BOMBARDIER’S DEAL WITH AIRBUS PAYING OFF, SAY EXECS.
The blockbuster partnership that will see Airbus SE take full control of Bombardier Inc.’ s CSeries program has yet to kickstart discussions with new potential customers, but executives say it has already brought widespread confidence in the previously beleaguered program.
The Montreal-based company signed a letter of intent with EgyptAir Holding Co. on Tuesday for an order of up to 24 CSeries aircraft, its second order since Airbus took 50.01 per cent control of the program last month following an 18-month sales drought.
Chief executive Alain Bellemare said Tuesday that both agreements were not influenced by the Airbus deal, which is not expected to be finalized until next year. However, he added that airlines around the world have responded positively to the pending partnership.
“Some already existing customers and many new potential customers, (including) very large airlines, are seeing the benefit of adding Airbus into the program,” Bellemare said at a Goldman Sachs conference in Boston, adding that he received calls from “very key airlines” lauding the partnership within hours of the announcement last month.
“That’s the reason why I’m convinced that we are going to see much better sales moving forward because of that. Some of these customers today are Airbus operators. I think they see potential synergies.”
EgyptAir, which has both Airbus and Boeing aircraft in its fleet, has agreed to purchase 12 CS300 jets and has the purchase rights for an additional 12. Based on the list price of the CS300 jet, a firm order contract would be valued at approximately US$1.1 billion.
Earlier this month, Bombardier said an unidentified European customer signed a letter of intent for a firm order of 31 CSeries jets and an option for 30 more.
Fred Cromer, Bombardier’s president of commercial aircraft, said from Dubai he expects the purchase agreements for both orders to be finalized by year’s end.
Colin Bole, Bombardier’s vice-president of commercial aircraft, said there has been “renewed confidence” from potential customers and that the Airbus deal has helped “somewhat” increase the pace of discussions.
The agreements come as Bombardier faces the pros- pect of permanent 300- percent duties on its largest CSeries order of at least 75 jets to Delta Air Lines Ltd., due to a trade complaint filed by rival Boeing Co.
While the company was scheduled to begin deliveries of the jet next year, Cromer said Bombardier is developing contingency plans in the event that the final ruling goes in Boeing’s favour.
“We have not disclosed what those plans are or the potential customers are, but it’s important to note that we continue on the ramp-up and we will find homes for those aircraft,” Cromer said.
However, some analysts say the CSeries program will still face major hurdles.
Moody’s Investor Service released a report last week that said demand for the CSeries jet “is likely to remain modest due to industry pressures that are fuelling interest in larger, not smaller, narrow-body passenger jets.”
Moody’s wrote that in order for the CSeries to be considered a success, the order backlog would need to reach 1,000 aircraft. While the program’s visibility could improve under Airbus control, the analysts said they do not believe the CSeries will reach 1,000 aircraft in sales in five years. “At this level of demand, we would question whether the program would be profitable given its estimated development costs of more than $6 billion to date,” the report said.
While Airbus has said the 100- to 150- seat market will represent more than 6,000 new aircraft over the next 20 years, Moody’s said the estimate “may be ambitious due to industry operating constraints and economic fundamentals that will cause operators and lessors to continue to favour larger narrow-body variants with more than 150 seats.”
Still, Jonathan Root at Moody’s and one of the authors said Airbus’ involvement could ease worries for potential buyers. “For those who were concerned about ordering the airplane because of concerns about Bombardier’s financial position or the viability of the program over the long term, Airbus’ involvement alleviates that.”