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BETTING ON BOMBARDIER

All eyes will be on Bombardier in 2012, and more than a few side bets will be made as to whether or not the airframer can hold to its schedule for the CSeries airline program


January 9, 2012
By David Carr

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All eyes will be on Bombardier in 2012, and more than a few side bets will be made as to whether or not the airframer can hold to its schedule for the CSeries airline program, with test flights on the CS100 version expected in November, followed by first deliveries in late 2013.

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Bombardier’s president/CEO Guy Hachey told analysts he is “not happy” with the brand’s 18 per cent market share in the 40XR, 45XR and 60XR categories. PHOTO: BOMBARDIER


 

Guy Hachey, president and chief operating officer for Bombardier Aerospace, caused a stir among reporters and analysts at the National Business Aviation Association’s annual convention in Las Vegas last fall when he conceded that CSeries development was “up against the wall in terms of schedule. We used up a lot of the contingency time. I don’t see a miss, but we are under pressure.”

From a strictly marketing standpoint, 2011 was a mixed year for the CSeries. The order drought so noticeable at the Farnborough Air Show one year earlier broke around Paris. But the airplane has been washed over by the Airbus A320neo, which captured approximately 1,200 orders last year, compared with the CSeries order book for 153 aircraft total, including letters of intent.

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Walter Spracklin, an analyst with RBC Capital Markets, was one of the first analysts to suggest that Bombardier would not hit its target for 300 orders by the time the CSeries entered service. After conducting a survey of 26 potential customers representing 35 per cent of the market for 100- to 149-seat passenger jets, Spracklin wrote to clients, “We are encouraged by the interest the airlines demonstrated in the CSeries, there was certainly a lack of urgency to place significant new orders. Combine this with the emerging mass headwinds [and] we believe airlines are more inclined to delay their renewal programs.”

Boeing also launched the 737 MAX, a re-engined version of its popular 737 in 2011, and has more than 700 commitments. Brazil’s Embraer appears to be headed toward a re-engined version of its E-Jet family, which has already sold more than 1,000 aircraft to customers worldwide, including Air Canada.

Still, Bombardier is the only manufacturer to have launched a clean sheet aircraft, and analysts agreed as recently as the Paris Air Show that the company had time on its side, especially among customers thirsty for fuel savings. By the time Airbus brings the A320neo to market in 2015, oil prices are expected to be north of US$120. The Boeing 737 MAX is scheduled to enter service in 2017 and a re-engined E-Jet not before 2018.

“The costs and complexity associated with introducing a new aircraft type into their fleets was the number one hurdle facing [airlines] decision to purchase the CSeries,” Spracklin also wrote. Compared with the Airbus and Boeing offerings, the analyst sees the CSeries market potential to be in small batch orders of up to 10 aircraft, where airlines are not as concerned about fleet commonality.

It is increasingly unlikely that first deliveries of the CSeries will happen before spring 2014, although neither Airbus nor Boeing inspires confidence in meeting delivery targets. In addition to the chronically delayed Boeing 787, and Airbus has recently announced a further six-month delay in its A350 program.

A wild card for Bombardier may be the co-operation agreement the airframer signed last year with the Commercial Aircraft Corporation of China (Comac), which seeks to find commonality in the development and joint marketing of the CSeries and larger 156-passenger C919, which is expected to make its first flight in 2014 and enter service in China two years later. The still-to-be-defined agreement should present Bombardier with a stronger advantage in the aviation industry’s hottest market.

“We believe that this collaboration will generate positive results for both the C919 and CSeries aircraft programs,” said Pierre Beaudoin, president and chief executive officer of Bombardier. “It also opens the door to further cooperation on any other projects that would be mutually beneficial.”

All eyes to the East
China and surrounding economies will continue to loom large for Canada’s $26-billion global aerospace industry either in immediate orders or in staging for future exports.

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CAE continues to position training capabilities in convenient locations around the world to offer customers customized training, advanced training technology [and] flexible scheduling, says Jeff Roberts, CAE’s group president for civil simulation products, training and services. PHOTO: CAE


 

David P. Hess, president of Pratt & Whitney, the parent company of Pratt & Whitney Canada (P&WC), illustrated the growth of China in an earlier speech.

 “Twenty years ago, China represented just one per cent of world air travel as compared to the U.S. at the time with 41 per cent. Today, it’s 7.7 per cent and the U.S. has dropped to 25 per cent. By 2020, projections call for China to nearly triple its air traffic and represent almost 12 per cent of world air travel, versus the U.S. at only 21 per cent.”

China is indeed fertile ground for the world’s fifth largest aerospace industry. Hess sees broader collaboration opportunities from the Bombardier Comac agreement, including buttressing ongoing negotiations for a version of the C919 powered by PW1000G.

There is also an estimated market potential for 5,000 business jets and turboprops in China and Asia over the next 10 years. China, along with Brazil, India, the Middle East and Russia, is expected to be one of the economies that pull the business jet sector out of its doldrums, especially in the larger cabin class and ultra long-range class where Bombardier excels with the Global XRS/6000 and Challenger series.

This has been confirmed by the Honeywell Aerospace annual Business Aviation Outlook which reported that, after age, longer range is a key consideration among flight departments.

According to the General Aviation Manufacturers Association, among the six private jet airframers in the first nine months of 2011, Bombardier pipped Cessna by one business jet delivery, although the dollar value will have eclipsed its Wichita, Kan., competitor. Year over year deliveries in 2011 were down at least 26 per cent over 2010, although they appeared to have stabilized somewhat. But like luxury goods in the retail sector, large-cabin, ultra-range aircraft have soared above the depressed smaller end of market. Bombardier delivered 34 Global 5000 or 6000 aircraft in that period.

“Bombardier’s bottom-half market presence has suffered too, with Learjet and Challenger 300 deliveries dragging down the company by double-digit declines in 2009 and 2010 even as its high-end products enjoy relative prosperity,” wrote Richard Aboulafia, vice-president of analysis for the Teal Group, a U.S.-based aerospace consulting firm.

A revamp of the Learjet line is expected after Bombardier’s Hachey told analysts he is “not happy” with the brand’s 18 per cent market share in the 40XR, 45XR and 60XR categories.

The Global 7000 and 8000, which will be assembled at Bombardier’s Q400 plant in Toronto, should cement the company’s position as the dominant player at the top end of the market.

Identifying opportunities
The globalization of business aviation has not escaped the notice of CAE, the world’s largest aircraft simulator and training company. CAE continues to be booted about by a rising Canadian dollar and deep cuts in global military spending. Even so, you do not climb to the top of the pack without picking your spots. Over the next two years, CAE will double its global business aviation training footprint, especially in high-growth markets such as Latin America and Asia, although its plan for the latter remains somewhat fuzzy, with the focus not expected to sharpen before 2013.

“Business aviation is growing internationally and CAE continues to position training capabilities in convenient locations where we will offer our customers customized training, advanced training technology [and] flexible scheduling,” said Jeff Roberts, CAE’s group president for civil simulation products, training and services. “CAE is confident in the future of business aviation around the world, and we have continued to invest in this market to keep pace with training demand.”

In 2012, CAE will break new ground in both Mexico and South America, opening the regions’ first business jet training centres. The centre in Toluca, near Mexico City, will provide Level D simulators and training programs for the Bombardier Learjet 45 and Bell 412 helicopters. A new centre in São Paulo, Brazil, will be the third of its Embraer-CAE training services (ECTS) joint ventures and will offer Level D simulator training for the Embraer Phenom 100 and 300 aircraft.

More recently, CAE has entered into an agreement with Qatar Executive, the corporate jet subsidiary of Qatar Airways for pilot training on the Bombardier Global Express XRS and Challenger 605, two lynchpin aircraft that are expected to fuel triple growth in corporate aviation in the Middle East.

CAE’s business aviation strategy is to narrow the geographic gap between its training capability and the sectors fastest growing markets. Closer to home, CAE and Bombardier will expand worldwide training support for business aircraft customers in the second half of 2012 with the addition of Level D full-flight simulators for Challenger 300 aircraft in Montreal, a move that will boost what CAE currently has in Dallas.

Propping up efforts
Perhaps the biggest concern in Canadian aerospace should be the global regional turboprop renaissance and whether Canada (re: Bombardier) can hold its own against the surging ATR, a European consortium that includes EADS, manufacturer of Airbus.

Toronto’s Porter Airlines, which has just marked its fifth anniversary, recently took delivery of another two 70-passenger Q400s, bringing the city centre-based regional carrier’s fleet to 14 aircraft. But further up the subway line, where the Q400s are assembled, orders for the airplane have narrowed to a trickle, forcing Bombardier to cut production. As with the CSeries, there is no show of panic.

The company insists that renewed interest in the Q400 is stronger at the beginning of 2012 than what it was in January 2011, now that the company is working with approximately 10 customers. The first two class Q400s just entered service with launch customer United Airlines. Bombardier will also add a premier cabin to existing United Q400s in a 30-aircraft retrofit. The company anticipates new North American orders for a two-cabin version now that the airplane is in service.

Hachey conceded at an investor day in New York late last year that Bombardier has relied too heavily on North American and European markets for Q400 and CRJ orders and has slipped behind ATR and Embraer as a result. The company has recently doubled its sales force in emergency markets and Hachey insists that the Q400 has “a healthy pipeline of opportunities.”

Pratt & Whitney Canada (P&WC) is expected to launch a next-generation turbo-prop engine in 2012 for a 90 to 100-passenger regional aircraft. The picture for a larger regional turboprop is coming into focus as airlines struggle to turn a profit on short-haul routes. P&WC, the world’s largest supplier of turboprop engines, has been testing components and is targeting a 20 per cent reduction in fuel consumption over the existing PW150A powering the Q400.

The operating characteristics of the Q400 already make it a better fit than the ATR 72 for early model and thirsty regional jets such as the 50-passenger CRJ200. Bombardier is evaluating the potential for the Q400X, a re-engined and stretched version of the Q400 although no announcement is expected in the next 12 months.

A cautious approach
Canadian aerospace is closely linked with the global economy and therefore pockmarked with questions for 2012. Will the private jet sector finally recover, especially with a rebound at the lower end of the market?

Will the Sino-Canadian agreement between Bombardier and Comac net its first Chinese order for the CSeries? Will P&WC power the regional turboprop sector into a new direction with the announcement of a next-generation engine? The picture is likely to remain cloudy until at least the Farnborough Air Show in June.