Bombardier Sees Boeing Shift Buoying CSeries Jet Orders After Yearlong Gap
Boeing said this week the company may build a successor to its narrow-body plane by 2019 that seats 150 to 220 people. That would leave the 100- to 150-seat category targeted by the CSeries “basically unaddressed with a new airplane,” Bombardier Chief Executive Officer Pierre Beaudoin said.
Almost half of narrow-body planes in the air today, or 5,550 aircraft, are in that seat-range with an average age of 13 years, according to research firm Ascend. Beaudoin said he’s believed since the CSeries inception that airlines would need to replace some of them.
“There is a substantial market there, maybe not big enough for Boeing or Airbus, but we feel for us, more than 6,000 aircraft over the next 20 years is a great market,” Beaudoin said in a telephone interview March 1.
Montreal-based Bombardier, the third-biggest planemaker, expects more orders in the “short term” for the CSeries, which is scheduled to enter service in 2013, Beaudoin said. He didn’t provide a date.
The successor to Boeing’s narrow-body 737, the world’s most widely flown jet, will probably be wider than the current model, Mike Bair, who heads the Boeing team studying the concept, said in an interview this week.
The second-biggest commercial-aircraft maker, Boeing prefers building an all-new plane to offering new engines on the existing aircraft as larger rival Airbus SAS did with its narrow-body A320.
Jet Fuel Prices
Boeing, which still hasn’t committed itself to a narrow- body strategy, will make a firm decision on whether to build a new jet and what size it would be by June, Bair said. The smallest 737 sold now starts at 125 seats.
What the Chicago-based company decides is pivotal to carriers choosing between more efficient aircraft from the three biggest planemakers amid a 27 percent gain in jet-fuel prices this year.
Airbus may not have a new narrow-body before 2027 as it doesn’t expect enough engine technology advances before then to warrant a $10 billion development program, Chief Operating Officer John Leahy has said.
Still, the A320neo, with upgraded engines, damages the business case for Bombardier’s CSeries, Leahy said. Bertrand Grabowski, the DVB Bank SE board member responsible for aviation clients, concurred.
‘Things Have Changed’
“Bombardier proposed a product that was definitely appealing, something airlines were ready to seriously consider,” he said. “But now, things have changed. With Airbus proposing the neo and Boeing expected to answer in one way or another later this year, any airline looking at the Bombardier plane will say, ‘I shall wait. What is my incentive today to the move to the CSeries? Zero.’”
Since the Toulouse, France-based planemaker introduced the A320neo in December, it has received commitments to buy 150 planes from IndiGo, the low-cost Indian airline, and orders from Virgin America Inc. and Tam Airlines of Brazil.
The CSeries has received no new orders since Republic Airways Holdings Inc. agreed to buy 40 jets and took options for 40 more about a year ago. Analysts have questioned whether that indicates a lack of demand for the aircraft, which will seat 100 to 149 passengers.
Never Seen Again
The aluminum-lithium and composite-plastic CSeries is a “good airplane that faces substantial challenges,” said Doug Runte, a managing director at Piper Jaffray & Co. in New York.
“The 100-130 seat space is the Bermuda Triangle of airplane types,” Runte said at the ICBI Geneva aircraft finance forum in late February. “I can think of five or six planes -- some quite good -- that were launched and went boldly into this space, only to never be seen again.”
In 2005, Boeing scrapped the 717 model, a 100-seat plane it inherited in the 1997 acquisition of McDonnell Douglas Corp. Airbus’s A318, which has comparable seating, drew only 83 orders from 1999, when the company committed to building it, through January, partly because it wasn’t efficient enough.
Defunct models with 100 seats or more include BAE Systems Plc’s Avro and some products of Fokker NV, which filed for bankruptcy in 1996.
‘What Airlines Want’
Potential CSeries orders from carriers such as Qatar Airways hovered in limbo last year as airlines grappled with risking capital on a brand-new plane while contending with volatile fuel prices as the industry recovered from the financial crisis.
“It’s getting down to crunch time,” Richard Aboulafia, a Fairfax, Virginia-based analyst with Teal Group, said of CSeries orders. “You need to see activity this year.”
Bombardier remains confident in the new jet, Beaudoin said. With 90 firm orders and 90 options, the CSeries is at the right stage for a brand-new development program and is sticking to its development schedule, the top customer concern after recent new wide-body aircraft from Boeing and Airbus were delayed by years, he said.
Bombardier has climbed 7 percent in the past 12 months in Toronto trading, lagging behind a 9.5 percent gain by Boeing shares in New York and a 12 percent gain on the S&P 500 Aerospace and Defense Index.
‘Meet The Timeline’
“The best thing Bombardier can do is continue to test the product, develop it, prove that they’ll meet the timeline they’re talking about,” Nat Pieper, the fleet manager for Delta Air Lines Inc. (DAL), said in an interview at the Geneva conference last week.
Decisions by planemakers have decades-long consequences and involve billions more in investments by engine makers such as United Technologies Corp. (UTX)’s Pratt & Whitney unit, whose geared turbofan engine is the only turbine option on the CSeries.
The Airbus neo offers a choice between the Pratt engine and the Leap-X from CFM International, a venture of General Electric Co. (GE) and Safran SA of France. The engines both offer about 15 percent efficiency improvements to start on new aircraft.
Airbus’ Leahy predicted last month that Bombardier may have to abandon the CSeries if it doesn’t see an order soon because the A320neo has logged orders quickly.
“What Airbus wants is irrelevant to me,” Beaudoin said. “What airlines want is relevant.”
The smallest neo in the A320 family, an A319 that can carry about 130 passengers, “is really a product that’s not competitive with the CSeries,” Beaudoin said. “It’s 12,000 pounds more than the CSeries, so just by its sheer weight it will be a lousy performer.”
Bombardier projects that an airline might save $1.82 million a year flying a CSeries plane in North America instead of an Airbus A319, assuming an oil price of $100 a barrel, 2,000 flights a year and no cost for carbon emission and noise fees. Under European rules, which include fee and noise restrictions, the savings would increase to $2.4 million a year.
“What validates the market space is putting an aircraft that can deliver the economics in the space,” Chet Fuller, who left GE’s aviation unit in December to lead Bombardier’s commercial sales and marketing, said in a Montreal interview.
Fuller says Bombardier’s goal is to have 20 to 30 customers including lessors worldwide, by the time the CSeries enters service in 2013. That gives the plane a kind of liquidity -- a market value for lessors and airlines to gauge its worth later.
“I love 10-aircraft orders, the more the better,” Fuller said. “Customer breadth. So if I gave the order book to three customers in the first five years, the program would be a complete failure.”
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