Bombardier Aerospace, Cost Cutting and the CSeries Problem

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On January 15, 2015 Bombardier Aerospace announced it was suspending its LearJet manufacturing program in a cost cutting move. It needs the cash to salvage its CSeries gamble.

 

The Cost Cutting Effect

The announcement’s impact played out in Mexico and Kansas, on the company’s financial sheets and on its share value. Manufacturing work suspension will mean about 1,000 fewer jobs in Mexico and Kansas and special charges will total $1.4 billion U.S. and up to a 50% ($800,000,000) in reduced cash flow. The markets reacted with a 26% share price drop on the announcement. The shares opened at $4.16 on January 15 and closed a day later at $2.89, a two-day drop of 31.9%.

 

A CSeries Short History

  • July 19, 2004 Bombardier gives name to its proposed line of 100 to 150 passenger jets: CSeries.
  • May 13, 2005 the Government of Canada commits support of the CSeries development, the same day Bombardier’s Board of Governors gives the company the go-ahead.
  • January 31, 2006 Bombardier announces the CSeries program suspension citing market conditions.
  • January 31, 2007 Bombardier announces it’s working on its business plan for the CSeries.
  • February 22, 2008 Bombardier announces it’s taking orders for the CSeries aircraft.
  • July 13, 2008 Bombardier announces launch of its CSeries aircraft program.
  • June 16, 2009 Bombardier announces “Bombardier CSeries Aircraft Program on Track for Delivery in 2013″.
  • January 16, 2014 Bombardier announces CSeries aircraft would not be ready for commercial service until the latter part of 2015, a two-year delay.
  • May 30, 2014 Bombardier confirms a CSeries engine problem. Analysts doubt late 2015 launch date.

 

The CSeries Launch Operator Problems

The CSeries launch operator is the airline that will take delivery and first operate the new aircraft. In its 2011 Management Discussion and Analysis,  Bombardier identified Sweden’s Braathens Aviation as the the CSeries launch operator. On August 29, 2014 Bloomberg News reported that Braathens, citing “increased uncertainty” would no longer be the official launch operator.

On April 10, 2013 Bombardier announced Porter Airlines as its North American launch operator.  Porter Airlines CEO and president Robert Deluce announced on April 10, 2013 that he wanted the Tripartite Agreement amended within six months to allow the jets to land at Billy Bishop Toronto Centre Airport (BBTCA). Almost two years later and the City of Toronto has yet to agree.

 

The CSeries Order Problem

On September 6, 2012 the Globe and Mail cited an RBC Dominion Securities report. The report stated that Bombardier faced problems securing orders for 300 planes before its now aborted 2013 launch. Airlines surveyed for the report blamed the additional support and maintenance costs of adding a different manufacturer’s plane to its established fleets of Boeing and Airbus aircraft. They also expressed concern about Bombardier’s ability to meet its delivery date.

On May 15, 2014 Bloomberg reported that Air Canada, rather than committing to the CSeries aircraft, would stick with its fleet of Embraer jets.

As of September 24, 2014 Bombardier had a total of 243 firm orders for both CSeries models. The number is 57 short of the company’s 2013 target of 300.  The 300 aircraft target was before the program’s $1 billion over run and Bombardier has made no new purchase announcements since.  To worsen matters, Ray Jones became the second sales vice-president to leave  Bombardier in 13 months. Jones led the effort to sell the CSeries.

 

The CSeries Competition

Also noted in the Globe’s September 6, 2012 article, Airbus, Boeing and Embraer would compete against the CSeries. Airbus would refit their A320 model jet with a more fuel efficient engine, either the same Pratt & Whitney used by Bombardier or a newly developed one by CFM International. Boeing would go with the CFM engine. Embraer would possibly use a purpose built Roll-Royce engine.

On October 19, 2014 Mitsubishi Aircraft Corp. rolled out  Japan’s first passenger jet. The 92- seat model will compete with the 100-seater CS100 in the regional jet market.

 

The CSeries Fallout

Twenty-one months after Porter Airlines said they needed a quick answer from city council on allowing jets at BBTCA, no CSeries aircraft is in commercial use. Indeed, the jets aren’t expected to go into service until later this year. The manufacturer is attempting to staunch its cash flow for a development program that is $1 billion over budget and has yet to book enough orders to meet its 2013 target. Furthermore, the competition for the market that Bombardier identified back in 2004 has heated up.

Why would Toronto City Council give even a second thought to expanding BBTCA and allow jets on the waterfront given the CSeries problems to date? If councillors won’t vote down the deal outright, they may at least want to see if pigs can fly.flypig gif

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