The struggles Bombardier Inc. is having in getting its C Series plane off the ground are threatening its credit rating.
Ratings agency Standard & Poor’s Financial Services LLC has revised its outlook on Bombardier to negative from stable because of two recent delays in the first flight of the airplane. Those two delays came after the transportation giant failed to meet its own deadline of having the plane in the air by the end of 2012.
“We believe these delays create a heightened risk of further capital costs for the C Series program,” Jamie Koutsoukis, a credit analyst for Standard & Poor’s, said in a statement.
The change in outlook capped a week when Bombardier Aerospace hit some headwinds.
International Consolidated Airlines Group (IAG), parent of British Airways, Iberia and budget airline Vueling, chose Airbus Industrie and its A320 family of airplanes instead of the C Series for an order that could be worth as much as $20-billion (U.S.) if all options were exercised.
In addition, a key American Airlines order for regional jets, which pits Bombardier against Embraer SA of Brazil, could be delayed because the U.S. Justice Department said it will try to block the merger of American and US Airways Group Inc.
The C Series is Bombardier’s $3.4-billion (Canadian) bid to expand beyond its regional and business jet franchises into the narrow-bodied segment of the large commercial airplane market, where the larger CS300 in particular is challenging Airbus and Boeing Co.
The company is focused on getting the plane ready for its first flight in the coming weeks, Bombardier Aerospace spokesman Marc Duchesne said Friday.
“We’re a few months off our original timing, it’s not two or three years delay like the American competitor or the European competitor,” Mr. Duchesne said. “We want to put out an optimal aircraft in the air, a reliable aircraft in the air and we are pleased with the progress we’ve made so far.”
He noted that the plane did low-speed taxi tests on Friday, which means it is moving under its own power.
“The CS300 is a threat to the A319 and [Airbus] are taking it very seriously,” said Addison Schonland, a partner in aviation consulting firm AirInsight LLP. “In fact, the way Airbus is out to get the CS300 may be the proof that it is going to be a good airplane.”
Bombardier’s bid to win the IAG order would have been strengthened if the C Series were in the air, added Patrick Edmond, managing director of aviation advisory firm e2consult.
“But in practice that would just have meant that Airbus would have had to have shaved another $1-million [or whatever] off their price per aircraft in order to get the deal,” Mr. Edmond said.
IAG said it obtained a “very substantial discount” from the Airbus list price of $92-million (U.S.) on the A320neo.
Mr. Schonland said AirInsight is hearing IAG may have paid as little as $30-million for the planes. The list price on the CS300 is about $76-million.
“My personal view is that [Bombardier] is going to have to bite the bullet on some future deal and accept the margin hit in order to get the aircraft into service with a marquee low-cost carrier,” Mr. Edmond said.
Mr. Duchesne said his understanding is that Vueling needed planes larger than the 160-seat maximum size offered by the CS300.
Industry analyst Turan Quettawala, who follows Bombardier for Scotia Capital Inc., said the company needs to win the American Airlines regional jet order to maintain current production rates for the planes beyond 2014.Report Typo/Error