As ERJ 145 retirements finally begin, questions arise about the effect of Rolls's engine policy
It had to happen sometime. The parting out of ERJ 145 aircraft has begun. But the bigger question for the industry is what happens next, particularly whether 's policy for maintenance of the 50-seat twinjet's engines will accelerate retirements for the rest of the fleet.
The first ERJ 145s to be disassembled (aside from one previous dismantling of a prototype) are very young. Operated by Mesa Air Group until its bankruptcy-court supervised restructuring in 2010, they were acquired by Muskegon, Mich.-based Aerovision last year. All but two of the aircraft were built in 2001 and the oldest in 2000. Nonetheless, Aerovision parted out five of them and just started disassembling a sixth. It is preparing the other four to be sold or leased—assuming it can find an operator to acquire them.
The market is tough for all 50-seat regional jets (RJs), which meansand well as ERJs. High fuel prices have made them unprofitable on many routes, especially in the U.S. market, where they had been the most popular.
About 100 CRJ100s, 200s and 440s (a 44-seat variant) have been retired since 2003, more than 60 of those in the past three years, shows an analysis using the Aviation Week Intelligence Network Fleet database. And more than 100 were in storage at the end of 2012, about twice as much as the ERJ 145.
In part, that is because CRJs fell victim to more airline bankruptcies, restructurings and liquidations than ERJs. But that distinction will blur in coming years, as U.S. carriers sometimes seem to be in a race to drop the 50-seaters from their operating fleets. U.S.-basedis still operating nearly 180 ERJ 140s and 145s, but the assumption is that the airline in the next few years will start to get rid of them.
Once the ERJs start dropping out of fleets in greater numbers, they could be more difficult for marketers to place than CRJs. It would not be for lack of effort. For example, Embraer's ECC Leasing subsidiary recognizes what is coming and is promoting the parent company's used jets in markets such as Russia and Africa.
Airstream International Group, a used RJ seller and lessor in Surrey, England, sold five ERJ 145s to new operators in the past 12 months, so there are some takers. But Managing Director Peter Crutchfield describes the current market for 50-seaters as “soft” and ascribes a particular challenge to the ERJ 145 because of its Rolls-Royce powerplants.
Crutchfield notes that Rolls exerts more control over the second-hand market for its engines than(GE), which powers the CRJs. Rolls selectively licenses its engine overhaul work and restricts an overhaul company's choice of parts suppliers. Standard Aero, for example, must buy its parts through Rolls.
Crutchfield is not critical of the practice, but says the policy can make it more difficult to sell, lease or part-out an aircraft because the dearth of choices makes the engines more expensive. This adds another challenge for marketing U.S.-operated jets, most which are not equipped for the air stairs that airports in many developing markets require; the stairs issue can be fixed, but at another cost to the buyer.
Rolls responds that its TotalCare agreements, which provide an integrated engine management and maintenance service, offer “a unique competitive advantage for our regional airline customers, providing predictability in costs and on-wing performance.” If new operators choose not to carry over TotalCare services from the original customers, it adds, Rolls has four authorized maintenance centers with repair capability for theengines.
The engine maker sees customer and seller advantages in the power-by-the-hour TotalCare agreements, with engines covered by the contracts holding value in the resale market. The agreements also enable smaller carriers, often with limited maintenance organizations, to pay an hourly flying rate and have Rolls manage the reliability and maintenance of their engines, the company says.
The agreements can be a plus, agrees Juliett Hewitt, marketing manager for SkyWorld, another U.K.-based regional jet marketer.
The plan provides a certain level of protection for owners and operators, boosts buyers' confidence about the engines' upkeep and is difficult to obtain post-sale if not already used for the aircraft, she says. (Aerovision President and Co-owner Jeff Barnes, for example, says the lack of a TotalCare agreement on its former Mesa ERJs makes them more difficult to place.) But Hewitt and Barnes concur that Rolls's restrictions raise an engine's price and can make marketing the aircraft more difficult.
For now, ERJ 145s still have takers, especially the longer-range models—SkyWorld found customers for three long-term leases in 2012—but “at lower pricing than we'd like to see,” Hewitt says. She expects engine prices to come down, however, either because parked aircraft will substantially increase the engine supply, or because Rolls will loosen its policy to keep the ERJ 145 flying.
The latter is what must happen, maintains Abdol Moabery, CEO and president of Fort Lauderdale, Fla.-based GA Telesis. His company is one of the world's largest parting-out specialists, but also markets aircraft.
Rolls's policy will not work for them, he says, “unless a new operator of ERJs pops out of the woodwork.
“Where are they going to go?” he asks. “There is no part-out market. That will have a major impact on the residual value of those airplanes, because there is not anywhere to go with them.”
Prices on some nice ERJ 145s already have dropped below $2 million, he says. Converting the aircraft for VIP use has been discussed, he says, but that has not worked for the CRJs.
CRJs are not faring much better, he notes. The grounding of CRJ-operator Comair by its parent company,, is making it difficult to part out CRJs for much money, and the going rate for the -100s and -200s is $1 million-3.5 million. Nonetheless, Moabery says, operators believe they can get a better deal on engine maintenance under GE's policy and that makes the CRJ more marketable.
“I think, long-term, GE's philosophy on the aftermarket is going to emerge the victor,” he says.