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CSeries delivery woes shaves stock forecasts

Sept. 3, 2014, Montreal - Goldman Sachs has reiterated its downgrade of Bombardier and shaved its stock price forecast even further amid expectations of additional delays in the Quebec company's CSeries jetliner program and the decision by a Swedish buyer to abandon its position as launch operator.


September 3, 2014
By The Canadian Press

"We believe another delay in the Bombardier CSeries
entry-into-service is inevitable, increasingly likely before 2014
year-end, and could even occur whenever flight tests resume," New York
analyst Noah Poponak wrote Tuesday in a report.

 

The CSeries commercial jet has been grounded for more than three months since an engine failure halted its flight test program.

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Swedish
company Braathens Aviation (Malmo) disclosed last week that it will no
longer be the aircraft's first operator. In 2011, it placed an order for
five CS100 planes and five CS300 models, for a total of $655 million,
with options on more.

 

But the CSeries development program is two
years behind schedule, with the flight test phase often proving the most
challenging for any new aircraft.

 

The Goldman anticipates the
plane will be more than six months behind Bombardier's plan to deliver
the smaller CS100 version with 110 to 125 seats during the second half
of 2015. It's an outlook shared by many other analysts.

 

He said
the plane and its larger CS300 version with up to 160 seats plane will
"negatively impact"

 

Bombardier's financial results and
create "negative catalysts" for several years. He shaved 20 cents off
his 12-month target price for Bombardier shares to C$3 and once again
urged investors to sell the stock.

 

The plane requires 2,400 flight
test hours for certification but has flown just 300 hours. Poponak said
Bombardier will have to dramatically pick up the pace of flight tests
to 160 hours per month to achieve its delivery schedule.

 

"We see
that as very unlikely given the pace achieved before grounding, momentum
(not just time) lost during grounding, and the high risk of new
problems occurring other than this engine incident," he wrote in a
report.

 

The analyst added that the size and quality of the CSeries
orders suggest overall demand may not be strong with a significant risk
of deferrals and cancellations.

 

Bombardier has received 203 firm
orders and 513 overall commitments for the airplane. It hopes to have
300 firm orders by first delivery.

 

DBRS Ratings Service maintained
its rating for Bombardier at BB (low). It said the company's credit
metrics have been deteriorating and will remain constrained by high
capital expenditures at the aerospace division and weak profitability in
transportation for 12 to 14 months.

 

"Even though the company has
adequate liquidity to fund its operations, ongoing cash burn in the last
few years could put the company’s liquidity position at risk," it wrote
last week, adding that a downgrade could happen with further CSeries
delays.

 

But Canaccord Genuity analyst David Tyerman sees promise
in Bombardier, maintaining a $5 target price. He foresees "significant"
earnings growth in the coming years from new aircraft launches, margin
improvements at aerospace and transportation from restructuring, higher
demand for some aircraft and the lower Canadian dollar.

 

He
cautions that Bombardier's improvement may unfold slowly but doesn't
believe Malmo's decision will change prospects for the plane.

 

"So,
our buy call is best for patient investors," he wrote, adding that the
CSeries should be a positive catalyst in the coming year.

 

Tyerman
said he expects other CSeries customers will either take Malmo's slots
or the delivery schedule will start more slowly than originally planned.