The airline industry’s center of gravity has been moving eastward for some time. In fact, it is easy to argue that it has already settled in the Asia-Pacific region. Within the huge geographic area defined by that term, Southeast Asia—from Myanmar and Laos down to Indonesia and incorporating the Philippines in the east—has been key to the aviation industry’s growth. 

Consider the orders in Southeast Asia for the reengined narrowbody aircraft, particularly from low-fare airlines such as AirAsia, Lion Air, VietJet Air and Cebu Pacific. The backlog for just those four carriers is close to 1,000. 

For manufacturers of crossover narrowbody jets, for which orders in the region have been considerably fewer, the challenge is to convince carriers that there is a need for their aircraft, both operationally and financially. Yugo Fukuhara, vice president and general manager for sales and marketing with Mitsubishi Aircraft Corp., says that any region has enough demand “to substantiate a need for 60-150-seat aircraft, serving markets with at least two daily roundtrips.” 

Fukuhara adds, “The challenge has been falling yields, which then drive the need for lower unit costs which, without a step change in technology, leads to the deployment of narrowbodies in the 160-plus-seat category.” 

However, in Southeast Asia, a very high proportion of commercial flights are below 1,000 nm, Fukuhara notes. “This suggests a strong regional market segment, where 70-100-seat jets are ideal for growing networks and building connectivity. This is not distinctly a ‘crossover’ role for the MRJ [or any other aircraft type], but rather the traditional new-route opportunity—network expansion and hub feeding—network connectivity roles, all with a greater level of cabin comfort and lower operating costs,” he says. 

Cesar Pereira, vice president Asia-Pacific for Embraer Commercial Aviation, also highlights the yield challenge. “Many airlines are competing on the same routes, leading them to compromise yields in order to fill their large narrowbody aircraft. Growth is stimulated by low fares in Southeast Asia, so when fuel prices rise, we will see the pressure on yields intensifying,” he notes. “On the other hand, there are other routes, typically between secondary or tertiary cities that are underserved in the region. These are routes that can potentially bypass the major metro airports that are congested, such as Manila, [Philippines], Jakarta, [Indonesia], and Bangkok. 

“We therefore see that the 70-150-seat jet segment will play a key role in supporting the intraregional development in Southeast Asia, in a more sustainable way for airlines,” he adds. “Our 70-150-seat jets will enhance capacity discipline, enabling a better match of capacity to demand, higher RASK [revenue per available seat kilometer] and lower operating costs. The E-Jets E2 family is capable of achieving similar costs per seat as larger reengined narrowbody aircraft, with significantly lower costs per trip.” 

Superjet International (SJI) has forecast a global demand for 3,900 aircraft in the 91-120-seat segment over the next 20 years, of which 26% are expected to be in China and the Asia-Pacific. “Already we have the Royal Thai Air Force operating Superjet 100s, plus the MRO center for Asia is already supporting this client,” says Stewart Cordner, whose new role as senior vice president-commercial at SJI was announced on Dec. 14. “There are also opportunities in Indonesia, Vietnam, Cambodia and other countries in the region.” 

Cordner believes the SSJ100 has the attributes to convince airlines to overcome their perception hurdles and choose crossover jets instead of the Airbus A320/Boeing 737 workhorses. “The key point is that the aircraft offers passenger comfort and airline operating economics that are fully competitive with the A320 and 737 families. Passengers see no differentiation between the A320 and the Superjet 100 in cabin comfort terms, while the seat-mile economics are as good, if not better, than the A320.” 

For airlines looking to take crossover jets in Southeast Asia, financing does not appear to be a problem. “Some major airlines can enjoy options such as ECA [export credit agency] finance, structured finance and operating leases,” notes Fukuhara. “Others, including [low-cost carriers], rely heavily on operating leases.” Each of the crossover types has had a modicum of success with lessors. 

Cordner agrees about the operating lease effect: “In the first instance I would expect operating leasing to be an attractive option, with Russian lessors such as IFC, Sberbank, VTB Leasing and GTLK all potential partners as we place aircraft in southeast Asia,” he explains. “We already have some non-Russian banks, including Natixis, financing aircraft into export markets. As the aircraft’s liquidity becomes more proven we will work with others, both regional and international, to finance deliveries. Finally, export credit is also a potential option with French, Italian and Russian ECAs all available as potential partners.” 

According to Pereira, financing and the asset’s appeal to financiers is a strength of the current and future E-Jet families. “E-Jets are in the portfolios of more than 30 lessors, and appraisers and ratings agencies have given the family an A1 rating based on the assessment of minimal forecasted depreciation per year, minimal volatility, and the perception that E-Jets remain desirable assets for banks and lessors,” he notes.