Flood Of C-Series Orders Unlikely For Bombardier

 

Flood Of C-Series Orders Unlikely For Bombardier

Flood Of C-Series Orders Unlikely For Bombardier

Bombardier is likely to bag only a handful of small orders for its new C-Series jet at the upcoming Farnborough Airshow as most prospective customers hold off until they see how the untested plane performs in its first flight.

Bombardier, the world’s No. 3 plane maker, has said it will test fly the 110- to 149-seat aircraft by year-end, an event that will give a glimpse into whether it can meet its development timetable as well as its efficiency and performance promises.

“Airlines that are willing to commit have done so already, and those that are interested want to see that milestone,” said Scott Rattee, an aviation sector analyst at Stonecap Securities.

Bombardier may be able to nail down a C-Series order or two at Farnborough, but Rattee said he “wouldn’t expect a flurry”.

Large industry events, such as the Farnborough and Paris air shows, are traditionally venues for big order announcements from airlines and plane makers, notably industry giants Airbus and Boeing.

Farnborough runs for a week in July every two years and draws thousands of aviation executives, analysts, journalists and other aerospace buffs to an exhibition held at an airfield in southeast England. This year the show starts on July 9.

“Everybody goes to these shows to gauge the health of the cycle,” said Alex Hamilton, an analyst at EarlyBird Capital. “The expectation is, if you’re going to have good orders, that’s where you’re going to announce them.”

Montreal-based Bombardier has always said that it announces orders when they land instead of saving them for air shows. A case in point is NetJets’ recent USD$7.3 billion order for Bombardier business jets, announced less than a month before Farnborough.

“I don’t have a whole lot of expectations and I would say, from the stock price; the market doesn’t either,” said Morningstar analyst Neal Dihora of big orders at the show.

Bombardier shares have slumped more than 40 percent in the past 12 months on a gloomy outlook for its aerospace unit. In March, the company said that plane deliveries will dip in 2012 and aerospace profit margins would be weaker than expected.

ORDERS SLOW

Orders for the C-Series, the Canadian company’s biggest plane yet and first attempt to compete head on with smaller aircraft made by Boeing and Airbus, have been slow.

Some 18 months from launch, Bombardier has only seven customers and 138 firm orders, less than half of the 300 it wants by the late 2013 launch date.

Analysts want to see a longer customer list to reduce the fallout from any cancellations and so that airlines ordering the planes have less clout when it comes to pressing Bombardier for discounts.

“I’m not going to be disappointed if it’s only 15 or 20 airplanes. I’m not going to say that I want Airbus-type monster orders. I want to see more different customers continue to want to buy (the) C-Series,” Dihora said.

The company and some analysts who follow its fortunes are not overly concerned.

“If you think about critical orders at this point, some more C-Series orders would be nice. But I think it’s more important that the aircraft development programme stays reasonably on track,” said PI Financial analyst Chris Murray.

“As the confidence builds that their expectations for delivery are real, orders should come,” he said.

The aviation industry is littered with aircraft development timetable and cost blowouts, so much so that market watchers are very sceptical that newly designed planes can be on time and within budget.

Bombardier promises that the C-Series’ operating costs will be 15 percent lower than those of similar aircraft, and its fuel burn 20 percent lower, claims that are as yet untested.

The longer-range, single-aisle C-Series is Bombardier’s ambitious USD$3.4 billion attempt to boost the company’s flagging commercial aircraft sales in a market where demand for smaller planes is shrinking.

The C-Series portfolio includes the 110-seater CS100 and the 130-seater CS300. Configured differently, the CS300 can seat up to 149 passengers.

Bombardier has indicated that it expects C-Series orders to come in ahead of its first flight, said National Bank Financial analyst Cameron Doerksen, “and Farnborough would be the most obvious forum.

“We therefore believe that one or two orders are a distinct possibility,” Doerksen said in a note to clients.

The C-Series came up empty-handed at Farnborough two years ago. At last year’s Paris Air Show, which is held in alternate years to Farnborough, it secured firm orders for at least 20 C-Series jets worth more than USD$1.2 billion at list prices.

ORDERS FOR OTHER PLANES

Bombardier could also get some orders for its CRJ regional jets and Q400 turboprops at Farnborough, Doerksen said.

Still, he does not expect that potential big orders from US airlines including Delta Air Lines or bankrupt American Airlines will materialise until later this year or next year.

Similarly, Bombardier could win some orders for business jets, a market it dominates, but they would pale in comparison to the massive order it got in June from NetJets, a private jet-sharing company owned by Warren Buffett’s Berkshire Hathaway.

But it is the C-Series that Bombardier watchers will have their eyes on.

Although most think the company did a good job identifying a possible gap in the market, the jet could still be a tough sell. Trying to wrest market share from industry heavyweights won’t be easy, said EarlyBird Capital analyst Hamilton.

“The financial might of Airbus and Boeing is much greater,” he said. “I don’t know if that’s someone you want to compete with.”

(Reuters)



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