News
Bombardier’s new jets could cost up to $1.6 billion
Oct. 20, 2010, Montreal - Bombardier's program to build two new luxury long-range business jets could cost up to US$1.6 billion and constrain the manufacturer's cash flow for years, an aerospace analyst said Wednesday.
October 20, 2010 By The Canadian Press
Tasneem Azim of UBS, citing his US$600-million to US$800-million estimate for Bombardier's Learjet 85 program, said the development of two new long-range Global Express planes could cost between US$1.2 billion and US$1.6 billion.
Suppliers such as engine manufacturer General Electric will be risk-sharing partners but the program is not expected to receive financial support from government, Azim wrote in a report.
The Montreal-based manufacturer has said the two new planes are major derivatives of existing aircraft, but will still cost "north of $1 billion'' to develop.
Spokeswoman Danielle Boudreau declined to respond to the analyst's estimate but said the Learjet 85 and the new Global are "two different aircraft for two different purposes.''
Azim said the new Global Express program should garner significant customer interest and help the company maintain its 35 per cent share of the market for large business jets.
Bombardier Inc. said it has firm orders for the new planes but declined to provide a number.
The planes — to be delivered in 2016 and 2017 — will come with a price tag of around US$65 million, compared with just under US$60 million for the Gulfstream G650 and US$53 million for the Global
Express XRS.
The UBS analyst said the investment, which is more than double what most analysts had expected, will put increased pressure on Bombardier's already stretched balance sheet.
"We would expect Bombardier's free cash flow to remain under pressure over the next five years or so, although in the later years this pressure could be somewhat alleviated by the eventual recovery
in business jet demand,'' he added.
Walter Spracklin of RBC Capital Markets said most of the capital expenditures on the new program should take place once spending on the CSeries mainline commercial airliner ends.
Spracklin said the high costs will be negatively received by investors, especially considering the capital cost commitment for the CSeries, which is slated to enter service at the end of 2013.
But the Global Express is a vital area of Bombardier's portfolio, so if it is to put $1 billion towards any program, this would be it, Spracklin added.
Bombardier has forecasted business jet demand will recover in 2011 from a trough this year. But Honeywell Aerospace is less optimistic, calling for a recovery to begin only in 2012.
In addition to risks associated with being the launch customer for GE's new engine, Bombardier could face increased pressure should competitors such as Gulfstream, Cessna and Embraer enhance their
presence or launch new large business jets.
