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Airlines never pay the official list price, but the exact amount paid by clients is always kept confidential by Bombardier. (RYAN REMIORZ/The Canadian Press)
Airlines never pay the official list price, but the exact amount paid by clients is always kept confidential by Bombardier. (RYAN REMIORZ/The Canadian Press)

Aerospace

High hurdles, nervous airlines and a big year for Bombardier’s biggest bet Add to ...

When the C Series ascended gracefully over Mirabel in a cold blue September sky, Bombardier’s new single-aisle airplane made aviation history.

But whether the plane will truly take off will be determined in 2014, a crucial year for the aircraft manufacturer.

The Montreal-based company is racing against time to complete its 12-month testing program by next September. Many analysts believe Bombardier Inc. will push back the delivery of its first plane, given the inaugural flight was delayed by almost nine months.

Entry into service of the first C Series would slide into the early months of 2015 instead of the fall of 2014.

“Given the scale of the program and its potential, this is nothing in the scheme of things,” said Zafar Khan, aerospace and defence analyst at Société Générale SA in London.

More critical, in Mr. Khan’s eyes, is the flight testing of the plane per se. “Looking ahead, it is clearly very important to have a trouble-free test program and to obtain the plane’s certification,” he said.

The testing appears to be running smoothly – at least, Bombardier has not disclosed it encountered major technical issues so far. “Right now it is going according to plan,” said Guy Hachey, president and chief operating officer at Bombardier Aerospace, at a recent industry conference held in Montreal.

The flip side, however, is that the aircraft manufacturer still hasn’t proved that the jet challenging the Boeing-Airbus duopoly will live up to its promise.

Bombardier assured its clients that the narrow-body jet for 110 to 160 passengers would burn 20 per cent less fuel and cost 15 per cent less to operate than competing commercial jets.

Getting the hard data to substantiate those claims could help sales of the C Series, which have disappointed in the months that followed the inaugural flight.

So far, Bombardier has only garnered 182 firm orders. The company expects to have sold 300 planes by the time it delivers its first C Series.

In early December, Bombardier replaced the C Series’s chief salesman, Chet Fuller, and named Raymond Jones as its new senior vice-president for sales and marketing.

“From the airline’s perspective, there is an understandable nervousness: Are you going to deliver when your key competitors didn’t?” noted Karl Moore, associate professor at McGill University’s faculty of management, in reference to the problems and delays that plagued Airbus SAS’s A380 and Boeing Co.’s 787 programs.

“From an airline’s perspective, it is easier to go ahead and order a plane that has been re-engineered than to buy a plane with a new airframe and a new engine. It is possible some airlines are waiting for others to take the initial risks,” Mr. Khan added.

Another issue that is possibly hindering the sale of the C Series is its pricing, although it is difficult to ascertain to what extent Bombardier is discounting the plane. Airlines never pay the official list price, but the exact amount paid by clients is always kept confidential.

Some analysts such as Richard Aboulafia, vice-president of analysis at consulting firm Teal Group Corp., question if Bombardier has the financial might to boost their slow sales, through a walk-away clause or by guaranteeing the residual value of the plane after a number of years, for example.

“We have enough financial clout to market the plane,” Guy Hachey, president and chief operating officer at Bombardier Aerospace, retorted. Bombardier, he added, is “aggressive,” but will not eat into its profit margin just to land additional sales.

“There is no need for us to compromise the long term future of the company with prices that don’t make sense,” he said.

Just how far Bombardier is willing to go will be seen when the aircraft manufacturer makes its bid to replace Air Canada’s Embraer E190 fleet. It is unclear if the Montreal-based carrier will replace all or any of its remaining 25 Embraer jets and how big that order will be. Air Canada is expected to make a decision in the first half of 2014.

But landing this deal might require Bombardier to buy Air Canada’s Embraer planes as a trade-in, the same way Boeing consented to purchase 20 used Embraer E190 planes to land its $6.5-billion order for 737s, noted Benoit Poirier, analyst at Desjardins Securities. Such a trade-in is “not usual on the commercial side,” Mr. Poirier wrote in a recent note. But it is telling of the bargaining power Air Canada holds, given the size and importance of its plane purchases.

“Air Canada will choose the right product for its mission, but if you can’t win the guy across the street, then the optics are not good,” Mr. Moore said.

“The Air Canada order is symbolic,” Mr. Khan said, “but every order is important.”

Bombardier has a lot riding on the C Series, a plane whose development costs have risen to $3.9-billion. “The C Series is not a bet-your-company type of product, but it’s close to it. It is central to Bombardier’s long term future in commercial aerospace” Mr. Moore concluded.

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