New order tempers sting of latest CSeries delay: analysts
By The Canadian Press
Jan. 16, 2014, Montreal - Bombardier Aerospace has delayed delivery of its first new CSeries commercial aircraft by several months and potentially more than a year, saying it needs more time for testing and preparation.
By The Canadian Press
The Montreal-based company said the CS100 is now expected to enter
into service in the second half of 2015, to be followed about six months
later by the larger CS300 aircraft.
Shortly before that announcement,
Bombardier received a firm order for 16 new-generation CS300 jets for
SaudiGulf Airlines, a deal worth about US$1.21 billion at list prices
A delay of the CSeries delivery was
widely anticipated due to the small number of test flights since Sept.
16, when the CS100 flew for the first time after years of preparatory
The company initially targeted 12-months
of test flights, with the first CSeries plane going into service within a
short but undefined period after that.
The plan announced Thursday provides
Bombardier a six-month window for getting the first CSeries into
service, between July 1 and Dec. 31, 2015 — up to 15 months later than
Bombardier said the CSeries
flight test program is "making solid progress" and initial performance
results are "in line" with its expectations. But it said the flight test
phase requires more time to ensure it has what it calls "overall system
"We are taking the
required time to ensure a flawless entry-into-service. We are very
pleased that no major design changes have been identified, this gives us
confidence that we will meet our performance targets," stated Mike
Arcamone, president Bombardier Commercial Aircraft.
Arcamone said the CSeries test program
should gain traction in the coming months following the first flight of
the second 110- to 125-seat CS100 test aircraft, on Jan. 3. The first
test aircraft is being shipped to Bombardier's flight test headquarters
in Wichita, Kan., to escape Quebec's cold winter in order to record more
test hours. A third test aircraft should be ready for flight in the
Cameron Doerksen of National Bank
Financial said he doesn't expect the delay will lead to any order
cancellations, but it's unclear if Bombardier will incur any penalties.
"It is no surprise that the EIS date has
been pushed to the right," he wrote in a report. "However, the new date
is even later than our expectation and certainly beyond the consensus
view…for the first quarter 2015."
Doerksen said the delay could add several
hundred millions of dollars to the US$3.9 billion program, mainly
related to engineering, flight testing and interest expenses. But he
doesn't foresee a liquidity problem for Bombardier because of the
expected strong cash generation in the fourth quarter.
He said the "clearly negative news" is
tempered somewhat by an order from SaudiGulf, announced Thursday before
the delay was revealed.
"We believe further negative news could
be announced by Bombardier in the near-term (from) reduced margin
guidance, possible miss on 2013 aircraft deliveries."
Walter Spracklin of RBC
Capital Markets said increased costs from the delay means that
Bombardier will need to sell more than 800 aircraft to break even, or 12
per cent market share over the next 20 years.
He suspects the delay is prompted by
issues with the aircraft's avionics and fly-by-wire system since it
continues to fly under "direct" mode.
On the Toronto Stock Exchange,
Bombardier's shares fell 37 cents, or nearly 8.2 per cent to C$4.15 on
very volume of 29.1 million shares.
Meanwhile, Bombardier spokesman Marc
Duchesne said the delivery delay approved by Bombardier's board of
directors Wednesday is the final one.
"This is serious. Trust me, people are not happy about this and we're not proud of this," he said in an interview.
The company gave similar assurances
before again delaying the aircraft's first flight. The aerospace
industry has a poor track record of delivering new aircraft on schedule.
Boeing and Airbus both experienced lengthy delays in introducing their
new wide-body aircraft.
Bombardier hopes the fuel-efficient
aircraft that's been in development for a decade will be a game-changer
for the company, whose regional jets face an uncertain future amid
increased competition, and which is the world's leading producer of
The 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.
Duchesne said CSeries suppliers are on board with the delay and customers have been notified over the past couple of days.
"Of course they're not happy about it but they're definitely supportive."
He said Malmo Aviation of Sweden will
become the first CS100 operator. The company has firm orders for five
CS100 and five CS300, plus 10 options.
In the earlier announcement, Bombardier
said SaudiGulf's contract would increase to US$1.99 billion if the buyer
exercises options to acquire another 10 CSeries of the 120- to 160-seat
The agreement with Al Qahtani Aviation
company, signed at the Bahrain air show, means that Bombardier has firm
orders for 198 CSeries planes plus nearly 250 options or commitments
from a total of 17 customers.
The manufacturer has stated it hopes to secure 300 firm orders from more than 20 customers by the aircraft's entry-into-service.
SaudiGulf Airlines will operate domestic
and international flights, with the international route network focusing
on main capitals in the Middle East and Gulf as well as the Indian
subcontinent. It becomes the third Middle Eastern carrier to order the