africa, Latin America and Portugal, said by email. The E190s “played a crucial role” allowing Aerolineas Argentinas to “open new routes between different provinces that had previously not existed,” he said.
Embraer fell 2.2 percent to 18.04 reais at 3:26 p.m. in Sao Paulo trading.
Aerolineas Argentinas is also banking on a more efficient fleet helping it meet its goal of cutting its reliance government subsidies -- newer aircraft tend to be far more fuel efficient. The carrier is getting about $170 million this year, down from $300 million last year. The subsidies are expected to be eliminated altogether at some point between late 2019 and early 2020.