Airbus Should Get Cracking On a Regional Jet Program

Includes: BA, ERJ
by: William Trent, CFA

First FedEx (NYSE:FDX) canceled its order for the Airbus 380 mondo-cargo plane. Then loyal Airbus customer Lufthansa ordered modified Boeing (NYSE:BA) 747s for its passenger service. Now Forbes is reporting that UPS (NYSE:UPS) may cancel its Airbus order:

Parcel delivery company UPS, the last remaining customer for the cargo version of Airbus A380, may cancel its order in what would be the latest defection from the long-delayed superjumbo, a French newspaper reported Friday.

UPS has denied canceling the order, and Airbus is simply in the dark. But no matter.

As we said before, the future of passenger air travel lies in smaller jets flying to smaller cities. The hub and spoke model is outmoded, and large passenger jets are really only well suited for a few major city-pairs. Meanwhile, the freight market that would have helped to defray the costs (because air freight carriers really do need bigger aircraft) seems to remain tightly locked up.

And to that point, regional jet maker Embraer (NYSE:ERJ) remains on a tear.

Embraer Empresa Brasileira de Aeronautica SA, which manufactures commercial jets that seat up 110 passengers, on Tuesday raised its delivery expectations for 2007 to account for five jets that will carry over from last year.

The Brazilian company said it should deliver 165 to 170 jets this year, compared to 130 deliveries in 2006. It delivered 37 jets in the fourth quarter.

Embraer also said its fourth-quarter backlog increased 11.3 percent over the previous quarter and stood at $14.8 billion on Dec. 31.

We think Airbus should get to work on a regional jet program.