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Bombardier Signals CSeries Gain as Flight Delays End

Proving the CSeries jet could fly was the first step in Bombardier Inc. (BBD/B)’s quest to prove that its biggest aircraft ever can challenge models from Boeing Co. (BA) and Airbus SAS.

Bombardier will follow up yesterday’s 2 1/2-hour aerial debut for the CSeries with 2,400 hours of trials, Rob Dewar, the program’s vice president, told reporters after the initial test at Mirabel, Quebec. The goal is to show that the CSeries will meet its noise-reduction and fuel-economy targets.

With only 177 firm orders over five years, Montreal-based Bombardier has struggled to find more buyers for a jet intended to crack the Boeing-Airbus duopoly. The first flight was delayed more than eight months while program costs rose to $3.9 billion, 15 percent more than projected.

“There are airlines that are sitting on the fence,” said John Stephenson, a fund manager with First Asset Investment Management Inc. in Toronto, whose C$2.7 billion ($2.6 billion) in assets includes shares of Bombardier. “Here’s something that hasn’t really been able to prove itself, and now with this test flight it has. Over 150 minutes has put those doubts to rest.”

With the twin-engine CSeries, Bombardier is targeting the smaller end of the single-aisle jetliner market, seating 100 to 160 people. Chief Executive Officer Pierre Beaudoin is counting on the jet as a catalyst for almost doubling annual revenue toward the end of the decade. Sales were $16.8 billion in 2012.

Photographer: Clement Sabourin/AFP/Getty Images

The new Bombardier Inc.’s CSeries jet takes off for the first time in Mirabel, Quebec on Sept. 16, 2013. Close

The new Bombardier Inc.’s CSeries jet takes off for the first time in Mirabel, Quebec on Sept. 16, 2013.

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Photographer: Clement Sabourin/AFP/Getty Images

The new Bombardier Inc.’s CSeries jet takes off for the first time in Mirabel, Quebec on Sept. 16, 2013.

Pivotal Model

“Sentiment on Bombardier is still ruled by the success or failure of the CSeries,” Walter Spracklin, an analyst at RBC Capital Markets in Toronto who recommends investors buy the stock, said yesterday in a note to clients. “Over the next six months, we do see positive news coming out of the program by way of first flight data and new orders.”

Bombardier’s widely traded Class B shares slipped 0.6 percent to C$4.96 at the close in Toronto, reversing an earlier advance of as much as 2.4 percent. That pared the stock’s year-to-date gain to 32 percent.

“The flight was so hyped, and there was so much coverage, that expectations were just too high,” Stephenson said yesterday in an interview. “The market is saying today they still have to keep building the order backlog.”

Beaudoin reaffirmed a goal of having the CSeries enter service about 12 months after first flight. He also repeated a pledge to reach 300 firm orders by then, saying yesterday’s trial will help dispel skepticism among would-be buyers.

CEO View

“Obviously there are some airlines that want to see first flight, and want to see the data rather than just our analysis,” Beaudoin told reporters in Mirabel. Getting the plane airborne “will permit us to start giving them the data.”

The smaller CS100 model, with about 100 to 125 seats, sells for a list price of $62 million, while the CS300, which will carry 135 to 160 people, sells for $71 million, though airlines typically negotiate discounts.

Bombardier has said it expects industrywide deliveries of 6,900 planes in the 100- to 149-seat range in a 20-year period ending in 2031, with half of that market captured for itself.

That share probably will be closer to 30 percent, Fadi Chamoun, a BMO Capital Markets analyst in Toronto with an outperform rating on the stock, predicted on Sept. 5. He is among 14 analysts who recommend buying the shares, while nine say hold and one says sell, based on data compiled by Bloomberg.

Competitor Comparison

Firm CSeries orders have typically been for handfuls of planes, while Boeing and Toulouse, France-based Airbus often sign deals for scores or hundreds of jets. The 177-plane backlog compares with 3,445 of Boeing’s 737 model on order through June, based on data compiled by Bloomberg.

Bombardier stirred concern in November with a six-month delay to the test flight caused by unspecified “issues” with unidentified suppliers, surprising investors and sending the stock to the biggest drop since June. Then it postponed the event twice more this year.

“Many airlines are adopting a ‘show me’ approach prior to placing orders for the CSeries,” Benoit Poirier, an analyst at Desjardins Capital Markets in Montreal, said yesterday in a note to clients. He rates the stock as buy.

Bombardier has said the CSeries, which features the new geared turbofan engine from United Technologies Corp. (UTX)’s Pratt & Whitney, will cost about 15 percent less to operate, cut fuel burn by about 20 percent and produce less noise.

‘Very Quiet’

“It was very quiet, which is great,” Nico Buchholz, executive vice president at Cologne, Germany-based Deutsche Lufthansa AG (LHA), said in an interview after hearing the CSeries at Mirabel. “We have a lot of data and we feel pretty confident that it will be good.”

Lufthansa, whose 2009 order for at least 30 of the jets made it among the earliest buyers, will consider the CSeries when shopping for new narrow-bodies, perhaps in three to five years, Buchholz said.

The CSeries also is part of fleet-upgrade discussions at Air Canada, along with Boeing, Airbus and Embraer SA (EMBR3), Chief Financial Officer Michael Rousseau said on an Aug. 7 conference call. Those comments still stand, Isabelle Arthur, an Air Canada spokeswoman, said yesterday in an e-mail.

Interest in the CSeries is “nicely spread out” across all continents, said Mike Arcamone, president of Bombardier’s commercial aircraft unit. Talks are under way with potential buyers in Latin American countries such as Mexico, said Arcamone, who declined to identify specific carriers.

As many as 35 current and potential customers attended the event at Mirabel, Arcamone said, and first flight may prove to be just the catalyst that Bombardier needed.

“Seeing is believing,” Arcamone said in an interview. “To me, that’s the best PowerPoint presentation we can give to customers. This plane is really going to be a game-changer.”

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

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

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