Bombardier Inc. defends its substantial delay of the C Series' entry-into-service date by saying that it wants to take the time to get things right. But in this highly competitive commercial airliner segment, timing is a crucial part of getting things right – by letting its crucial head start on competitors melt away Bombardier has thrown the door open to competitors who already had a leg up on the C Series in the first place.
On Thursday, Bombardier unveiled some good news on the C Series, the company's ambitious and risky $3.4-billion program to develop its own jets for the 100-to-150-seat commercial airliner market, a considerable step up for the Montreal-based manufacturer. A new Saudi carrier, SaudiGulf Airlines, has signed a firm purchase order for 16 CS300 aircraft, plus an option on another 10 of the planes.
But before investors could say "Hooray," the company dropped a bomb: The CS100, the first (and smaller) of the two planes in the C Series line, won't go into service until the second half of 2015, roughly a year later than its previous target date. The bigger CS300 is now scheduled for the first half of 2016, also several months later than previously planned.
The news is disappointing (Bombardier's stock was down 6 per cent in midday trading on the Toronto Stock Exchange Thursday), but hardly surprising. The maiden test flight of the C Series took place last September – nine months after originally planned. Since then, the pace of flight testing has been near-glacial. While the company publicly continued to express confidence – even as recently as last week – that it could still deliver the plane to customers by September of this year, few industry observers were buying it. But even for many skeptics, this delay is longer than expected.
Investors have to wonder whether the delays in the C Series program will translate into cost overruns. The $3.4-billion budget was a lot for a company of Bombardier's size to bite off, and with $7-billion in long-term debt, the market would understandably rather see the C Series investment start to generate cash, rather than go deeper into the hole. Bombardier is hardly short on cash, with nearly $2.6-billion in hand as of the end of the 2013 third quarter, but its cash position has fallen by more than $1-billion since the first quarter of last year.
At least the delay buys Bombardier more time to nail down sales, which have also been disappointingly slow. With the SaudiGulf sale, Bombardier now has 198 firm orders for C Series jets – less than two-thirds of the 300 planes it had targeted to sell by the time the plane went into service. With the service-entry timetable pushed back, it now has roughly an extra year of breathing room to make good on its sales promise.
That's cold comfort. The fact remains that 198 firm sales is not much to show in the nearly six years since the program was launched. Contrast that with the more than 2,500 firm orders that Airbus has booked for its A320neo – a revamp of the existing A320 that was designed to compete with the C Series.
Airbus already had considerable advantages over Bombardier in competing for customers in the 100-to-150-seat segment. It is very well established in the market and has a huge existing customer base, while Bombardier was moving up into a size class in which it had never previously competed. The A320neo is essentially just a new, more fuel-efficient engine on an existing model that is well proven in the marketplace, while Bombardier is marketing an unproven aircraft it has built from scratch.
The one advantage the C Series had over the A320neo was that it was going to be in service more than a year earlier. That just evaporated. Now, the two planes are going to go into service at roughly the same time. With the timing advantage gone, one has to wonder if a major motivation for ordering the C Series just went with it.