More than bragging rights at stake as Bombardier takes on Gulfstream
Aclash of titans is shaping up in the luxury-jet set: Bombardier is seeking to use its new Global 7000 to wrestle away the Gulfstream G650’s crown as the most coveted private aircraft.
Bragging rights aren’t all that’s at stake. Canada’s largest aerospace company is banking on the Global 7000 to drive sales in the coming years after ceding control of its marquee commercial jet to Airbus. Bombardier is playing catch-up to Gulfstream, a unit of General Dynamics, which set the standard for speed and comfort with the first delivery of its G650 five years ago.
A crucial test is shaping up as Bombardier aims to get its new private plane to customers by the end of 2018. A wing redesign delayed its debut by two years. Brisk sales of the Global 7000, with a list price of US$73 million, would boost Bombardier’s turnaround – and justify an investment of several billion dollars in a plane that can whiz passengers from Hong Kong to New York with the comfort of a bedroom and shower.
The aircraft “is the entire ball game for Bombardier”, said Chris Murray, an AltaCorp Capital analyst in Toronto. “One of the things that is super critical to the entire recovery plan is that the 7000 hits entry into service flawlessly.”
The Global 7000’s flexible wings, spanning 104 feet, will give passengers a smoother ride than competing aircraft, according to Bombardier. A top speed just under supersonic matches the fastest aircraft in the industry. The key selling point: a spacious cabin with four separate areas to hold meetings or take a nap.
“We already have people asking about the 7000,” said Pat Gallagher, the sales chief for NetJets, Warren Buffett’s private jet company, which has ordered an undisclosed number of the planes. “It’s bigger than anything else that’s out there. It will be the new flagship for Bombardier, for NetJets and for the industry in general.”
The success of the Global 7000 may depend in part on how Gulfstream reacts to its first competitor in the ultra-longrange market that it created with the G650. The plane maker isn’t likely to give up its premier spot without a fight.
“I certainly wouldn’t want to relinquish any control of the market that I believe we built,” said the Gulfstream Aerospace president Mark Burns.
Gulfstream bet early that the wealthy were willing to pay for the kind of features offered by the G650. The wager has paid off with more than 260 deliveries of the $69m plane since its December 2012 debut. The G650 continues to set speed records, clocking a Tokyo-New York trip in less than 11 hours.
The combination of speed and distance sells, said Mr Burns, who calls his plane “unmatched”. The extended-range version of the G650 can fly 7,500 nautical miles, edging out the Global 7000 by 100 nautical miles.
Gulfstream delivers about 60 G650s a year, accounting for about half of segment sales, according to JPMorgan estimates. The model has helped make Gulfstream the most profitable private jet maker, with operating profit margins of 21 per cent.
Bombardier’s business aircraft unit, with profit margins of 8.5 per cent, has a long way to go to catch Gulfstream. The chief executive Alain Bellemare will rely on the Global 7000 to help keep his promise to boost annual revenue to more than $20 billion by 2020. The plane maker said it has invested $1bn this year alone in developing and producing the aircraft, with total cost of the project amounting to “a few billion dollars”, Mr Bellemare said.
Of the expected $3.5bn increase in annual revenue at Bombardier’s Business Aircraft unit by 2020, the Global 7000 alone will probably contribute about $3bn, said the chief financial officer John Di Bert.
“This is going to be a very solid return programme,’’ Mr Di Bert said of the Global 7000. “It’s going to create significant value for shareholders. It’s going to be around for a long time.”
Bombardier’s plan to ramp up production of the Global 7000 to as many as 45 planes a year after it enters service could pose a threat to G650’s production levels and profit margin, JP Morgan analyst Seth Seifman said. The 7000 is already building a fan base.
NetJets, which operates a fleet of 725 private jets, is attracted to the Global 7000’s more efficient General Electric engines, which promise to keep operating costs at the same level or better than Bombardier’s smaller plane, the Global 6000.
Bombardier is expected to begin flights of its fifth 7000 test plane within weeks, complete with a fully furnished interior, said Mr Gallagher, the NetJets sales chief, who has toured the aircraft’s assembly line.
VistaJet customers who fly long distances are eager for the aircraft to begin service, said Ron Silverman, the US president for the private jet charter company. VistaJet’s founder Thomas Flohr has “multiple” Global 7000s on order and VistaJet has an option to incorporate those planes in its fleet, Silverman said.
“As the routes become longer, people are looking for more comfort in the cabin,” Mr Silverman said.
“The Global 7000 brings that level of comfort.”