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China, trains, and the strategic machinations of aerospace giants

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In September of 2008, Mitsubishi announced that Boeing would be a technical consulting partner on the development of its new 78-92 seat MRJ. The move by Boeing was an unsurprising, if not unsubtle step, to provide a major technical boost to one its largest strategic supply partners in its bid to build its own indigenous aircraft. The move was a shot across the bow of Embraer and Bombardier whose E-170/190 and CRJ700/900 are the mainstays of the sub-100-seat market. 

The marketplace for 70 to 100 seat aircraft is getting crowded with the Brazilian and Canadian duopoly rapidly receiving new entrants from Japan, Russia and China. There are very real questions as to whether or not crowded is too crowded. I asked Bombardier vp of sales for Asia-Pacific, Kevin Smith, at the Singapore air show about the prospects for the future:
Well, you're right, the market space is getting competitive the more folks that get into it. We enjoy a enjoy 50% market share as new entrants come into it with Sukhoi and Mitsubishi, you know it's going to take some of that away and basically focusing on their indigenous marketplaces which we have difficulty penetrating because of the tariff implications that prevent us from an economic basis to sell in those regions. So its going to impact the market space, but we've been in the business for a great number of years in fact and we understand the challenges going forward.
The result of Boeing and Mitsubishi's pressure on Bombardier is most clearly manifested in the development of the CSeries, the 120 to 149-seat PW1000G-powered jetliner. With sales and production of its CRJ700 and CRJ900 rapidly slowing, Bombardier (whether intentional or not) has stepped away from 70-90 seats and focused on 100 to 150 seats with the CRJ1000 and CSeries. Smith ruled out any re-engining on the CRJ700 and CRJ900 and that a geared turbofan is "probably not" suitable for a CRJ and "won't be down scalable".

Boeing's push against Bombardier forcing them up into the low end of the 737/A320 market is a strategic coup - or is it?

China, the largest single aircraft market for both narrow and wide-body aircraft in the world, is laying more than 11,000 miles of high speed rail tracks nationwide and is cutting travel times between cities like Guangzhou and Changsha - 280nm apart - from 9 hours to 2 and a half hours. This is significantly undercutting China's domestic airlines, with China Southern reportedly cutting fares to just $21 on the route. 
"The high-speed train is invincible on this route," said Tom Lin, 30, a civil servant in Guangzhou, who opted to travel by rail. "There's no doubt it's more convenient for trips to the cities along the line. Airlines can't compete with trains for the spacious seats."
With the emergence of the 78-seat Comac ARJ21-700 being operated indigenously in China, Bombardier's the prospects for further Chinese market penetration are significantly challenged. Currently only Shandong Airlines and CR Airways operate just a handful of CRJ700 aircraft. So after getting the squeeze from Boeing and Mitsubishi, what does Bombardier do? 

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