‘Turning point’ for Bombardier
Delta’s firm order for CSeries aircraft is ‘changing the game,’ says CEO
Variously described as a “watershed moment,” a “strategic marker” and a “turning point,” Bombardier Inc. executives left little doubt that a major order from Delta Air Lines Inc. has secured the CSeries’ future and changed the conversation around the troubled aircraft program.
Delta became the CSeries’ largest customer Thursday with a firm order for 75 of the smaller CS100 version of the aircraft and options for 50 more. The deal pushes the CSeries order book over the psychologically important 300 mark, which has long been management’s stated goal before the aircraft enters into service this summer.
It also secures a marquee customer for the overdue and overbudget CSeries, an essential step if the program is to succeed.
Air Canada’s letter of intent for 45 CS300 aircraft, announced in February, also fits this category, but that order has yet to be firmed up and raised some questions about whether there was government pressure at play.
Bombardier CEO Alain Bellemare was effusive in his gratitude toward Delta’s incoming chief executive, Ed Bastian, who flew in from Atlanta to Bombardier’s headquarters in Mirabel, Que., for the announcement.
“We are deeply grateful for the confidence you’re placing in us,” Bellemare told Bastian at a news conference, flanked by a Deltabranded CSeries aircraft.
“I will never say it enough: We appreciate it so much. I was telling Ed that I want to jump up and down and he said go ahead,” he added, to laughter and applause.
The mood at the news conference was noticeably more upbeat from other recent Bombardier events, where it has often felt like the new management team, brought in by Bellemare over the past 14 months, has been on the defensive.
“Decisions made by Delta are closely watched and highly respected by the entire aerospace industry,” Bellemare said.
“The industry knows that Delta had choices and they chose the CSeries. Simply put, the CSeries is a game-changer and this order is changing the game.”
The order is worth US$5.6 billion at list prices, but airlines tend to get significant discounts for major orders. Reuters, citing aerospace industry sources involved in negotiating similar deals, said estimated discounts as high as 75 per cent may have been offered to reboot the CSeries program with a big order, matching some of the most aggressive pricing seen lately in the market.
Delta’s CEO hinted that Bombardier’s flexibility on pricing was a big part of what won him over.
“Candidly, with the amount of development and innovation coupled with the pricing and the economics that we were able to bring to bear, it changed our mind,” Bastian said.
“This aircraft has enormous performance potential and I think the game-changer for us on pricing and the economics was when we were able to get the price point to a point where we could afford the operating characteristics and performance attributes of the airplane.”
He added that the Quebec government’s commitment to invest US$1 billion in the CSeries program also helped clinch the deal.
“It gave us a lot of confidence to be able to step forward and make the decision, because the last thing you want to do is take a financial risk around the big investment that we’re making as a company,” Bastian said.
The Delta deal is likely to put an end to questions about the CSeries’ viability, which reached peak intensity early this year as Bombardier approached a year and a half without a single new firm order.
The former management team, led by Pierre Beaudoin (now the company’s executive chairman), came under intense criticism for its mismanagement of the CSeries. The company was accused of significantly underestimating the competitive response from Boeing Co. and Airbus Group SE; of committing itself to too many projects at once; and of being unprepared for the amount of time and resources it would take to develop an all-new aircraft.
Bellemare was hired in February 2015. He has replaced the company’s entire executive team and his efforts finally seem to be paying off.
Bastian, Delta’s CEO, said Thursday’s order officially brings Bombardier into the big leagues with Boeing and Airbus.
“This decision by Delta, in our opinion, brings Bombardier as a third competitor into the main line aircraft marketplace with Boeing and with Airbus,” he said. “And we’re thrilled to be able to have that choice in the marketplace.”