Bombardier May Cut Regional-Jet Output With Buyers ‘Worried’

Bombardier Inc. (BBD/B) said it may cut output of some regional-jet models as slowing economic growth damps demand, and the shares fell the most in a benchmark Canadian index.

Customers for the CRJ in particular are “sitting on the sidelines, a little worried about where the market is going,” Bombardier Aerospace President Guy Hachey said on an earnings conference call today. “We will have to make some decisions in the fall on production rates if things don’t change.”

While Bombardier is comfortable with its long-term outlook, “the economic recovery we were anticipating is moving to the right,” Hachey said. His division is the world’s third-largest commercial planemaker and accounts for slightly less than half of sales at Bombardier, which also builds passenger rail cars.

Bombardier will try to wait a couple of months for the outcome of “advanced” sales campaigns -- six to seven for the Q400 turboprop and three to four for the CRJ -- before determining 2012 production, he said. The Montreal-based company is already reducing output on its Q400 model.

The stock slid 35 cents, or 6.8 percent, to C$4.77 at 4:10 p.m. in Toronto trading, making it the worst performer today among 259 companies in the Standard & Poor’s/TSX Composite Index.

Quarterly Profit

Net income attributable to Bombardier increased 57 percent to $210 million in the three months through July, from $134 million a year earlier, the company said today in a statement. Adjusted profit of 12 cents a share beat the 10-cent average estimate of 17 analysts surveyed by Bloomberg. Sales gained 17 percent to $4.7 billion.

Bombardier said it’s watching market volatility in the U.S. and Europe, and predicted a “continued lower level of advances from customers than initially anticipated” for this year. It’s also facing more competition from regional-jet builders including Embraer SA (EMBR3), Mitsubishi Aircraft Corp. and Sukhoi Co.

The company won 43 net orders in the second quarter for its new CSeries airliner, which will compete against the smallest aircraft offered by Airbus SAS and Boeing Co. (BA) when it enters service in 2013.

“We feel good about the CSeries program, and it’s tracking well,” Hachey said. The company is in advanced talks with four or five customers, and anticipates “a steady flow of orders coming in the months to come,” Hachey said.

CSeries Advantage

Bombardier expects the CSeries to have an advantage in operating costs of at least 10 percent versus the 737 MAX, a more fuel-efficient variant of the 737 that Boeing announced yesterday, though Hachey said he’s waiting for more details about the new model’s engines.

Boeing’s decision to follow Airbus by offering new engines instead of developing an all-new replacement plane for the 737 has helped stoke interest in the CSeries, he said.

“We’re the only ones who offer a 100 percent new aircraft,” he said.

The company announced its ninth order for the CSeries two weeks ago, from Russian leasing company Ilyushin Finance Co., even as Delta Air Lines Inc. (DAL) postponed plans to buy 100 jets from either Bombardier or rival Embraer until next year.

Delta’s decision to buy 100 737-900ERs while pushing back the purchase of smaller jets “happened to be at a time when there was more anxiety in the marketplace,” Hachey said. “So they probably went where they had more need and then where they could wait, they decided to wait.”

Aerospace Sales

Sales at the aerospace unit rose to $2.1 billion from $1.9 billion, while earnings before interest and tax rose to $105 million. The backlog, or number of unfilled orders, increased to $23 billion compared with $21.1 billion at the end of April.

Gary Scott, Bombardier’s commercial aircraft president, is retiring Oct. 1 to deal with a family member’s illness. The business will be headed by Hachey until a successor is named, Bombardier said last week.

“It’s obviously a loss for the company,” Hachey said today of Scott’s retirement, adding that he’s looking both internally and externally for a successor and doesn’t expect any major shifts in strategy.

Sales at the transportation unit, which makes subway cars and locomotives, rose 26 percent to $2.7 billion. The division’s earnings before interest and tax rose to $191 million. The order backlog stood at $33.9 billion at the end of July, compared with $34 billion on April 30.

To contact the reporters on this story: Susanna Ray in Seattle at sray7@bloomberg.net; Benedikt Kammel in Berlin at bkammel@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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