Ailing Bombardier being outmuscled by competitors
Pierre Jeanniot bought more than a hundred planes in his six years at the helm of Air Canada, so he knows what questions airline executives have to answer before they spend billions on new aircraft. How big is the market the planes will serve? How many flights per day will we need to run? What other airlines are operating in that market? Given all this, what aircraft would best fit the route? It sounds complicated, but it ultimately comes down to one simple factor: economics.
“It’s a pretty extensive analysis, but it’s basically an economic decision of how effective and how competitive a certain airplane would be in a certain market,” Jeanniot said Friday.
This is exactly what Bombardier Inc., had in mind when it first announced the development of the CSeries commercial jet more than a decade ago. The Montrealbased company thought the 100- to 149-seat market was under-served and felt it could become a major player with a lightweight, fuel-efficient aircraft.
But then the CSeries was delayed. And delayed again, while costs ballooned to $5.4 billion US from the original forecast of $3.4 billion. And in the meantime, Bombardier’s competitors saw the logic in its push for greater fuel efficiency and began developing their own aircraft with composite materials and efficient engines.
Today, Bombardier finds itself at a disadvantage compared to its chief rivals — Boeing Co., Airbus Group and Embraer SA — because of two major obstacles.
The first, and biggest, is its balance sheet. On Thursday, Bombardier suspended its dividend and announced that it will raise up to $2.1 billion in debt and equity. The moves are an attempt to address concerns about the company’s liquidity, as it burns through cash to develop the CSeries and a new generation of Global business jets. (A third project, the Learjet 85, was suspended in January.)
“I think one of the questions in the mind of some of the buyers is, are they going to make it?” said Jeanniot, who was CEO of Air Canada from 1984-1990 and head of the International Air Transport Association from 19932002.
“They don’t want to be left with an orphan, somebody that produces a few airplanes and then abandons the project.”
The rising cost of the CSeries program and Bombardier’s decision to suspend its dividend will make airlines even more wary, according to Jeanniot.
“I think people are beginning to wonder whether they will have the financial strength to pull the whole thing through,” he said. “Removing dividends is a major signal that you’re in trouble.”
For its part, Bombardier said Thursday it was positioning itself “with a flexible and strong financial profile.”
To date, Bombardier has secured 243 firm orders for the CSeries. Its goal is to reach 300 by the time the first planes are delivered to customers later this year.