This week is the Farnborough Airshow, a biennial orgy of aircraft orders where manufacturers try to flex their muscles and show the world just how much metal (or composites) they can sell. The whole thing is strange to me. Many of the orders are ones that have already been announced in some way or another, sometimes previously as being from “unidentified” buyers. But the news is choreographed to allow allow egos to be stroked, and that’s apparently considered necessary in this world. As usual, there were a slew of orders that rolled in this year, but one stood out because it’s just silly. Regional-operator Republic has gone and picked up 100 Embraer 175s with options on 100 more. Oh, and it has the right to convert to the larger E2 aircraft if it wants. I doubt any of these end up flying for the airline.
I suppose I should be clear here. These aren’t even truly orders. Republic has just signed a “Letter of Intent” for 100 of them (a purchase agreement should be signed “later this year”), and it now has “purchase rights” for the other 100. I’m guessing that’s just a fancy of way of saying they didn’t need to put down much money, but they can take the airplanes if they want them down the line. In the meantime, Embraer gets to pad its order book and make it look like it’s selling a lot more airplanes than it really is. The problem is, Republic doesn’t fly airplanes under its own brand. It only flies as a regional feeder, and its partners don’t need more regional capacity.
Republic used to have a diverse fleet, but now it only flies Embraer 170/175 aircraft. Currently it has 84 E175s flying as American Eagle, 20 E170s and 16 E175s flying for Delta Connection, and 38 E170s plus 28 E175s flying for United Express. I should note, these numbers are from Wikipedia so they might not be completely accurate. I didn’t bother to confirm, because the real number doesn’t matter enough for me to bother. Just know the airline operates a ton of Embraer 170/175s, so it does make sense that if it orders anything, it would be more of the same. But the bigger question here is… what will it do with 100 to 200 more of them?
The natural thing to do would be to place more airplanes with its existing partners, but that seems unlikely. Each of the big three US carriers has a strict scope clause which limits just how many regional aircraft can be flown in the 70 to 76-seat range. You can learn a bit more about that here.
The allocations of those aircraft are all full, unless something changes. I wouldn’t expect these rules to change through labor negotiations or anything like that. Sure, American could grow its fleet by also growing its mainline fleet, but it would need to add 250 mainline airplanes to be able to get 100 more regionals. Don’t count on it, and even if it did, don’t count on Republic winning that business.
The best growth potential is if United decides to order a 100-seat aircraft to be flown by the mainline operation. If it does, it will be able to add up to 70 new airplanes under regionals in the 70 to 76-seat category. But if that happens, is United really likely to give that flying to Republic on airplanes that Republic owns? It doesn’t seem likely. Look at what United did just one day prior to this announcement. United itself ordered 25 Embraer 175s. These aren’t new-growth airplanes but rather they’re going to replace CRJ-700s that are currently flying. (They will have only 70 seats on them, because they are replacing 70-seat aircraft and United has no room to grow 76-seaters.) But the point is… UNITED ordered the airplanes. It will then pick which regional it wants to fly those airplanes on its behalf.
This isn’t a new strategy. United owns the Embraer 175s that Mesa flies for the airline. And back in 2016, it even took over an order of 24 Embraer 175s that Republic was going to buy. Instead, United bought them and had Republic operate them. United isn’t alone here. American has been ordering its regional aircraft recently as well.
So what in the world is Republic thinking with this giant commitment? Will it add new partners? I can’t imagine so. Alaska doesn’t seem to need a new partner and that leaves… nobody else. Republic did used to fly under its own “brand” when it bought Midwest and Frontier and merged them. Maybe it’ll bring that idea back. Or not. That will never happen again considering how poorly that went.
Instead, this sounds like a good old-fashioned made-up commitment. I assume Embraer just needed to pad its order book for some reason, and Republic was the one who jumped in to help. This certainly isn’t unprecedented. Remember when Republic ordered the CSeries back in the day? Yeah, that order may even technically still exist, but there’s no way that airplane flies for Republic either.
Don’t forget that technically the E2s are still too heavy to fit within the scope clause of some of the majors. These might be replacement aircraft, but I doubt that you’d need to replace all of your current fleet.
Interesting write-up. I was just as perplexed when I saw this order. I think any relaxation in scope will not happen anytime soon. With legacy carriers now adding more and more “lost decade” pilots who spent a lot longer at a regional than they thought, I don’t see any appetite from the union (at least among the junior ranks) to relax scope. I could see these replacing older aircraft in the fleet or putting themselves in a position to replace the flying done by other regional carriers.
It’s been my thinking that we’ll see continued consolidation within the regional airlines. Could Republic make a play for Trans States Holdings? 100 E-Jets would go a long way to replace the older Republic & Compass E-Jets. If that happens I also can’t see Republic wanting to take on GoJet’s CRJ fleet long term. They could use E-Jets to replace that flying.
Brad – I don’t think replacements are needed. The earliest model E75 Republic has is from 2007. Most are from 2013 on, so that’s hardly in need of replacement. In a merger, sure you could look at replacing other airplanes in other fleets, but that isn’t really how the big guys work anymore. They prefer to own the asset and divvy it up. I’m not sure when the contracts are up with Compass and GoJet, but there’s no guarantee United would stick around with them beyond that even in a merger.
I can think of a couple of things. They could be looking to standardize on the 175 and retire the 170. They have some pretty old aircraft (with 170s dating to 2005 and 175s dating to 2007 like you mentioned), so they could be also planning to replace some of their earlier aircraft. And possibly making a play to pick up more flying from other airlines.
I have heard rumors of Republic aquiring Trans States, but they lost the AA contract and are signed up for the new Mitsubishi Jet.
As a DL guy, I wish they got the E-jet instead of the new CR9 order. The E just feels more comfortable…
I’m lucky that most of my flights on DL Connection are on E-jets. I have a CR9 next week and I’m not looking forward to that. E-jets are much, much nicer.
Does DL get to add more 76 seaters when the C-series, (oh now A220s) show up?
southbay – No. It was a one time increase for Delta when it added the 88 717s. It loses them if it drops below 88 airplanes in that range, I believe, but it can’t gain more.
If I remember correctly, the three major network airlines jointly own a controlling interest (or at least a substantial minority interest) in Republic as a result of its recent bankruptcy. It seems odd that the airline would make such a large order without seeking approval of (or input from) its owners (who are also its main customers). As you pointed out, this purchase also raises the question about the status of its order for 40 CS300/A220-300 aircraft.
Yeah, Embraer, American, Delta, and United together own about 75% of Republic. (https://courtcommercialrecord.com/streamlined-republic-airways-revamps-post-bankruptcy) While I don’t think there’s a replacement market for E170s/E175s yet, there’s a good chance that United will add a small mainline jet eventually and therefore be able to take another 70 E175s. I just don’t see how its current reliance on 50-seaters is sustainable in the long run. Also, there are hundreds of 12-18 year old CRJ700s and 10-12 year old CRJ900s flying around in the U.S. right now. A lot of those will probably be replaced over the next five years. Between rising maintenance expenses and poor onboard experience, I doubt the majors will keep those planes around for 20-25 years.
It’s true that American and United have placed direct orders with RJ manufacturers recently, but United also contracted with SkyWest a few years ago for a bunch of E175s that SkyWest purchased. Delta has also done a combination of buying its own RJs and contracting for planes that SkyWest bought.
Adam,
if you haven’t, read the transcript from UAL’s most recent earnings call. Kirby answered analyst questions both about flying large regional jets which are currently flown under contract by regional carriers for UA as well as the possibility of a small mainline aircraft. ON the first question, Kirby jumped in and said the economics of a mainline operated large regional jet (currently up to 76 seats) don’t work. On the second question, UAL’s finance chief jumped in and gave a very non-answer regarding a large narrowbody aircraft. DAL and UAL are now or will be operating some two cabin regional jets at less than capacity because of scope limits. It is a given that both want first and foremost to put the number of seats on those newer aircraft -replacements for CRJ700s – as those planes could hold. They all would love to add another row of seats to all of their large regional jets to increase the amount of revenue that could be carried. Delta has made the decision to move toward small narrowbody aircraft regardless of what happens with regional jets and its pilots; American and United are not certain.
Large regional jets play a key role in AA, AS, DL and UA’s networks but the big 3 are at limits that pilot unions are not apparently willing to lift at any cost.
New generation small narrowbody aircraft are an option that DL and B6 have now exercised but AA and UA show no interest in going down that path.
The core issue is what CF raises which is that there is very little likelihood that Republic will place all of these aircraft in operations for the big 3 and if they do something that violates the scope of big 3 pilot agreements, they will lose their contract flying at a time when it is becoming harder and harder for regional carriers to staff their operations.
And Republic isn’t the only regional carrier that wants to secure a future for itself with new flying and new aircraft making CF’s questions about what the order will actually become very real.
Tim Dunn, Adam mentioned a “small mainline aircraft” not a “large regional jet.” Kirby specifically mentioned that 76 seaters and their ilk aren’t profitable at the mainline. He didn’t rule out acquiring small mainline jets such as the A220-100/300 or the E-190/195. There are many possibilities (all of this is sheer speculation on my part). One scenario would be to follow Delta’s lead and acquire a fairly large number of smaller mainline jets in the roughly 95-120 seat category which, under most scope clauses (as I understand them), would allow more 76 seaters to be flown (another form of the upgauging which is now prevalent in the industry).
Hey Tim,
Kirby has said repeatedly that he wants more 76-seaters. United would like to add them without taking on the higher CASM and additional fleet complexity of a small narrowbody — but the pilots have said no way. (Meanwhile, the pilot union wants United to fly E175s as mainline planes, and Kirby made it clear that it’s a non-starter.) However, United already has the scope language necessary to add 70 E175s if it adds 88 small narrowbodies to the mainline fleet (E190/E195 — which I think includes the E2 models — or A220-100).
I don’t have any inside info, but my guess is United will eventually concede and opt for the small narrowbodies so it can get the extra 76-seaters. It’s not their preferred alternative, but what they want will never fly with ALPA.
@Ed and Adam,
Kirby’s comments about mainline flying large regional jets are relevant because it shows that UA is reaffirming what the rest of the industry has said for years which is that aircraft up to 76 seats do not make economic sense at a legacy carrier. The 76 seat limit has been imposed by labor-mgmt. accords and not by economics so it is hard to know where that limit tilts. DL decided that the 717 works at mainline with 110 seats even without new generation engines like on the E2 jets or the A220.
DL and UA already have nearly identical regional jet scope language yet DL has 90 717s in service and more than 125 A220s on order and option with the likelihood that DL will exercise all possible options. DL pilots have very little incentive to give their company relaxed large RJ scope since DL is adding small mainline aircraft which have only about 35 more seats than large RJs. It is hard for DL mgmt to argue that they must have more large RJs when they have 2 types of small narrowbody mainilne aircraft available which the company chose to acqiure over the past 5 years. There is even less incentive for UA’s pilots to give the company a more relaxed large RJ policy than DL’s given that UA has repeatedly said that building its domestic network is a priority and UA pilots are certainly not interested in seeing that growth come via regional carriers.
And then you have timing. Not only is it unclear how soon AA and UA could get a small mainline aircraft in service even if ordered one today, AA and UA still have large numbers of 50 seat regional jets which will reach the end of their useful life in the next few years – likely before any new small narrowbody can join the fleet in large numbers. DL started the process of removing the 50 seats several years ago and DL pilots have gained a lot of new flying via the 717 and that will continue with the A220. UA and AA labor groups have no incentive to allow their companies to water down scope language and end up with more large RJs when DL has proven that they can successfully deploy – or at least the company is willing to do it – small mainline aircraft to the benefit of its own employees.
All 3 airlines still need to get rid of a certain number of 50 seaters and managements at all 3 would undoubtedly like to be able to convert the right to fly those 50 seaters into an equal number of large RJs and yet DL has a whole lot fewer small RJs to replace.
Thus, I’m not at all sure that it is a given that AA or UA labor groups will agree to anything that will give their companies more than just replacement for the small RJs they operate and even if they do allow a small narrowbody in return for more large RJs, they will likely lose a portion of their current RJ capacity because DL is effectively setting the limits of large RJ growth by its decision to add small narrowbody mainline aircraft.
For Republic, their LOI for new Ejets might simply remain on the books with little to no possibility of converting them. They might think they can sell the aircraft to someone else including mainline partners but their C Series order wasn’t picked up by anyone even in bankruptcy.
Tim,
To clarify, I didn’t write that Kirby’s comments were irrelevant. But to his comments: United has fewer 76 seaters that either American or Delta, and, from what I understand, is also limited to fewer under its scope clause. United also has a higher percentage of regional aircraft in its fleet (41.5%) than its two competitors (American’s regional fleet comprises roughly 38.5% of its fleet and Delta’s is about 33.6%). I’m suggesting that a way for all sides to benefit would be to reduce the overall percentage of regional flying in favor of adding more A220-100/300s and E-190/195s at the mainline. Fewer regional aircraft mean fewer outsourced jobs. More seats = the potential to spread out costs. From what I’ve seen, that formula seems to be working fairly well at Delta.
thank for clarifying, We are in agreement.
To clarify, the 75% figure you and the article cite includes Embraer as a part owner (I only mentioned the three major network carriers). It doesn’t break out the percentage each stakeholder owns.
Yes, that’s true. I don’t know what the breakdown is between the airlines vs. Embraer, but I believe that all four parties own significant stakes.
Our interesting discussion got off my main point, which is the fact that the three major airlines own a significant stake in Republic.
could they use them as replacement aircraft, don’t know when these new order aircraft are due, but could they replace the currentone’s that have been flying around for a while with shinny new one’s and you never know, the interior could change like the CRJ-900 has to be more fancy inside…..just a thought…..
As a Captain of the aforementioned carrier I can only say that I’ve never heard a passenger complain of the E175 being “a small airplane”. Riding on the CRJ series however I hear it often. Not to mention the griping of having to wait in a steaming hot jetway for 15 minutes to get those 70 carry on bags offloaded….
I think RP will find a home for most of those airframes…
Captain Bo
As a passenger, E175 is my 1st choice ride for domestic.
They actually just made the order in order to retire alot of their old aircrafts, they aren’t attempting to expand with this order; or atleast not much. I work for republic and this is what i keep hearing from higher ups. Most of these aircrafts are being funded by republics partnered airlines, United, American and delta.