New order for CSeries ends sales drought

Airbus deal helped

Bombardier Inc. has landed its first CSeries jet order in 18 months, a move the company says was bolstered by its partnership with Airbus SE, but the company will deliver fewer jets than anticipated this year due to delays related to production ramp up.

The Montreal-based company said Thursday it will deliver between 20 and 22 CSeries jets to customers this year, fewer than the previously anticipated 30, as a result of engine delivery delays from Pratt & Whitney.

“This is a short-term issue that Pratt is actively addressing,” chief executive Alain Bellemare told analysts Thursday, adding that Pratt & Whitney has agreed to provide a cash advance beginning next quarter for all aircrafts that are built, but not delivered due to the delays.

At the same time, Bombardier said a European customer that it did not identify signed a letter of intent for a firm order of 31 CSeries jets and an option for 30 additional aircraft. The firm order is valued at $2.4 billion based on list prices, Bombardier said.

The potential order comes at a crucial time for the company’s marquee jet program, which hadn’t secured a new sale in more than a year and faces the prospect of permanent massive 300 per cent duties on its largest order to Delta Air Lines Ltd after rival Boeing Company filed a trade complaint.

Last month, Bombardier announced that aerospace giant Airbus SE will acquire a majority stake of its CSeries program, a major strategic move that the company hopes will bolster its struggling sales. Airbus has vowed that its supply chain expertise and sales network will help sell thousands of CSeries jets.

Bellemare said while the letter of intent resulted from an ongoing campaign prior to the announcement of the Airbus deal, the new partnership has helped provide some assurance of the longevity of the program.

“It is clear that Airbus coming into the program is adding confidence about the long-term success of the program,” Bellemare told analysts. “I wouldn’t say they are today totally linked, but it is clearly helping us to accelerate sales momentum.”

The announcement of the order managed to soften the blow from the news that Bombardier would deliver fewer jets than expected this year. Bombardier’s stock jumped 6.1 per cent on the Toronto Stock Exchange on Thursday, closing at $2.95.

In a note to clients, National Bank of Canada analyst Cameron Doerkson said the announcement of the new order “will help solidify the value in the CSeries program.”

“The CSeries deal struck with Airbus creates much greater certainty around the ultimate value Bombardier will realize on the program as well as the path to positive cash flow for the program in 2020 and beyond,” Doerkson wrote.

Bombardier reported a net loss of US$117 million in the three-month period ending Sept. 30 and an adjusted earnings per share loss of 1 cent. The company burned through $495 million in cash during the quarter, a 55 per cent increase from the same time last year. It expects to use $1 billion in cash this year, in part due to the delivery delays of the CSeries jet.

Bombardier’s transportation division continues to be its most profitable segment, with revenues topping $2.1 billion in the third quarter, an increase of 20 per cent from 2016. The transportation group faces increased competition after Germany’s Siemens AG opted to partner with French rival Alstom instead of Bombardier for a multi-billion-dollar rail merger to help compete with a large Chinese conglomerate.

Bellemare said Thursday the company is evaluating all strategic options.

“We will continue to look at the competitive landscape and assess some potential moves, as long as they will create value for shareholders,” he said.

Business aircraft reported revenues of nearly $1.1 billion, while overall revenues hit $3.8 billion. Its commercial aircraft division, which includes the CSeries, saw revenues drop from $538 million last year to $525 million.

CSERIES DEAL STRUCK WITH AIRBUS CREATES MUCH GREATER CERTAINTY.