Bombardier Cuts C Series Delivery Forecast on Engine Delaysand
Engine maker Pratt says slow suppliers hamper shipments
Planemaker is burning through cash faster than expected
Bombardier Inc. slashed its 2016 forecast for C Series jetliner deliveries, saying delays in shipments of Pratt & Whitney engines will cause the planemaker to burn through cash more quickly than expected.
Seven of the new aircraft are now slated to be handed over this year, down from an earlier plan of 15, Montreal-based Bombardier said in a statement Tuesday. As a result, sales at the company’s commercial-aircraft unit will be lower than expected.
The announcement adds to a history of delays for the C Series, which was about 2 1/2 years late and more than $2 billion over budget when it began commercial flights at Deutsche Lufthansa AG’s Swiss International unit in July. An engine fire in May 2014 forced Bombardier to halt all test flights of the C Series for more than three months.
“We are working very closely with Pratt & Whitney to quickly address this supplier ramp-up issue and to ensure we have a strong supplier base to support our long-term growth objectives,” Fred Cromer, president of Bombardier’s commercial-aircraft unit, said in the statement.
Bombardier’s Class B stock fell 4.7 percent to C$2.04 at 9:34 a.m. in Toronto, having gained 60 percent this year through Friday. Shares of Pratt parent United Technologies Corp. were little changed at $107 in New York.
Pratt’s recently introduced geared turbofan engine, which is used on the C Series, is more fuel-efficient and cleaner-burning than previous models. The power plant is available for planes such as Airbus Group SE’s A320neo. Pratt President Bob Leduc has acknowledged inconsistent performance from its suppliers as the company attempts to increase production rates of the new engine to meet a hefty order backlog.
“We’ve made significant headway in the supply chain, but there is some pressure on new engine deliveries for this year,” Alberto Canal, a Pratt spokesman, said Tuesday by e-mail. He said the engine is meeting or exceeding performance specifications.
Bombardier’s announcement is another blow to Pratt after an engine-cooling issue marred the rollout of the A320neo and generated complaints from Airbus customer Qatar Airways. The engine maker has instituted fixes for those turbines.
Bombardier said it now expects to burn through $1.15 billion to $1.45 billion of free cash flow this year, up from a previous target of $1 billion to $1.3 billion. The company nonetheless expects to end the year with a “strong” liquidity position.
“I would characterize this as teething pains in the supply base,” said David Tyerman, a Cormark Securities analyst. “Presumably the cash-flow impact is due to buildup in inventory that’s greater than expected due to the delay in getting engines. The big question now is whether this will leak into next year -- which is completely possible.”
Full-year revenue will be at the low end of the previously forecast range of $16.5 billion to $17.5 billion, Bombardier said. The delay isn’t likely to have a material effect on earnings before interest and taxes, which is forecast at the upper end of the $200 million to $400 million range. The planemaker said it remains on track to achieve its goal to be cash-flow neutral in 2018 and to reach 2020 objectives for its turnaround plan, such as generating at least $25 billion in annual revenue.
Swiss’s two CS100 aircraft -- the smallest variant of the C Series -- have accumulated almost 600 flight hours and are “meeting all expectations,” Bombardier said.
The planemaker plans to deliver a third CS100 aircraft to Swiss next month. The larger CS300 probably will enter service with Latvia’s Air Baltic Corp. in the fourth quarter, Bombardier said.