Canadian aircraft maker Bombardier Inc. has lost another potential near-term sale for its new C Series airplane after Germany's Lufthansa chose to move existing planes into its Austrian Airlines subsidiary instead of buying new ones.
Lufthansa will transfer about 16 Embraer aircraft from its CityLine feeder to Austrian instead of buying all-new jets, the company said Thursday. The move allows Austrian to modernize its fleet with planes that are several years younger than its batch of aging Fokkers and means that the carrier no longer needs the C Series, Lufthansa said.
The European carrier's decision to limit investments in new aircraft as oil prices remain under $60 (U.S.) a barrel highlights an unforeseen challenge for Bombardier as it tries to sell the 100 to 150-seat C Series jet, its largest-ever plane. Competition is now coming not only from new airliners made by rivals such as Boeing and Airbus but also from planes already in service that have suddenly become cheaper to operate.
"Lower oil prices make the sales argument for newer airplanes a bit more difficult," said Ernie Arvai of U.S. aerospace consultancy AirInsight. "Fuel efficiency is certainly one of the things that you're selling in the cost process."
Lufthansa shared plans Thursday to scale back investments in new aircraft, saying it bought fewer Boeing 777-300 units for airline Swiss than originally proposed and delayed orders on other aircraft. It announced orders for just six planes for its airline group, including six used A320 jets for its Eurowings unit.
"The fuel going down allows us to extend old aircraft without having similar disadvantages as in the past," Lufthansa chief executive officer Carsten Spohr told analysts.
Lufthansa's decision to fly the older Embraers instead of buying new Bombardier C Series planes represents the second setback in a week for the Montreal-based plane and train manufacturer. It comes after the CEO of Qatar Airways confirmed that the C Series is no longer in consideration for that carrier's fleet renewal plan. Qatar has opted instead for Airbus Group's A319neo plane.
Bombardier is working to rebuild customer and investor confidence in the single-aisle C Series, which has been plagued by delays and cost overruns. The aircraft represents one of the company's biggest-ever bets, pitting it directly against the smallest jets made by giants Boeing and Airbus.
The Canadian manufacturer says the C Series' new airframe and engine technologies will deliver a 20-per-cent fuel-burn advantage over current aircraft in its class, as well as a 15-per-cent cash operating cost advantage. Fuel has historically represented between 30 and 40 per cent of an airline's operating costs.
Hit by the effects of employee strikes and declining fares in Europe, Lufthansa said Thursday it needs to go further than cost cuts already implemented and initiate structural changes. The airline, together with its Swiss unit, have a firm order for 30 C Series jets with options for another 30 planes. These "are very much being considered for other parts of the Lufthansa family of airlines," Bombardier spokeswoman Marianella Delabarrera said.
Lufthansa has not decided yet whether Swiss will be the launch operator for the C Series, Mr. Spohr said. Talks between the two companies continue.
Bombardier has generally taken a positive view of the recent drop in oil and aircraft fuel prices, noting that customers for its existing regional aircraft have more financial breathing room and are better positioned to finance and buy new planes. Routes that are less passenger-dense have also become more viable as the price of fuel has fallen, which in turn expands the number of potential routes for Bombardier's planes, the company has said.
Still, it isn't betting that lower oil prices will last. "We feel that this is going to be a very temporary dip," Mike Arcamone, president of Bombardier Commercial Aircraft, said at the company's CS300 first flight event last month.
Bombardier has won 243 firm orders for the C Series aircraft, 57 planes shy of its preproduction target. The company has said it is aiming to get its C100 model, the smaller of two C Series models, certified by the end of 2015. It expects delivery to its first customer will take place shortly afterward.