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Bombardier’s CSeries to be put to the test in 2014

Customers will be watching closely to see if data from years of
computerized simulations and hundreds of hours of flights validate the
promised savings on fuel and the reduction in noise and engine emissions
needed to prompt orders.

The head of the Montreal-based company's
aerospace division acknowledges that some potential buyers are "on the
sidelines" waiting for the results. But Guy Hachey said testing has been
solid so far.

"It's very challenging to bring an
aircraft to market but there's no big surprise that we've seen so far in
the CSeries," he said.

The US$3.4-billion CSeries program is
expected to generate US$5 billion to US$8 billion in annual revenues as
it seeks to capture about half of the global sales for this size of
plane.

The newly designed aircraft, built
partially with lightweight composite materials and powered by Pratt
& Whitney's fuel-saving engines, is targeted at established carriers
looking to replace older, inefficient planes, and new airlines
launching in developing countries, such as China, to service the growing
middle class and airport expansion.

"This is an aircraft that is designed
first and foremost for worldwide demand and not just for current
fortress markets," Hachey told a recent aviation conference.

Bombardier is
aiming to secure 300 firm orders – or about four years of production –
from about 20 customers by the time the CS100 is released in about a
year. So far, it has just 182 — 63 for the CS100 and 119 for the larger
CS300 — with very few being added of late.

September's first CS100 flight was
supposed to propel new orders, but only Iraqi Airways stepped forward as
a new customer, ordering five planes.

A series of potential buyers are
circling. Among them is Indonesia's Lion Air which is interested in
about 50 planes, and Air Canada which is expected to decide over the
next six months whether to select the local product over Embraer's E2
jets.

Delivering the 110- to 160-seat CSeries
on schedule will be the main challenge. The flight test program for the
CS100 is supposed to last 12 months, but most industry observers believe
Bombardier will miss that date, just as it missed the maiden flight
target by about nine months.

They believe the first delivery of the
smaller of the two CSeries commercial jets will be made in the first
quarter of 2015, about six months behind schedule. That would still be
an achievement compared to protracted delays by Boeing and Airbus in
bringing their new 787 and 380 airplanes to market. Delivery of the
CS300 is expected to start about six months later.

Hachey said it is waiting for data from its second test airplane before determining if the date will be pushed back.

"It will all depend what we discover here
as we have more than one aircraft in the air, but right now it's going
according to what we would have expected," he said.

David Tyerman, of
Canaccord Genuity, said the first flight was a milestone but gauging the
program's success is difficult because Bombardier has refrained from
releasing many details about its test schedule and the plane's initial
performance.

Tyerman said there's little doubt that the CSeries CS100 will be late.

Early spring could be a crucial period,
when the company accumulates sufficient data to validate the plane's
promise of burning 20 per cent less fuel and reducing operating costs.

"At that point, presumably, they should
know how the program's going," he said in an interview. "If they're
materially behind and don't know that information, then that's going to
be an issue."

Karl Moore, of McGill University's
Desautels Faculty of Management, has little doubt that the CSeries will
propel Bombardier forward, despite concerns about its order book.

He said the first flight and test flight data will help to calm some marketplace anxieties.

"I think it's superior to its
competitors…and it's something where, in the medium to long term, it's
going to be a very considerable success," he said.

Moore said Boeing and
Airbus are trying to mitigate the CSeries advantage by selling their
retrofitted narrow bodies at discounted prices.

He believes Bombardier will achieve its
targeted 300 sales by first delivery, but said it would be a bonus to
have some big name customers, including Air Canada.

"It's an impressive airline and, if you
don't win the people literally right across the street, that may be seen
negatively by some as well."

CSeries skeptic Richard Aboulafia, of the
aviation consultancy Teal Group, expects Air Canada will avoid
"economic patriotism" and not order the plane.

He said losing the contract wouldn't be a
big blow to Bombardier, but the manufacturer needs to attract a
network carrier other than Lufthansa to demonstrate the plane's
attractiveness to airlines. Lufthansa has firm orders for 30 CS100 and
30 options on behalf of Swiss Air Lines that would use the planes, in
part, to link Switzerland to banking centres such as London and its city
airport.

Aboulafia said Bombardier has not been
aggressive enough to secure orders in the face of intense pressure from
its larger rivals. He said Bombardier has "superior product syndrome," a
dangerous affliction in which a company convinces itself that customers
will be lured by the attributes of the product.

"I think it's in jeopardy of being marginalized and staying marginalized," the U.S. analyst said from Phoenix.

Bombardier said it has avoided
selling too many planes at launch discounts to prevent being saddled
with years of making planes at low margins.

Aboulafia says the company could be
proven right or it could have "grossly underestimated what they need to
break into this market."