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Bombardier’s C Series risks more delays, ballooning costs, analyst warns

Bombardier's C-Series commercial jet takes off on its first flight on Monday, Sept. 16, 2013 in Montreal.


Bombardier Inc.'s behind-schedule C Series new-jet program faces possible further delays and ballooning costs given how little has been done so far in the flight-test phase, says one analyst.

The C Series' revised 22-to-23-month flight-test plan is similar to the 21 months Boeing Co. took to certify its 787 but "actual progress through the first four months of C Series flight-testing is well behind Boeing's early pace on 787," UBS Securities analyst Darryl Genovesi says in a research report published Monday.

Montreal-based Bombardier will likely burn through cash at $1.48-billion (U.S.) in 2014 and $1-billion next year, $1-billion worse than the combined 2014-2015 outflow previously modeled at UBS, he said.

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The anticipated increase is mainly due to an extra $500-million cost in C Series development and $400-million in inventory build to support the production ramp-up, said Mr. Genovesi.

Free cash flow break-even in 2016 is possible, but "we think cash likely remains negative for longer if C Series schedule slips again."

Bombardier Commercial Aircraft spokesman Marc Duchesne said the company is comfortable with its new deadline of entry-into-service in the second half of 2015.

"This new timeline was revised by the C Series leadership team, the Bombardier Aerospace leadership team and the Bombardier Inc. leadership team," he said in an interview.

He declined to comment on the specifics of the UBS report.

"This isn't the first time we launch a plane," he said, referring to the more than two dozen new aircraft – including the popular regional jet – Bombardier has brought onto the market over the past three decades.

Bombardier is betting big on the success of the C Series and new business jets, but has experienced several delays on both the C Series and some business-jet programs.

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The aerospace giant said on Jan. 16 it is once again delaying the aircraft's entry into service, until late next year instead of fall 2014 due to adjustments in flight testing.

Bombardier president and chief executive officer Pierre Beaudoin said in Davos last week at the World Economic Forum that the company won't need to raise additional funding this year after delaying the C Series for a fourth time.

The cost of the C Series development program is now pegged at about $3.9-billion.

Also last week, Bombardier Aerospace said it is slashing 1,700 jobs as part of a cost-containment program, but said the cuts are not directly related to any one program.

UBS analyst Mr. Genovesi also said in his report that he continues to anticipate that Bombardier will push out or retract its 2014 targets for a $500-million development spending decline and 8-per-cent margins at both its aerospace and rail divisions.

The decline in the value of the Canadian dollar will provide Bombardier Aerospace with some breathing room, "but we still think it's unlikely that [Bombardier] can get to 8 per cent in 2014 without a sharp bizjet market recovery."

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