Bombardier's C-Series commercial jet takes off on its first flight on Monday, Sept. 16, 2013 in Montreal.Ryan Remiorz/The Canadian Press
Bombardier Inc. said it will build half the number of C Series planes this year than previously expected, the latest setback for an aircraft program mired in existential doubt barely a year ago.
The shares were down 5.6 per cent to $2 in late morning trading on the Toronto Stock Exchange.
Montreal, Que.-based Bombardier said it will build and deliver seven C Series planes in 2016, down from a previous production plan of 15 aircraft. It blamed unspecified delays in engine deliveries from supplier Pratt & Whitney for the change but said it remains confident that it will be able to meet a previous goal of building 90 to 120 planes a year by 2020.
"I would just put this down to teething pains. I don't think this is anything more than that," said David Tyerman, an analyst at Cormarck Securities in Toronto, noting there are no changes to the C Series order book. "The only thing that I would wonder about is does this drag and pull down deliveries for next year."
Bombardier chief executive officer Alain Bellemare is steering the market introduction and early production ramp-up of the C Series, the company's big bet to drive commercial aircraft revenue over the next decade. The airliner finally entered service with Deutsche Lufthansa AG's Swiss unit in July, two years late to market and more than $2-billion (U.S.) over budget.
Initial reports from the Swiss on the plane's performance are overwhelmingly positive. Bombardier is marketing the aircraft as the world's only designed-from-scratch airliner built specifically for the 100 to 150-seat market, with a 15-per-cent cash operating cost advantage over rival planes. The Pratt & Whitney PurePower PW1500G engines were designed for the C Series although similar variants are offered on new planes made by competitors Embraer, Mitsubishi and Airbus.
Bombardier gave no details what the specific problem was with Pratt & Whitney, saying only that the issue has nothing to do with the performance of the geared turbofan engine and that the manufacturer is working quickly to address the issue.
Sara Banda, a Pratt & Whitney spokeswoman, said the company has made significant headway in its supply chain but that "there is some pressure on new engine deliveries for this year." She said Pratt is working closely with its customers on delivery schedules and informing them of the progress being made.
As a result of the production adjustment, Bombardier said it expects lower revenue at its commercial aircraft unit this year with minimal impact on earnings before interest and taxes. Revenue will come in at the low end of a previous forecast range of $16.5-billion to $17.5-billion, the company said. Meanwhile, EBIT should come in at the upper end of the $200-million to $400-million range.
Free cash flow usage is expected to be in the range of $1.15-billion to $1.45-billion as opposed to $1-billion to $1.3-billion previously, Bombardier said. It said it expects to end the year with a strong liquidity position and that it is on track to achieve its previous turnaround objectives.
The company gave no update on its ramp-up schedule beyond this year. It had previously said it was aiming to build 15 to 20 C Series aircraft in 2016, then 30 to 35 planes in 2017, 45 to 55 planes in 2018, and 75 to 85 aircraft in 2019 before reaching a full ramp-up of as many as 120 planes in 2020.
"Pratt will probably be doing their utmost to get caught up on production," said Chris Murray, an analyst with AltaCorp Capital in Toronto, adding that in his view, the delay is a minor blip in "a five-year game" to 2020. Marianella de la Barrera, a Bombardier spokeswoman, confirmed Pratt is putting "all their resources" to catch up to the previous production schedule by the end of 2017.
Recognizing the challenges C Series, which also included finding an equity partner in the aircraft program to share the risk and reward, Mr. Bellemare told Bombardier employees in June: "A year ago, we weren't even sure if the program would be here or not. We were asking ourselves if we were going to keep the program. Look at what we have been able to accomplish."
Bombardier eventually signed a deal with the government of Quebec to partner on the C Series, with the province pledging $1-billion cash in return for a minority stake in the program. The company said it received the second $500-million instalment of that investment last week.
Bombardier has two CS100 aircraft currently in service with Swiss, which have collectively flown nearly 400 flights and logged almost 600 flight hours. A third CS100 aircraft is scheduled to be delivered to Swiss next month while the larger CS300 is expected to enter service with airBaltic in the fourth quarter, Bombardier said.
Nicolas Van Praet