Bombardier’s C Series dealt another blow as Republic Airways restructures

The future of Bombardier Inc.'s biggest single C Series order is now in grave doubt after Republic Airways Holdings Corp. said it plans to streamline its operations by operating only Embraer regional jets.

The airline holding company was slated to be the North American launch customer for the CS300, the larger of two C Series models, with planes that were scheduled to be delivered last year. Republic filed for Chapter 11 bankruptcy protection in New York Thursday, saying a pilot shortage caused a loss of revenue from which it is still trying to recover. The company operates feeder airlines for such U.S. giants as Delta Airlines, United Airlines and American Airlines.

A declaration signed by Republic chief executive officer Bryan Bedford as part of the bankruptcy court filing in the southern district of New York states that a revamped Republic plans to fly Embraer E170 and E175 jets exclusively. The filing adds more uncertainty about whether Bombardier can complete the order for 40 CS300 planes, worth more than $3-billion (U.S.) at list prices.

"[Republic is] more likely to cancel the C Series order, especially when the airline did not apparently have a business plan for C Series jets," Macquarie Capital Markets analyst Konark Gupta said in a note to clients Friday. The carrier has raised doubts about the C Series order several times in the past, with management speculating that the purchase agreement has value and could be sold.

"This is a situation where the manufacturer and the airline typically would work together and do something," said Ernie Arvai of aerospace consultancy AirInsight in Windham, N.H. "Despite contractual clauses that prohibit such transfers these days as easily as it was in the old days, I'm sure that if a leasing company were to step up and say 'We'll take those [delivery] positions from Republic,' Bombardier wouldn't mind."

The Republic order represents 16 per cent of the 243 firm orders Bombardier has for the high-tech, fuel-efficient aircraft, which is now scheduled to go into service in the second half of this year. The aircraft program is more than two years behind its projected initial delivery date of the end of 2013 and more than $2-billion over its original budget of $3.4-billion. Bombardier is counting on the planes to drive revenue over the next 20 years.

Republic said in court filings that it has not secured financing for the C Series purchases because of Bombardier's "delivery delays and general uncertainty." The carrier's restructuring plan calls for Republic to simplify "its operational fleet by transitioning to a single, larger regional jet fleet and a single operating certificate and assuring sufficient liquidity to support its operations and future growth," Mr. Bedford said.

Flying the C Series would require an additional operating certificate, which appears to indicate that Republic is planning for a future that does not include the C Series, one industry source said Friday.

Bombardier Commercial Aircraft spokeswoman Marianella de la Barrera insisted Republic's C Series order stands. "We have a firm order in place and see no immediate impact."

Ms. de la Barrera said this isn't the first time Bombardier has worked with airlines that have gone through bankruptcy protection. "We've seen some [customers] come out of it restructured and healthier," she said. "But every situation is different."

Republic spokesman Jon Austin declined to comment.

Republic's restructuring plan also includes what the airline describes as an "early return" or settlement of claims for "out-of-favour aircraft," which it identified as Bombardier's Q400 turboprop planes and smaller Embraer E145 regional jets. Bombardier said the Q400s are owned by third parties and it has no exposure related to them.

The C Series program received a boost from Air Canada last week when the flag carrier signed a letter of intent that included 45 firm orders for the CS300 and 75 options. The Republic order included 40 options.

The Air Canada order was the first new order in almost 15 months for the C Series, which is taking on Boeing Co. and Airbus Group SE in the 100- to 150-seat segment of the narrow-body commercial jet market. The two giants based in Chicago and Europe, respectively, have dominated the single-aisle market with their 737 and A320 families of aircraft and have fought back against the attempted incursion by Bombardier.

Republic was already considered an "at-risk customer" for the C Series and it had stopped making pre-delivery deposit payments on the planes, said Desjardins Securities analyst Benoit Poirier.

"We expect the bankruptcy protection filing to raise questions among investors over Republic Airways' ability to fund the planned CS300 purchase," Mr. Poirier said. "[This event] bring cloudy skies."