By Susan Taylor and Nicole Mordant and Brad Haynes
(Reuters) - Big wins for both Bombardier Inc (BBDb.TO) and Embraer SA (EMBR3.SA) have heated up the battle in the regional-jet market, as North America's largest airlines dole out big fleet renewal orders after a long hiatus.
In a market that is a virtual duopoly, the short-hop, narrow-body jets manufactured by Brazil's Embraer have outsold those from Canada's Bombardier for at least eight years.
But signs of newfound sales aggression from Bombardier, and its desire not to lose ground in its traditional North American stronghold, could mean a fierce campaign for orders expected from U.S. No. 1 carrier United Airlines (UAL.N) and smaller rival US Airways (LCC.N).
"That will be the next big horse race out there," said Brian Foley, who runs his own aviation research firm in Sparta, New Jersey. "I'm sure both Embraer and Bombardier are in some preliminary discussions, and we could see that being the next news item, this year even."
Bombardier was off to a strong start in December with an order worth up to $3.29 billion from Delta Air Lines (DAL.N). But Embraer's win on Thursday of a deal worth up to $4 billion to supply the regional network of AMR Corp's (AAMRQ.PK) American Airlines puts it neck-and-neck in the U.S. contest.
With production levels hinging on new orders, fresh momentum for Bombardier could unseat Embraer as the world's No. 3 supplier to commercial airlines, after Boeing Co (BA.N) and Airbus (EAD.PA).
Embraer's head of commercial aviation, Paulo Cesar de Souza e Silva, said on Thursday the surge in demand by U.S. carriers was just beginning. American's regional-jet needs were not satisfied by the Embraer order.
Aerospace analyst Scott Hamilton of Leeham Co said Bombardier stood a good chance in the next round of orders from American for planes that ferry up to 120 passengers from smaller airports to bigger hubs. "This is not an exclusive deal for Embraer. American Eagle has such a large mixed fleet of Embraers and Bombardiers that I still view this as an opportunity for Bombardier."
The fight for orders will be ferocious, as both planemakers are hungry to expand their skinny regional-jet order books, hurt by years of slow growth and airlines' shift to bigger planes.
PENT-UP U.S. DEMAND
The biggest U.S. airlines have been the major holdouts against the trend to larger regional jets. Labor agreements long defined regional fleets as planes under 50 seats, a clause that restricted carriers to smaller airplanes as mainline pilots resisted the outsourcing of more flying to cheaper partner operations.
The loosening of those clauses in new labor contracts because of airline bankruptcies and mergers is expected to prompt a string of deals to overhaul the U.S. regional jet fleet. There could be demand for between 250 and 400 planes in the next 18 months, Embraer's Silva says.
Industry sources say Bombardier has started linking its sales pitch to an offer to help airlines re-sell their older Bombardier planes as they upgrade their fleets, a newly aggressive approach that they say was a key factor in winning the Delta order.
Bombardier would not reveal details of the deal, but a spokesman said it has helped other airlines find "new homes" for CRJs, or Canadair Regional Jets, in such growth markets as Russia and Africa.
The stronger sales pitch would come just as the Montreal-based company needs cash to fund expensive development programs, particularly for its $3.4 billion, 110- to 149-seater C-Series. Bombardier sees its biggest jet yet as central to future growth.
REGIONAL-JET ARMS RACE
As aggressive as the current bidding may be, Embraer and Bombardier may soon look back fondly on their two-way contests.
Up-and-coming rivals include Japan's Mitsubishi Heavy Industries (7011.T), Russia's Sukhoi (UNAC.MM) and even China's COMAC, threatening to drive down prices in coming years.
Bombardier virtually invented the regional-jet segment when its CRJ100 entered service in 1992. Embraer broke into the space with its ERJ145 in 1996.
In 2001, Bombardier began offering stretched versions of its regional jets with 70 to 90 seats. Embraer quickly raised the stakes with a new design, including expanded headroom and cargo space, for its E-Jet family seating 70 to 120 passengers.
E-Jets have outsold CRJs since they were introduced eight years ago. By 2012, Embraer controlled just over 50 percent of the regional aircraft market, including turboprop planes, according to the Teal Group aerospace consultancy.
Bombardier's market share fell below 30 percent, from 72 percent in 2003.
Embraer's 2011 announcement of a planned overhaul of its E-Jets will put more pressure on Bombardier, eroding the efficiency advantages it touts for the CRJ, which is unlikely to see another engine upgrade, according to analysts.
DOGFIGHT FOR A SEATING CATEGORY
Airlines are often hesitant to switch fleets from one supplier to another, since additional training and maintenance costs can outweigh savings on the purchase.
Delta and US Airways and their regional flying partners operate more Bombardier CRJs. American and United and their partners use more Embraer jets.
Philippe Poutissou, vice-president of commercial aircraft at Bombardier, cautions against looking at blanket figures and says a better measure of who's on top is to consider where the demand is.
"If you look at the U.S. market overall at the 70- to 90-seat category, which is where the opportunity lies, the CRJ has outsold the E-Jet two to one, if you are specifically looking at the CRJ700 and CRJ900," he said in a recent interview.
But for Richard Aboulafia, a senior analyst with the Fairfax, Virginia-based Teal Group, Bombardier has a narrow window for selling more ambitiously before the re-engined E-Jet and Mitsubishi's new jet take off.
"They need to work hard to keep the Delta order from being a dead-cat bounce," Aboulafia said.