OUT OF TURBULENCE
Bombardier’s CS100 jet got the go-ahead from Transport Canada to enter commercial service,
After repeated delays, a ballooning budget and sluggish sales, Bombardier’s newest CSeries jet finally got the go-ahead to enter commercial service.
Transport Minister Marc Garneau announced at Bombardier’s Mirabel plant Friday that the CS100 plane — the smaller of two versions — has received formal certification from Transport Canada.
Bombardier shares rose 18 per cent to close at $1.38, up 21cents on Friday.
That means the first plane, with an all-new design, lightweight composite materials and groundbreaking fuel efficient engine, will be delivered to Swiss International Air Lines, a division of Lufthansa, in the second quarter of next year.
“It’s an incredibly important milestone,” said Fred Cromer, president of Bombardier Commercial Aircraft.
The question is whether the certification, considered the last critical step in a development project that has ballooned to $5.4 billion (U.S.), will spur needed orders. “We will take the momentum from certification and continue on our sales campaigns, and turn all that momentum into more sales for our order book,” he said.
“We have checked this box,” he said. “It just brings us that much closer in the eyes of some customers to entry into service. It makes them that much more comfortable to make the move and buy the airplane.”
The company has only 243 firm orders, plus letters of intent and commitment for another 360 planes, with the vast majority of orders for the larger CS300 jet, which is on track to enter service later this year.
Bombardier has struggled to land new orders for the CSeries jet. It has been more than a year since it reported a firm order. In October, the company wrote off $3.2 billion (U.S.) on the CSeries project, signalling it doesn’t expect to recoup that investment.
As well, the Quebec government stepped in with a $1 billion (U.S.) investment for a 49.5 per cent stake in the CSeries program, and the federal government is also considering a financial investment.
Company officials have said that government support would give customers and potential customers assurance of the aircraft’s viability.
Certification paves to commercial flying, and hopefully more orders. “Some customers we are talking to are looking at certification, and could do something before entry into service,” Cromer said. “Other customers want to see on the commercial side how the aircraft does,” he said.
He cautioned that the risk customers have to balance is that if they wait too long, there may not be production slots available at the delivery times they want.
At Bombardier’s investor day last month, the company said it planned 15 to 20 deliveries next year, doubling roughly to 30 to 35 in 2017.
George Ferguson, senior aerospace and airlines analyst for Bloomberg Intelligence, said certification does take some risk off the table but added it was expected.
“I don’t think this is going to materially change the sales prospects,” he said, noting challenges still remain in winning new orders.
The certification announcement came on the same day as Reuters, quoting an unnamed source, that Bombardier executive chairman Pierre Beaudoin, grandson of the company’s founder, would step down next year. Cromer dismissed the report, saying: “I don’t know where that’s coming from. Pierre is engaged. He’s with us.”
Beaudoin became chairman last February after stepping down as president and CEO, replaced by Alain Bellemare. Since taking the reins, Bellemare has changed the management team, including replacing the head of Bombardier Transportation, the rail division last week.
“The family has a lot at stake,” Ferguson said. “I would expect them to have someone involved in the management of the company.”
But given that both aerospace and train divisions are facing challenges, including problems with some double-decker trains in Germany, Ferguson isn’t surprised.
“There are challenges in both aviation and transportation, and if you are the chairman, you have some responsibility,” he said, noting Bombardier has two new investors — the Quebec government, and the pension fund, which paid $1.5 billion (U.S.) for a 30 per cent stake in the train division.