May 21 (Bloomberg) -- Bombardier Inc.’s biggest customer for the CSeries jet is considering whether to take the planes after a change in airline strategy, a potential blow for an aircraft struggling to win buyers.
The 40 CS300 aircraft on order at Republic Airways Holdings Inc. are no longer a top priority as the Indianapolis-based company returns to its roots as a provider of regional flights for larger carriers, Chief Executive Officer Bryan Bedford said. Republic hasn’t made any decisions on the CSeries, he said.
Bedford’s comments yesterday add to doubts about whether Bombardier can complete a deal valued at $3.06 billion that was announced in 2010. Since then, Bombardier has had to postpone the debut of the model it sees as a mainstay of future revenue, and Republic has dropped plans to compete with major airlines by flying full-size jetliners such as the CSeries.
“We’re focused on our core fixed-fee business,” Bedford said by telephone. “There is no place to operate the CSeries in that model. The question we’ll have to address is whether the aircraft purchase agreement has value or not and, if it does, then it becomes an asset and assets can be sold.”
Bedford said he doesn’t expect deliveries of the CSeries until 2016’s third quarter. A Bombardier executive said yesterday that the planemaker has had no conversations with Republic about scrapping the purchase.
Bedford is “not canceling the order, but looking at how and where he can use it to better serve their shareholders,” Kevin Smith, Bombardier’s vice president for sales in the Americas, said in an interview. “It’s a firm order for sure.”
Bombardier’s Class B shares fell 1.3 percent to C$3.88 at the close in Toronto, paring a decline that dragged the stock to C$3.66, its lowest intraday price in more than two months. Republic rose 1.8 percent to $9.88 in New York.
“The latest news adds to the negativity surrounding the sales uptake of the CSeries,” Walter Spracklin, an RBC Capital Markets analyst in Toronto, said today in a note to investors. Because the order is firm, the financial risk for Bombardier is less significant than the “near-term sentiment impact,” wrote Spracklin, who rates Bombardier as outperform.
The CSeries is Bombardier’s biggest plane ever, the company’s first challenger to single-aisle airliners from Boeing Co. and Airbus Group NV.
Republic placed the CSeries order along with options to take 40 more of the 138-seat planes after buying Frontier Airlines Inc. out of bankruptcy and trying to run the carrier alongside the regional business. Then, in 2011, Republic also agreed to buy planes from Airbus’s A320 family, the type used at Frontier. Republic sold Frontier in December.
Republic can’t use the CSeries in its flying for carriers including Fort Worth, Texas-based American Airlines Group Inc. because pilot contracts limit the size of planes used in regional operations.
While Republic holds early production slots for the CSeries, it wasn’t immediately clear whether they can be sold. Marianella de la Barrera, a Bombardier spokeswoman, declined to comment today on Republic’s contract.
Bombardier has customers “that understand the advantages of those premium positions and would take them in a heartbeat” if Republic cancels its order, said Smith, the sales executive, who was in Dallas to unveil the first of 30 CRJ900 jets to be flown by one of American’s regional units.
The CS100, the smaller of two CSeries models, is now targeted to enter service in the second half of 2015, nine months later than first planned. The larger CS300 model is scheduled to follow six months later. Republic initially was to receive its first CS300 in 2015’s second quarter.
Bombardier has amassed 203 firm orders for the CSeries, 97 short of a target of 300 by the time the plane enters service. The next-largest buyers after Republic are Russia’s Ilyushin Finance Co., with 32, and Deutsche Lufthansa AG, with 30.
Bombardier has said the CSeries, which features the new geared turbofan engine from United Technologies Corp.’s Pratt & Whitney unit, will cost about 15 percent less to operate and produce less noise. The plane impressed Bedford on a recent visit to Bombardier’s factory in Mirabel, Quebec.
“Our belief is the technology is going to work the way the manufacturer has said it will work,” Bedford said. “While it’s late, it appears to be meeting all performance metrics. The question of why it is not selling as well -- we don’t have the answer to that question.”
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