Shares in Republic Airways Holdings Inc. – one of Bombardier Inc.'s biggest customers for its new C Series jetliner – are plummeting by more than half on the airline's second-quarter earnings warning and reduced flying time outlook.
The regional airline's stock fell $4.70 (U.S.), or more than 55 per cent, to $3.80 in trading on the Nasdaq market on Monday after the company issued preliminary second-quarter results on Friday night that missed analysts' consensus estimates and were linked in part to what Republic says is a worsening national pilot shortage that is forcing it to cut its flying for big U.S. airlines. The company rescinded all the financial guidance it previously issued and said it hired Seabury Group as an advisor to explore all options to get through the crisis.
Indianapolis-based Republic said a more stringent regulatory environment for pilot training, exacerbated by an ongoing labour conflict with its pilots, means that it does not have enough qualified pilots to fly all the routes its three airline partners – American Airlines Group Inc., United Continental Holdings Inc. and Delta Air Lines Inc. – require. The upshot is that it anticipates having to shrink its fleet, Republic said.
Bombardier, already dealing with slow sales for its C Series jet, faces the possibility of heightened uncertainty over the 40-unit order Republic announced in 2010, one of the biggest purchase agreements for the Montreal-based aerospace and rail-equipment manufacturer. Republic also took options on another 40 CS300 jets for a total of 80 planes.
Republic has already said it is mulling whether to go through with the C Series order as it streamlines its operations. Some industry observers anticipate that the 40-jet order will be shifted to another buyer.
Bombardier downplayed concerns the Republic order might be in jeopardy, affirming Monday that it expects to deliver the planes to its customer.
"There is no change" in the status of the order, said spokeswoman Marianella Delabarrera. "Republic, as far as we're concerned, is a solid, valued customer. It has a firm agreement in place and in fact we continue to work with the airline as it prepares its business plans for the C Series."
Officials at Republic were not immediately available.
So far, Bombardier has 243 firm orders for the C Series and is sticking to its target of 300 by entry into service, scheduled for the first half of 2016.
The C Series program has been hit by delays, a steep ramp-up in capital costs – now estimated at $5.4-billion (Canadian), about 30 per cent higher than its latest estimate last year – and fierce competition from rivals Boeing Co. and Airbus Group NV.
Bombardier shares were off four cents, or about 2 per cent, at $1.74 in trading Monday on the Toronto Stock Exchange. The stock has been hit by mounting concerns over the health of the company's balance sheet as it struggles with the C Series challenges and slows production or postpones development on platforms in its business-jet division.
The company is scheduled to unveil second-quarter earnings results on Thursday.