Bombardier CSeries Skips Paris as CEO Favors Flight Tests
Bombardier Inc. (BBD/B) will forgo displaying its CSeries at the Paris Air Show in June in order to finish testing before the jetliner’s first flight the same month, Chief Executive Officer Pierre Beaudoin said.
The world’s third-largest planemaker reiterated its commitment to that timetable in a presentation to investors yesterday in New York. The goal is already six months later than Bombardier originally planned, a delay the company attributed to unspecified issues with suppliers.
“We plan to fly in June, but to go to an air show with an experimental airplane would take at least a month away from our flight-test program because we’d have to prepare it to go,” Beaudoin said yesterday in an interview at Bloomberg headquarters in New York. “That’s not the kind of expense that makes sense for investors in Bombardier.”
The air show, held at Paris-Le Bourget Airport near the French capital, is the year’s largest aviation and aerospace industry trade event. Customers such as airlines and lessors ordered more than 1,400 aircraft when it was last held in 2011.
The CSeries, with a $3.4 billion development program, will be Bombardier’s largest jet, capable of seating as many as 160 people and competing with the smallest jets produced by Airbus SAS and Boeing Co. (BA) The first flight-test craft was shown to reporters and investors two weeks ago at the company’s Mirabel, Quebec, plant.
“The notion of flying across the Atlantic just to showcase it didn’t make much sense,” Walter Spracklin, an analyst at RBC Capital Markets in Toronto, said in a telephone interview. “By the time of the air show, they will have just gotten the aircraft in the air, if that.”
The CSeries isn’t the only new jet that won’t be making an appearance at the air show. Airbus’s new A350 wide-body plane likewise won’t make its first flight by then, Thomas Enders, CEO of Airbus parent European Aeronautic, Defence & Space Co., said two weeks ago.
“A better assessment is probably summer, July or August,” Enders told reporters at a briefing in New York on March 7.
Beaudoin reiterated yesterday Bombardier’s expectation that the CSeries will contribute $5 billion to $8 billion annually in new revenue starting in 2018. Altogether, the Montreal-based manufacturer said new products are expected to yield additional sales of as much as $16 billion -- almost doubling its 2012 revenue of $16.8 billion.
Bombardier’s widely traded Class B shares fell 2.9 percent to C$4.06 at the close in Toronto. The stock has gained 13 percent since Nov. 6, the day before the company disclosed the first-flight delay, outpacing the Standard & Poor’s/Toronto Stock Exchange Composite Index. (SPTSX)
Bombardier has racked up 180 firm orders for the CSeries so far, and the company is on track to meet a goal of 300 by the time the plane enters service in mid-2014, the CEO said.
The CSeries will cost about 15 percent less to operate and burn about 20 percent less fuel than existing competitors, Bombardier has said. The plane will feature composite materials and the new geared turbofan engine from United Technologies Corp.’s (UTX) Pratt & Whitney.
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.
“When you sell before the first flight, the customers want discounts because they’re taking a risk and there’s only so much discount we’re willing to give,” Beaudoin said in the interview. “The first people who come to the CSeries are obviously getting a better price, but at some point we have to say it’s enough and then we’ll sell on the demonstrated merits of the product.”
Bombardier expects setting prices to remain “challenging” for “probably another year or two,” Guy Hachey, president of Bombardier’s aerospace unit, told investors at the presentation.
As the company moves forward with the CSeries, Airbus and Boeing are developing reworked versions of their own narrow-body planes, the 737 Max and the A320neo, which will be powered by more fuel-efficient engines.
Bombardier said last year it expects that 6,900 aircraft seating 100 to 149 people will be delivered globally between 2012 and 2031.
Besides the 180 firm orders, Bombardier also has commitments for at least 200 CSeries jetliners.
“We know an airplane will have a long life and better residual value if it has wide distribution of its customers across the world, and many customers,” Beaudoin said. “So it’s important for us to get landmark names in terms of airlines, but also to get many airlines in different countries.”
Delivery slots for the CSeries are sold out for 2014 and 2015 and “almost” sold out for 2016, Hachey said.
Bombardier’s most recent sale was Feb. 20, when Russian leasing company Ilyushin Finance Co. converted a letter of intent into an order valued at about $2.56 billion at catalog prices.
Ilyushin is “going to help us get the CSeries in Russia and sell it,” Hachey said. “They are the largest lessor in Russia.”
Over time, Bombardier expects leasing companies to account for 30 percent to 40 percent of all CSeries aircraft sold globally, Hachey said.
Leasing companies are key “because when an airline buys product, it will buy some and lease some,” Beaudoin said. “Getting that right balance is important. For me it’s not only about selling to one airline, it’s also planning it well because we’re in this for 20 years.”
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