Bombardier Sees Decision Shortly on CSeries Engine Fix

Bombardier Inc. will soon decide whether a fix to the engine failure that halted flight tests of its CSeries jetliner can allow the plane take off again, Chief Executive Officer Pierre Beaudoin said.

The CSeries, Bombardier’s biggest ever jet, remains on schedule to enter service next year, Beaudoin said today as the Montreal-based company reported second-quarter results. Test versions of the CSeries have been grounded since the May 29 incident, when one of two Pratt & Whitney geared turbofan engines on a CSeries prototype caught fire at the planemaker’s assembly plant in Mirabel, Quebec.

“We’ve now received a solution from Pratt to go back to flight. Our team is examining the solution, asking the proper questions, taking the time to make sure that from a Bombardier perspective, we can have a safe return to flight,” Beaudoin said today on a conference call with analysts. “We should make a decision shortly. This is a technical evaluation we are doing and we may have more questions to Pratt before we make a decision.”

He didn’t elaborate on the proposed fix.

The CS100, the smallest of two CSeries models, is set to enter service in the second half of next year, with the larger CS300 following suit about six months later. Beaudoin has said he expects the CSeries to generate as much as $8 billion in annual revenue later this decade.

“We’re still feel confident that we’re within the window that we gave you,” Beaudoin said of the delivery schedule.

To make up for lost time, each prototype of the CSeries may fly more hours than initially expected, Beaudoin said today. The original plan to have 2,400 hours of flight tests is unchanged, he said.

Ukraine, Russia

Bombardier also remains committed to a plan to build a turboprop factory in Russia even as the country faces international sanctions over the conflict in Ukraine.

The company signed a letter of intent in August with Russia’s state-owned Rostekhnologii for the sale of 100 Q400 turboprops valued at about $3.4 billion, based on list prices. The Montreal-based company also reached a tentative deal to establish a turboprop assembly line in Russia and said it expected to sign definitive agreements in 2014.

Complexed Discussion

“This is a very complex industrial discussion with Rostec,” Beaudoin said. “Both sides are motivated to find a solution.”

Bombardier is “concerned about what’s going on in Russia,” the CEO added. “We are looking at the effect on our business, and how to plan for different scenarios but in the end, it’s the governments that will decide on sanctions and of course we will respect the guidance that we get from the various governments where Bombardier is active.”

Bombardier’s Class B shares rose 1.6 percent to C$3.73 at the close of trading in Toronto. They had lost 20 percent of their value this year through yesterday, compared with a 14 percent gain in the Standard & Poor’s/TSX Composite Index.

Beaudoin made the comments after Bombardier reported quarterly profit that topped analysts’ estimates.

Earnings excluding some items rose 22 percent from a year earlier to $192 million, or 10 cents a share, the company said in a statement. The average of 20 estimates was 9 cents, according to data compiled by Bloomberg.

“This is a somewhat comforting quarter but there are still a number of major issues, including the re-launch of the CSeries and making sure that they have continuing progress on the flight test program,” said Chris Murray, an analyst at AltaCorp Capital in Toronto who rates the stock outperform.

Falling profit in the aerospace division led Bombardier to announce last week that it would cut 1,800 non-production jobs and carve the business into three units.

Job Cuts

In addition to the cutbacks in aerospace, Bombardier said today it plans to eliminate 1,000 jobs in its rail division by the end of the year, where a hiring freeze for non-production functions has been put in place, as well as a plan to cut costs such as travel expenses.

Bombardier said it’s “in the process of assessing the impacts” of the various restructuring measures in the aerospace and rail units on this year’s financial results’’ and expects to record restructuring charges during 2014.

Murray said the charges could amount to as much as $50 million.

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