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Bombardier CSeries delivery delays expected

Cameron Doerksen of National Bank Financial says he's pushed back his
forecast for first deliveries by three months to the second quarter of
2015.

One-third of the way into the planned 12-month test flight
program, the CSeries has had about 20 flights and less than 50 total
flight hours since the maiden flight Sept. 16. That's just two per cent
of the 2,400 hours of actual flying expected from five CS100 test
aircraft. There will also be two larger CS300s test planes.

"The
testing will undoubtedly accelerate and Bombardier is doing more
ground-based testing than other new aircraft programs, but based on the
very slow pace so far, even the first quarter of 2015, which we believe
is the consensus expectation, is looking optimistic," Doerksen wrote in a
report.

However, Bombardier spokesman Marc Duchesne said Wednesday that "the goal for first deliveries remains the fall of 2014."

The
second CSeries test aircraft took to the skies Jan. 3 and will test
various systems, including electrical, hydraulic and pressurization
systems.

Walter Spracklin of RBC Capital Markets expects the next test plane will fly by February.

"This
is an important time frame as FTV3 is set to test the full suite of
avionics and will be a critical component as to how the development of
the CS100 and entry-into-service (EIS) is tracking," he wrote in a
recent report.

Analyst David Tyerman of Canaccord Genuity said he's not too worried if first deliveries face a short-term delay.

"I
would be bothered if it was delayed by a year or … if the budget went
up a lot. That would be much more important because it would be a
greater draw on their cash and also it would make the economics of the
program worse," he said in an interview.

Tyerman said expectations
about Bombardier have taken a hit since the company reported weak
third-quarter results. Most analysts expect the aircraft and railway
manufacturer won't meet last year's eight per cent margin target for
each of its divisions.

The company will disclose its earnings
results Feb. 13 but plans to disclose its aircraft deliveries in the
next couple of weeks. Bombardier is expected to earn 10 cents per share
in adjusted profits on $5.1 billion of revenues in the fourth quarter
and 37 cents per share on $17.9 billion of revenues for the full year.

"The
expectations have been brought down to a fairly low level, not that I
think that the company set out to do that but that's where they are," he
said.

Doerksen said it's unlikely that Bombardier will hit its
full-year 2013 target to deliver 190 business jets and 55 commercial
aircraft. The company would need to deliver 70 business jets and 21
commercial aircraft in the fourth quarter. The analyst expects that less
than 50 business aircraft were shipped in the quarter.

Although
there are no clear signs of recovery in the small business jet market,
demand for higher-priced, larger planes where Bombardier generates its
best margins remains solid. At year-end, it announced three orders for
30 Challenger and 28 Global business jets worth US$2.7 billion at list
prices.

The regional aircraft business is showing some life with
recent new orders for 30 CRJ900s from American Airlines and a letter of
intent for 30 Q400s from a new Chinese airline.

"We do not believe
Bombardier is making money on regional aircraft currently, but higher
deliveries should at least reduce the margin drag," Doerksen said,
adding that he remains optimistic about Bombardier's longer-term
prospects despite "caution in the near term."

Doerksen isn't
concerned about Bombardier's liquidity provided there isn't a long-term
delay in the CSeries. The company ended the third quarter with $2.6
billion in cash and $4 billion including credit facilities. The
fourth-quarter is always a strong period for cash generation and it
received $120 million from the sale of its Flexjet business. The
aerospace division should also be helped by the lower Canadian dollar.