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Bombardier downgraded by RBC over CSeries concerns

July 25, 2011, Montreal - RBC Capital Markets downgraded Bombardier's shares Friday over concerns about potential delays and order challenges facing its new CSeries aircraft.


July 25, 2011
By The Canadian Press

Analyst Walter Spracklin lowered his rating and price target for the Montreal-based transportation giant over potential headwinds facing its aerospace division.

The rate was lowered to sector perform from outperform. The new share price target is $7, down from $8.50.

Spracklin said his earlier positive view on the company was based on favourable economic factors such as growing business jet demand and improving finances that would lead to more CSeries orders for the company.

But the transportation analyst now believes Bombardier faces more challenges in delivering the plane on time and securing new orders.

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Historically, aircraft program delays are announced two years before planes are scheduled to enter into service.

"As such, we believe the risk window for potential development delays increases significantly as we approach the two-year window for the CSeries in the fourth quarter,'' he wrote in a report.

For Bombardier, these risks are elevated because of several new technologies being implemented concurrently on the 110- to 149-seat plane. This includes a composite structure and new engine design.

The narrowbody airplane market is also more competitive with giants Boeing and Airbus both proceeding with plans to put new fuel-saving engines on their workhorse products.

Airbus has already received sizable orders for its A320 family of planes.

And while the Boeing 737NG and Airbus A320/319neo will have inferior fuel savings to the CSeries, they have proven marketing tools to compete for new orders, Spracklin added.