One analyst cut his rating on Bombardier Inc. shares while others waited for an assessment of how long flight testing will be halted on the company’s C Series planes after an engine failure last week.
“The latest program setback aggravates the concerns we had with the slow flight test program to date and calls into question development progress,” RBC Dominion Securities analyst Walter Spracklin said in a research note Monday that downgraded Bombardier shares to sector perform from outperform.
“Clearly, the engine failure will add to anticipated program timing and costs, while likely halting recent new order campaigns,” he said.
Other analysts said, however, that it’s difficult to assess the impact on sales campaigns and the planned entry into service of the new plane in the second half of 2015 until the cause of the incident is determined.
The engine incident is just the latest in a series of delays and cost overruns for Montreal-based Bombardier’s $4.4-billion (U.S.) C Series program.
Sales of the 100- to 149-seat plane have been sluggish, with 203 firm orders since the program was launched in 2008.
Bombardier officials said after the incident on Friday that the engine failure and ongoing investigation will not have an impact on plans to deliver the plane to customers in the second half of next year.
The engine, made by Pratt & Whitney Co. Inc., was sent to that company’s head office in Hartford, Conn., on Saturday to begin testing, Bombardier spokesman Marc Duchesne said Monday. Teams from the engine maker and Bombardier are involved, he said.
“They started the investigation, they started tearing down the engine in order to locate the cause of the incident. We don’t have a complete detailed investigation report yet,” he said.
AltaCorp Capital analyst Chris Murray said he expects updates from Bombardier this week, “although we are feeling more comfortable that this is a manageable situation after only 48 hours. We expect the investigation will take some time, although our primary concern at this point remains how long a fix for the issues would take as well as any regulatory or design changes required to mitigate the uncontained failure.”
The fuel-efficient engine has proven reliable over three years of testing, Mr. Spracklin noted.
The engine incident – which occurred during maintenance ground testing – ratchets back up the risk discount on Bombardier shares, which had been falling as Bombardier made progress on the C Series flight test program, he said.
It comes about six weeks before the Farnborough Air Show in England, a crucial show. Bombardier had not said whether the C Series would be flown to Britain to appear at the show and chief executive officer Pierre Beaudoin played down that possibility on the company’s first-quarter financial results conference call in May.
The focus was on flight testing, Mr. Beaudoin said at the time.
But “the world needs to see it there,” said industry analyst Addison Schonland, a partner in consulting firm AirInsight, who noted that engine failures occur often during the testing of new airplanes.
If Pratt & Whitney determines the cause of the problem and repairs it within a month, the chances are excellent that Bombardier will send the plane to Farnborough, Mr. Schonland said.
Cormark Securities analyst David Newman said in a note that the problems with the engine occurred at a “fairly critical time in the fledgling flight test program, which may cause another small setback.”
The engine has been certified by Transport Canada, has booked more than 9,000 hours of testing and several aircraft manufacturers besides Bombardier have selected it for their new platforms, said Mr. Newman.
“With this background of testing and support and perhaps timely identification of the cause [days], we do not anticipate significant delays.”
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