Production of regional aircraft increased by nearly 30 percent between 2012 and 2014. While the rate of growth in annual build rates will likely moderate in coming years, various indicators point to continuing increases in annual production through at least the year 2020. Production of regional jetliners will account for much of this expanding output at manufacturers, especially new jet models that are slated to enter service during the forecast period. Retirements of older aircraft and growth in passenger traffic on routes flown by regional carriers are driving customer demand for large-capacity regional jets seating 70 passengers and up. Many of these aircraft will be used to replace smaller, 50-seat jets that still populate the fleets of regional carriers. Operating economics are hastening the departure of 50-seat jets from airline fleets. With the progressive relaxation of scope clause restrictions, many regional airlines are replacing their 50-seaters with jets sized in the 70-76 seat range. In the U.S. market, 76 seats generally remains the upper limit on aircraft size permitted, under scope clause restrictions, to be operated by regional partners of legacy airlines. The last round of scope clause liberalization, which occurred in 2012, entailed increases in the number of 76-seaters that could be flown by regional partners, rather than an increase in the allowable aircraft size. The next round of pilot contract negotiations at U.S. legacy airlines is already underway. Delta's pilot contract expires at the end of 2015. United's contract can be amended in January 2017, and American's contract in January 2020. The negotiations will be closely watched by regional jet manufacturers, who have a very large stake in the outcome. It is quite possible that the 76-seat limit will remain in place, but that the accompanying 86,000-pound limit in maximum takeoff weight (currently found in all three contracts) will be raised. This would permit new aircraft such as the E175-E2 and the MRJ90, which exceed this weight restriction, to be operated in 76-passenger seating layouts by regional partners. Scope clauses have long placed an artificial limit on growth in the regional jet market in the U.S. For this market to ever reach its full potential, the maximum seating capacity allowed by scope clauses would have to be increased to 90 seats or more, rather than remain at the 76-seat limit that is currently the norm. Meanwhile, regional jets seating 90 or more passengers are being ordered by regional carriers that are unencumbered by scope clauses. They are also being ordered by low-fare airlines, mainline carriers, and leasing firms. Demand in the regional jet market is already moving toward larger-capacity aircraft. If scope clause limitations were removed, this trend would only accelerate. Sales of turboprop airliners have been strong in recent years, as high fuel prices and a need for carriers to reduce operating costs have driven demand for these aircraft. However, the recent steep decline in fuel prices is sure to cool off demand for turboprops, and make regional jets a more appealing alternative for carriers to purchase and operate. How significant and long-lasting the impact will be on the turboprop market depends, of course, on the future direction that oil prices take. Our forecast is based on oil prices gradually rising from the current level of $40-$50 per barrel to roughly $70 per barrel. The present era of low fuel prices also appears to have taken a lot of the momentum out of plans to launch a 90-seat turboprop. ATR and Bombardier have both been considering programs to develop such an aircraft, but neither has committed to a program launch. A launch by either manufacturer may be unlikely until fuel prices begin rising again on a sustained basis. Indeed, even in a high-fuel-price environment, there might only be room for one 90-seat turboprop airliner. Demand might not be sufficient to profitably support more than one such product. This is what makes the decision whether to launch a 90-seat turboprop complex. The first manufacturer to jump in would have an early sales advantage and just might scare off prospective competition. However, should a second manufacturer enter the market, the two companies may simply end up unprofitably splitting a small market. During the next 10 years, regional aircraft manufacturers will be making their product decisions against a backdrop of an airline landscape that is continuing to change. Consolidation at both the major carrier and regional airline levels is driving many of these changes. The challenge for aircraft manufacturers is to market and produce products that best fit the requirements of this ever-evolving industry.
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