2014 time to put up or shut up for Bombardier’s new CSeries
Analyst David Tyerman said early spring could be crucial juncture for future of oft-delayed aircraft
MONTREAL—Bombardier celebrated the first flight of its CSeries commercial jet in 2013, but the success of the world’s first new narrow-body design in nearly 30 years is riding on the test results.
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- 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,” Moore said.
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 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.”