Wings Magazine

Analysts waiting for confirmation of CSeries test flight

May 6, 2013, Montreal – Aerospace industry observers are eagerly watching for confirmation this week that Bombardier's CSeries aircraft will make its maiden test flight next month.


May 6, 2013, Montreal – Aerospace industry observers are eagerly watching for
confirmation this week that Bombardier's CSeries aircraft will make
its maiden test flight next month.

Amid expectations of a weak first-quarter, analysts see the
plane's progress as a potential catalyst to turn around the
transportation giant's lagging share price.

Kevin Chiang of CIBC World Markets says “all eyes are turned
towards the CSeries first flight'' by the end of June and signals
that it will avoid delays that gripped Boeing's 787 aircraft.

"If Bombardier fails to meet this milestone, then questions
about whether the CSeries will follow in the footsteps of the
Dreamliner will only get louder,'' he wrote in a report.


"In other words, the success of first flight will be used as a
barometer to gauge the ability for Bombardier to execute on its
CSeries program."

The first flight has been already delayed about six months from
initial forecasts.

Analysts describe it as the "first domino'' needed to achieve
Bombardier's long-term targets of generating U.S. $5 billion to U.S. $8
billion of additional revenues in five years.

Joseph Nadol of JP Morgan said the CSeries remains a key issue
but he isn't expecting any change from the June target date.

Turan Quettawala of Scotiabank also believes the CS100 will
likely fly this summer, which will reduce the risk for the company
and could lead to some orders.

He said the first-quarter has been weak for orders for both the
company's aerospace and transportation divisions.

With healthy railway and large business jet backlogs, Bombardier
can expect a stream of revenue for several years. But Quettawala
said he expects the quarterly report to show that the aerospace
division has burned through $740 million of cash as it continues to
spend heavily on development projects such as the CSeries, Learjet
85, Global 7000/8000 and Learjet 70/75.

"The free cash flow situation is also likely to be exacerbated
by low-order flow in the quarter," he wrote.

Bombardier is expected to report Thursday that its
earned US$134.3 million, or nine cents per share in adjusted profits
in the first quarter, according to analysts polled by Thomson

That's down nearly 25 per cent from U.S. $179 million or 10 cents
per share in the prior year.

Revenues are expected to increase 19 per cent to $4.17 billion.

Bombardier's regional aircraft program has been helped by jet
orders from Delta and by WestJet's order for Q400s.

But the company lost a United Airlines regional jet order for 30
aircraft to Brazilian rival Embraer. One-third way through the U.S.
airlines order cycle, Embraer has won 77 of the 117 firm orders
awarded by Delta, United and Republic.

Nadol said competition with Bombardier should be "intense'' for
additional orders particularly because of Embraer's success.

On the transportation side, Bombardier is set to secure a
US$2-billion order from Deutsche Bahn for up to 450 electric
locomotives over a decade.

The pending order, which still needs internal approvals in
Germany, comes despite a dispute between the two sides over problems
with commuter trains used in Berlin.

"As such, this order highlights both the demand for Bombardier
Transportation's advanced technology, as well as the massive and
growing infrastructure need in the eurozone,'' says Walter Spracklin
of RBC Capital Markets.

He expects a resumption of Chinese contracts will boost
transportation margins in the first quarter to 6.5 per cent compared
with 4.5 per cent for aerospace.

Spracklin said Bombardier shored up its liquidity through a
US$2-billion bond offering in the quarter.

On the Toronto Stock Exchange, Bombardier's shares were up seven
cents at C$4.15 in Monday afternoon trading.


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