Bombardier’s Shrinking Jet Backlog Adds Urgency to Orders

Bombardier Inc. (BBD/B), which sold more small commercial planes in this year’s first two months than all of 2011, must step up the pace of orders even more to keep from cutting production a second straight year, analysts said.

The planemaker garnered only four orders from February through December for regional jets, planes of 50 to 100 seats that were a mainstay of its aerospace unit a decade ago. Sales of seven turboprop planes in the same period marked the worst year since 2003.

“The new orders they’ve announced just aren’t enough,” said Denis Durand, a partner at Montreal-based Jarislowsky Fraser Ltd., which has about C$39 billion ($39.5 billion) in assets under management. “Regional jets are a mature product, and their backlog for turboprops is quite low.”

Bombardier can’t focus exclusively on that. Also demanding executives’ attention is a 2013 target for the commercial debut of the $3.5 billion CSeries jetliner, the largest plane the Montreal-based company has ever built. Chief Executive Officer Pierre Beaudoin has said he expects the CSeries to be a key contributor in almost doubling revenue in the next decade.

In the meantime, the maker of the CRJ900 and CRJ1000 aircraft must keep small commercial-plane production humming. Executives may face questions from analysts and investors about their strategy for accomplishing that when Bombardier reports fourth-quarter earnings tomorrow.

Competitors’ Orders

As of Oct. 31, the company had 81 regional-jet and turboprop orders in its backlog. That’s the lowest in at least 11 years, based on quarterly filings by the company, which switched to calendar-year reporting in 2011 from a fiscal year that ran from February through January.

Bombardier fell 1.7 percent to C$4.75 at 4 p.m. in Toronto. Before today, the shares climbed 19 percent this year.

The dwindling orders at Bombardier’s aerospace unit contrast with the performance of its two biggest competitors. Embraer SA (EMBR3), Bombardier’s chief rival in the regional-jet business, booked 124 orders last year, according to a regulatory filing.

Avions de Transport Regional, the turboprop-plane venture of European Aeronautic, Defence & Space Co. and Finmeccanica SpA (FNC), won orders for 157 turboprop planes last year. That’s the highest intake in the 30-year history of ATR, as the company is known.

“There’s no question that Bombardier slipped in market share both in terms of regionals and turboprops,” said Tom Astle, an analyst at Byron Capital Markets Ltd. in Toronto. Bombardier’s commercial aircraft unit “soaks up a lot of cash. It’s hard to find much value in it until the CSeries starts flying.”

Positive Indicators

With 52 firm orders as of Oct. 31, Bombardier’s regional- jet backlog represents about 12 months of production -- short of the company’s 18- to 21-month target. The turboprop backlog, with 29 orders, is even smaller, amounting to six months of production.

While Bombardier cut output of its CRJ regional jets amid slowing economic growth last year, Beaudoin said this month that the company has no plans to do so again. Recent sales are positive indicators, he said.

Carriers including PT Garuda Indonesia, Ethiopian Airlines and Alaska Air Group Inc. (ALK)’s Horizon Air booked firm orders this month for six Bombardier 100-seat jets and seven turboprops. Garuda, Indonesia’s listed carrier, also said it plans to buy another 12 jets from Nordic Aviation Capital, a leasing company.

Slowdown Not Foreseen

“I don’t foresee a slowdown in the CRJ at this point,” Beaudoin said after a speech in New York Feb. 16. “We just announced Garuda. Just there, that’s a nice order. There’s more to come so I don’t see that we need to slow that down. Last year was a slow point in terms of regional jets but I look at the projects in front of us. I’m very positive on what’s coming.”

The Garuda and Ethiopian orders show that Bombardier’s efforts to address its main weakness -- a lack of focus on emerging markets -- are starting to bear fruit, said analysts such as Astle and Chris Murray at Toronto-based PI Financial Corp.

The company doubled its commercial-aircraft sales force in the past year, with all of the new hires in emerging markets, Guy Hachey, who runs Bombardier’s aerospace unit, told investors in New York on Dec. 6. Bombardier said Feb. 14 it opened a sales and marketing office in Singapore.

‘Historical Markets’

About 4,000 aircraft in the 20- to 149-seat range will be delivered in the the Asia-Pacific region including China in the next 20 years, Bombardier has forecast.

North America and Europe have always been their historical markets,” Murray at PI Financial said in a telephone interview. “They’ve never really had a sales and marketing department in emerging markets, but they are taking steps to address that.”

Bombardier isn’t neglecting opportunities closer to home either, such as a plane-replacement program at SkyWest Inc., the company’s largest customer.

Bombardier “is well positioned given its solid relationship with SkyWest,” Benoit Poirier, an analyst with Desjardins Securities in Montreal, said in a Feb. 15 note. The St. George, Utah-based carrier’s order is a “potentially large” one that may be announced in the next 12 to 24 months, Hachey said in December.

Bombardier and ATR are both vying for an order of about 40 turboprops from Calgary-based WestJet Airlines Ltd. (WJA), which plans to start a short-haul unit as soon as next year.

New WestJet Unit

The WestJet deal may be worth C$800 million to C$1 billion, said PI Financial’s Murray. He said Bombardier probably will win the contract because WestJet executives such as CEO Gregg Saretsky are more familiar with the Canadian company’s planes. Saretsky previously worked at Alaska Air, which operates a fleet of Bombardier turboprops.

WestJet “is a critical order for Bombardier,” Cameron Doerksen, a transportation analyst at National Bank in Montreal, said in a telephone interview. “Not only is it a large-scale order that would clearly help their delivery schedule as we look ahead to 2013 and beyond, but it’s a high-profile order as well. From that point of view, it’s important.”

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

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

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