Bombardier Sees `Aggressive' C Series Pricing Amid Droughtby
Comments by commercial jet president signal shift in strategy
`Mega-orders' are unlikely for new plane, Fred Cromer says
Bombardier Inc. is prepared to cut prices on the C Series jetliner as a way to end about 15 months without a firm order for the new single-aisle jetliner.
“I get the question all the time: ‘Are you finally going to discount?’ I know what it takes to win large orders,” said Fred Cromer, president of Bombardier’s commercial aircraft unit. Any new customer is “going to expect an aggressive deal.”
Cromer’s comments signal a shift in how Bombardier is marketing its biggest aircraft ever. Under former Chief Executive Officer Pierre Beaudoin, the Montreal-based company typically held firm on pricing -- saying that new technology such as composite wings and an engine that will cut fuel consumption about 20 percent should command a premium to competitors’ jets.
“Pierre was adamant that if you start pricing the plane at a big discount, it’s hard to ever get that back,” Chris Murray, an AltaCorp Capital analyst, said Monday. “His position was that customers would just recognize the value of the plane and pay up. That’s not what happened.”
Bombardier’s 243 firm orders for the C Series are short of the company’s target of 300 by the time deliveries begin in the second quarter of next year. The company last booked a firm sale in September of last year, when a unit of Australia’s Macquarie Group Ltd. agreed to buy 40 of the jets.
Bombardier’s shares rose 1.5 percent to C$1.39 at the close in Toronto, reaching their highest price since Nov. 11 and leaving the stock down 67 percent this year.
Canadian Transport Minister Marc Garneau announced the certification of the CS100 -- the smaller of two C Series versions -- at a media event Friday in Mirabel, Quebec. The C Series program is more than two years behind schedule and its development costs have ballooned by $2 billion to $5.4 billion. Bombardier executives have predicted that sales would accelerate once the jet was certified.
Many of the orders now under discussion could include as many as 100 aircraft, including options, Cromer said in an interview Friday at Bombardier’s Mirabel factory, where the C Series jets are built. He declined to identify would-be buyers.
“Mega-orders” are unlikely, he said. “It would be a combination of firm orders, options and the ability to continue to order. Would I eventually get to triple digits with some of the customers I’m seeing? Absolutely,” he said. “Is the initial order going to be triple digits? Probably not.”
The CS100, which can carry 108 to 133 people, has a list price of $71.8 million, while the CS300, which can seat as many as 160 passengers, sells for $82 million. Prices are only one element of negotiations, Cromer said.
Customers “are going to want support, they are going to want spares, they are going to want training,” he said.
Bombardier is in talks with JetBlue Airways Corp. about a potential C Series order, two people familiar with the matter said in October. Bombardier is also discussing the jet with Air Canada, said one of the people.
Doug McGraw, a spokesman for JetBlue, declined to comment on the C Series on Monday, saying it is “routine” for the carrier to meet with aircraft manufacturers. A spokeswoman for Air Canada didn’t respond to a request for comment.
While North America is the “anchor region” for orders, Bombardier is talking with airlines from other areas, too, especially since the Paris Air Show in June, Cromer said. “There’s been lots of European interest coming out of the Paris Air Show. We’re also seeing some traction in the Middle East.”
Bombardier needs to capitalize on that momentum soon, said Murray, the AltaCorp analyst.
“Certification is a great thing, but 2016 is going to be critical for orders,” he said. “If they don’t start showing orders in the first half, the concern will continue to build.”