Bombardier Ends CSeries Order Drought With $665 Million Deal for 10 Planes
Bombardier Inc. (BBD/B) won the first contract in more than a year for its new CSeries jet, with an order for 10 aircraft from Sweden’s Braathens Leasing Ltd., and is in “advanced” negotiations with more customers.
Braathens will purchase five CS100 and five CS300 planes, and take options on 10 more, Montreal-based Bombardier said today in a statement. The jets will be flown by Braathens’s Malmo Aviation from its base in Stockholm.
“We expect this order announcement to provide a sense of relief to investors, lend greater credibility to the program, and potentially trigger more customer interest going forward,” Tasneem Azim, an analyst at UBS AG in Toronto, said in a report.
The agreement revives Bombardier’s efforts to establish a market for the CSeries, designed to compete with Boeing Co. (BA)’s 737 and Airbus SAS’s A320 family in planes with 100 to 149 seats. Bombardier, the world’s third-largest planemaker, may have orders from 20 to 30 airline customers by the time the aircraft enters service in 2013, Bombardier Aerospace President Guy Hachey said today after the annual shareholder meeting in Montreal.
“We are seeing a lot of interest,” he said. The company is in “advanced” talks with seven to ten potential CSeries operators, discussing points such as letters of intent and performance guarantees and has a “second handful” of interested customers with whom negotiations haven’t progressed as far, Hachey said later on a call with reporters and analysts.
Bombardier climbed 20 cents, or 3 percent, to C$6.95 at 4:21 p.m. today in Toronto, the highest price since May 2.
“Malmo was one of those customers I’ve been talking about for a long time, and we finally completed a transaction,” Hachey said.
Options on the purchase would increase the transaction value to as much as $1.37 billion, Bombardier said. The CS100 model sells for a list price of $58.3 million, and the CS300 for $66.6 million, though airlines typically negotiate discounts.
The company now has 100 firm orders for the CSeries aircraft, split between 38 CS100 and 62 CS300 models, and four customers for the plane. The last order was placed by Republic Airways Holdings Inc. (RJET) in February 2010, with an agreement to buy 40 CS300 regional jets valued at $3.06 billion.
The company didn’t say when it expects to sign a so-called “launch customer” that would be the first to operate CSeries planes.
“We definitely have people interested in those positions, in fact we have several, so we’re not concerned,” Hachey said on the conference call. “It will be a matter of who it will be and whether we can actually talk about it,” since some customers prefer to keep their delivery positions private.
Bombardier’s quarterly earnings, reported today, show first-quarter net income rose 13 percent to $220 million, or 12 cents a share, from $194 million, or 11 cents, a year earlier. That beat the 9-cent average of 17 analyst estimates compiled by Bloomberg.
Sales for the three months through April 30 increased 9.3 percent to $4.66 billion, helped by a stronger market for business aircraft.
Bombardier reiterated this year’s plans to deliver 90 commercial aircraft, including CRJ jets and Q400 turboprops. The company needs “a few large orders” for the CRJ to avoid cuts next year, Hachey said.
“Most likely in the next couple of months, you will see some activity from our side in terms of order intake, or we’ll have to make some decisions,” Hachey said.
Bombardier will make a “slight reduction” in output of its Q400 aircraft, at the end of this year, Hachey said
The company expects the move to affect fewer than 100 employees, and it may be able to shift them to other assembly lines, he said.
“This will be a short valley and we’ll be required to go back up rather quickly” in production, Hachey said. “Customers are moving decisions to the right, but not getting out of the market entirely.”
Overall aerospace division sales in the previous quarter were boosted by airline demand from emerging markets such as India and China, Bombardier said.
Chinese carriers are among the airlines the company is targeting with the CSeries, Hachey said. Bombardier is seeking “great diversity” in its customer base and smaller orders fit in with that strategy, he said.
“If we have a 100-plane order from a single client, it fills the skyline for several months,” he said. “So you will see a lot of clients with maybe smaller orders at first. Eventually, there will be large orders.”
Bombardier will consider adding aerospace factories in countries such as Mexico and Morocco because of planned demand growth, Hachey said. The company already operates plants in Canada, Mexico, the U.S. and the U.K.
“We are looking at other opportunities in Mexico, and on the European continent” he said. “We have a very large site in Belfast that is growing very quickly, and we feel we need to have more capability of manufacturing. Morocco is one of the countries that we looked at. We’ve looked at other countries as well in northern Africa and eastern Europe.”
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