Bombardier faces pivotal test in 2015 as CSeries deadline looms
Dec. 30, 2014, Montreal - Seventeen years after Bombardier Inc. first mused about building a narrow-bodied jet, the project that has been killed and resurrected twice — now known as the CSeries — is finally scheduled to enter into service in 2015, making the year to come one of the most pivotal in the company’s history.
December 30, 2014 By The Financial Post
The medium-range aircraft is expected to contribute US$5 billion to US$8 billion in annual revenue once it reaches full production levels later this decade. But it is also eating up a lot of cash — US$4.4 billion to date — and has been held up several times. This was part of the reason for a sweeping restructuring of the company’s aerospace business, announced in July, that saw division president Guy Hachey pushed out and the unit divided into four segments.
Whether or not the CSeries will actually meet its targeted entry-into-service date of the second half of 2015 is a subject of much debate among analysts. Most of the flexibility in Bombardier’s timeline was eaten up when an engine failure grounded the flight-test aircraft for most of the summer, leaving very little room to spare if something else goes wrong.
“There is almost no flex left in the timeline, so any unforeseen issues could push [entry into service] into 2016,” Scotiabank analyst Turan Quettawala wrote in a recent note to clients.
Given the recent run-up in Bombardier’s shares — the stock price has climbed nearly 10% since the beginning of November, thanks in part to a large CSeries order from Macquarie AirFinance — any delay would be a “negative catalyst,” Mr. Quettawala said.
However, Bombardier has steadfastly maintained that it will hit its target, with CEO Pierre Beaudoin telling analysts that he’s “very confident” in the timeline.
Bombardier spokeswoman Marianella Delabarrera said Monday that the CSeries will have flown “well over 700 hours” by the end of 2014, out of an estimated 2,400 needed for certification.
Desjardins analyst Benoit Poirier estimates that the smaller CS100 could hit the 2,400-hour threshold by October 2015. The larger CS300 will begin flight-testing in early 2015 and will require about 800 hours of tests, meaning it should enter service by mid-2016.
Perhaps more importantly, Bombardier’s flight-test aircraft have met every performance specification so far, including the essential noise and fuel-burn parameters, Mr. Poirier said.
“With all critical tests behind it, we are now highly confident that the program will meet expectations without any major delays,” he wrote.
This will “eventually propel the share price upward as management achieves its targets and investors gain confidence in the story.”
But another major question looms for Bombardier in 2015: whether it will be able to meet its goal of securing 300 firm orders for the CSeries by the time the jet is certified.
The aircraft wasn’t ready in time for the big Farnborough International Airshow last summer, meaning Bombardier missed a key opportunity to showcase it to potential customers.
To date, Bombardier has secured 243 firm orders and is focused on firming up commitments and options rather than finding major new customers. That said, the addition of a big U.S. airline would be an important stimulus for sales, Mr. Poirier said.
United Airlines could be a major customer, with the potential for an order of 50 or more planes, according to a recent analysis done by RBC’s Walter Spracklin. Ireland’s CityJet may be preparing to order as many as 30 CSeries, and China Express could be another large customer, with the possibility of an order for 20 or more aircraft.
“While Bombardier remains only at the early stages of flight test hours, we believe the greater visibility towards performance data certification should translate into improving sales campaigns,” Mr. Spracklin wrote.
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