Bombardier Struggles

With good news that ‘CSeries’ aircraft test flights have resumed over the past week Bombardier management might be entitled to hope that resumption of the flight-test programme might also revive potential customer interest in ordering more of the aircraft as well. I doubt that will occur just yet and having hit so many problems along the way to get to the current stage of development I rather fear that further enhancement in CSeries sales will need to await completion of the development test and certification process.

First announced by Bombardier as a new aircraft development programme in 2004 after investing $100m in development and failing to sign up enough customers the programme as opposed to concept was shelved in 2006. The programme was then restarted in 2008 following German airline Lufthansa’s decision to sign a letter of interest for 30 firm and 30 optional CSeries aircraft. Since then there have been a number of development problems encountered and that have further extended the programme delay.

With the test flight programme halted back on May 29th and lasting for over three months following damage caused to one of the four test aircraft when a Pratt & Whitney engine suffered total failure and subsequent fire during ground testing news that the much delayed test programme has recommenced is excellent. However, given an understanding that flight testing is so far only around 15% complete after approximately 2,450 hours, there is still a very long way to go yet. It now seems very unlikely that the first CSeries aircraft will be delivered to a customer before 2016.

CSeries is not the only problem that Bombardier is struggling with. Canadian and Russian newspapers are carrying stories today that the $100bn joint venture project with Rostec, a Russian state conglomerate with large holdings in high-technology industries that had been agreed in 2013 to build Bombardier’s short-range Q-400 NG Turboprop aircraft, has now been delayed by at least a year. Not surprisingly, this is being put down to the ‘degrading political and economic ties between Russia and Canada’ following the crisis in Ukraine. While there is no suggestion that the joint venture proposal has been ended this is clearly a major setback and may well lead the Russians to decide that they might be better off re-launching production of an older design turboprop aircraft.

That the CSeries has had more than its fair share of problems is undeniable, and with only 203 firm orders so far, the question of whether the programme could ever be a financial success remains. To be fair customers that have ordered the aircraft have remained fairly loyal. That includes Lufthansa which confirmed its order for thirty CSeries planes in 2009.

However, a report in the Canadian press late August suggested that the Swedish company, Braathens Aviation which in 2011 placed a firm order for 5 CS100 planes and has options for another ten aircraft, suggested that following uncertainty surrounding the CSeries programme it no longer wanted to be the launch customer.

So far CSeries has notched up 203 firm aircraft orders and 513 commitments. This in my view and those of others falls well short of where a viable aircraft programme should be at this stage of its development. Contrast this with the five times number of orders held by the two main CSeries competitors shows the amount of ground that Bombardier has to make up and the level of competitor in Boeing and Airbus that it is up against. In what is a huge if somewhat lower margin segment of the commercial aircraft market chances of Bombardier succeeding with CSeries looks very slim.

Adding to Bombardier woes are the various board changes and loss of senior executives following the recently announced major restructuring. This included the cutting of 1,800 aerospace jobs. Just last month Bombardier also announced that Ross Mitchell was to be appointed to head its new Aerostructures and Engineering Services division to replace Philippe Poutissou with immediate effect. These separate announcements followed another some four weeks earlier that confirmed the company intended to split its aerospace division into three separate units to improve operations, business aircraft, commercial aircraft and engineering services, in order to make them more efficient. Note too that various other senior executives have left the company in recent months including the former Aerospace President, Guy Hachey, long been seen as the greatest CSeries protagonist.

What happens next will depend on whether there are further problems during the test flight programme. Certainly if CSeries programme is to be a viable long term success, the level of orders received will need to be very much higher than they currently are. One problem is that while the programme began with claims that CSeries could offer superior operating and fuel efficiencies, competitor aircraft have already caught up.

CSeries competitor aircraft are generally considered to be existing versions of the Boeing 737-700NG and the Airbus A319. These are formidable competitors in their own right and that in service have clocked up huge satisfaction for the many airlines that use them. To break into this market with an aircraft that although promising a lower price tag was effectively smaller and that had far less range would never be easy. Now, given that CSeries is running with an order book standing at less than 10% of its two main competitors is hardly an act of encouragement.

Neither has Bombardier been exactly helped by large investment houses such as Goldman Sachs, not only suggesting that the in-service debut for the CSeries before 2016 but also cutting its target price for the company stock and recommending investors sell.

All aircraft developments have their problems but CSeries does appear to have had more than most. Confidence inside Bombardier may have been raised a touch with the test programme at last recommenced but market confidence has yet to show much in the way of any improvement. In the dog eat dog world of narrow bodied commercial jets in the 100 to 150 seat market the ability to offer price discounts can often reason sales success. Clearly Bombardier is not in the same position.

 

CHW (London – 10th September 2014)

Howard Wheeldon FRAeS

hwheeldon@wheeldonstrategic.com

Tel 07710 779785

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