ANALYSIS: De Havilland Closing Its Assembly Line And What It Means For The Programme and Operators
De Havilland Aircraft of Canada’s sudden move to shutter its production line and seek to re-open an assembly line elsewhere, when the market recovers, creates a void in the market.
It also has an immediate adverse impact on the program’s suppliers and potentially a longer-term impact on Dash 8-400 operators.
The aircraft-maker’s parent company, Longview Aviation Capital, has announced that “it will not produce new Dash 8-400 aircraft at its Downsview [Toronto] site beyond currently confirmed orders.”
It also says: “It has begun preparing to leave the site over the latter part of the year,” when the lease expires.
The previous owner of the Downsview site, Bombardier, had sold it in 2018 so it could raise cash and the land could be used for property development. But it had also signed a lease on the site with the new land owner that goes to 2021 with two one-year extensions.
Longview says: “There are a number of excellent production site options in Canada, and the company will be ready to meet new aircraft demand as the industry recovers.”
It could have continued manufacturing aircraft at Downsview into 2023 but decided against extending the lease, “given that prevailing industry circumstances have hindered the ability to confirm new aircraft sales.”
Longview, in its announcement, was quick to talk about the program’s future, how the company remains committed to restarting production, when the market recovers, and how it will continue to support customers.
“De Havilland Canada continues to provide customer support – 24 hours a day, seven days a week and 365 days a year – and inventory of over 35,000 part numbers required to serve the operating fleet from parts distribution locations in Canada and around the globe.”
The company says the closure of the assembly line will affect “approximately 500 employees”, but the company will continue to invest “significant capital in the customer services and the support teams, distribution network and information technology to reduce the operating cost of the Dash 8 platform.”
Closing the current production line creates new hurdles that De Havilland Aircraft of Canada needs to overcome if it is to return to the new aircraft market.
To build and certify a new aircraft assembly line will take time and millions of dollars of investment. To justify that investment, it will first need to secure new aircraft orders to re-build its aircraft back-log.
How big a backlog is required to justify the investment is anyone’s guess. But it would be safe to assume an order backlog of at least 100 aircraft would be required.
By closing the current production line, it creates a void in the market that may encourage new entrants to come in, namely Embraer.
The Brazilian aircraft manufacturer has already flagged its intention to re-enter the commercial turboprop market with a clean-sheet design that incorporates the latest technologies. It has yet to elaborate on what the technologies are, but the Dash 8 was first developed in the early 1980s before the advent of fly-by-wire technology and use of composite materials to make airframes lighter.
If Embraer re-enters the commercial turboprop market it can argue it has an aircraft that is more fuel-efficient and easier to maintain. There is also the benefit of fly-by-wire technology that helps aircraft to stay within the flight envelope, providing greater safety.
Embraer, thanks to the popularity of its regional jets, has a comprehensive global customer support network.
But whether Embraer will commit to launching a commercial turboprop program remains unclear. It would need to be convinced that the commercial turboprop market is big enough to warrant the investment. Also, it will be competing in the market against established player ATR and also competing against all the pre-owned ATR and Dash 8-400s available for sale or lease.
Meanwhile, the longer the Dash 8 remains out-of-production the harder it will be to maintain the program’s supply chain.
The installed base of Dash 8-400s is more than 500, large enough for suppliers to warrant ongoing investment to support the program but if the installed base declines too much it becomes harder to maintain the supply chain. If new spare parts become too expensive, then older Dash 8-400s will be withdrawn from service and dismantled and sold for their reconditioned spare parts, creating a downward spiral for the program.
Generally speaking, the availability and cost of spare parts can eventually becomes an issue for out-of-production aircraft.
Closing the production line, meanwhile, has had an immediate negative impact on the residual value of Dash 8-400s in the market. Out of production aircraft are worth less than aircraft types still in production, partly because of concerns over longer-term availability and cost of spare parts. That means too that the value of the Dash 8 program itself depletes over time, the longer it remains out of production.
De Havilland Aircraft of Canada declines to disclose how many aircraft it will make this year before closing Downsview. It says it delivered 11 aircraft last year.
Biman Bangladesh Airlines has disclosed it is due to receive its remaining two aircraft on order on February 24 and March 4. TAAG Angolan Airlines and Ethiopian Airlines still have a small number of Dash 8-400s on order and there is also an order from Nigeria’s Elin Group for three Dash 8-400s.
Coincidentally, Tanzania’s government announced last week it has budgeted for Air Tanzania to buy one more Dash 8-400, with the sale almost complete. Hopefully the Canadian aircraft-maker can quickly turn that into a firm order and produce the aircraft before Downsview closes.
The Dash 8-400 program has struggled to generate firm orders ever since Longview Aviation Capital bought the program from Bombardier in June 2019. The only firm orders the new owners achieved was one aircraft for Air Tanzania announced in October 2019 and a firm order for three aircraft for Elin Group announced in November 2019.
The aircraft-maker had announced letters-of-intent (LOI) with some operators that looked promising, but these were non-legally binding and failed to become firm orders. Aurora Airlines signed a LOI in November 2019 for five Dash 8-400s. The eastern Russian carrier operates several types of De Havilland aircraft including two Dash 8-400s, so logical it may want to add more.
But after signing the LOI, the airline became caught up in an ownership change. Russia’s Aeroflot announced last December that it is selling its 51% stake in Aurora to the Sakhalin Region Development Corporation.
The Ghana Government signed an LOI in November 2019 for up to six Dash 8-400s. These aircraft were to be for a new national airline for Ghana that Ethiopian Airlines, a loyal Dash 8-400 operator, would manage. But the airline has yet to start and it was announced in December 2020 that the new would-be airline will be managed by EgyptAir. It is unclear when the carrier will launch operations and with what aircraft.
The global pandemic has meant airlines are in survival mode and are focused on cutting costs and saving cash. If they have more fuel-efficient aircraft in their fleet, such as the Dash 8-400, they are opting to use these aircraft. But it doesn’t mean they are willing to spend money to buy new aircraft right now. The Dash 8-400 is one of the aircraft types with the highest utilization during the pandemic, because its smaller capacity, 80-90 seats, makes it easier to fill. Also being a smaller capacity aircraft – powered by turboprop engines that use much less fuel than jets – means it has far lower trip costs; a key benefit for airlines trying to ride out the pandemic.
Longview Aviation Capital needs to work fast to identify, secure and announce a new site for the Dash 8-400 programme. The aircraft-maker’s sales and marketing teams also needs to continue to promote the product and secure large orders to rebuild the order backlog, so as to justify the investment in a new production line. The longer it takes to resume production, the greater the challenge will become.