Bloomberg News

Bombardier CSeries 2014 Debut Seen at Risk After Delay (3)

October 30, 2013

Bombardier Inc. (BBD/B), the world’s third-biggest aircraft maker, risks missing a target of delivering the first unit of its new CSeries next year, after the jet was 8 1/2 months late taking off.

Bank of Nova Scotia (BNS)’s Turan Quettawala and AltaCorp Capital Inc.’s Chris Murray are among at least five analysts predicting shipments won’t start before 2015. Bombardier executives, who have repeatedly said they expect the plane to enter service about one year after its Sept. 16 first flight, may address the issue tomorrow when the company reports third-quarter results.

Bombardier is depending on the CSeries to almost double annual revenue toward decade’s end, garnering $5 billion to $8 billion to bolster sales that totaled $16.8 billion in 2012. The Montreal-based company said unspecified “issues” with suppliers stalled the first flight of the jet, which will have as many as 160 seats and be its biggest aircraft.

“Do we expect entry into service to move to 2015? Yes,” Murray said in a telephone interview from Toronto. “Is it going to be material? No, as long as the costs stay under control. As long as that’s the case, a delay doesn’t bother me. If the costs moved much past $4 billion, that would be a problem.”

In September Bombardier revised the CSeries program’s costs to $3.9 billion -- a 15 percent increase from the original $3.4 billion projection. New accounting standards mean that Bombardier has to include interest and amortization expenses, Marc Duchesne, a spokesman for the company, said at the time.

Bombardier’s Class B shares fell 0.8 percent to C$5.28 in Toronto. They have risen 40 percent this year, beating the Standard & Poor’s TSX Composite Index’s 8.2 percent gain.

Behind Boeing

A Bombardier CS100 aircraft -- the smaller of the two versions of the CSeries -- took off earlier today from Mirabel airport north of Montreal for its fourth test flight, Marianella de la Barrera, a spokeswoman, said in a telephone interview. Rob Dewar, the program’s general manager, told reporters last month that Bombardier was planning 2,400 hours of flight tests.

Six weeks into its flight testing program, Bombardier is running behind the pace set by Boeing Co. (BA:US) when it tested its 787 Dreamliner jet, Darryl Genovesi, an analyst at UBS AG in New York, said in an Oct. 28 note to clients. Bombardier has logged eight flight test hours, the analyst said, trailing the 45 that UBS estimated would have been completed at this stage.

Boeing, which had initially planned a nine-month, 2,400-hour program, needed 21 months to complete 2,800 hours of flight tests, Genovesi said.

Timely completion of the flight-test program is “critical to achieving the cash flow improvement Bombardier is calling for,” Genovesi said.

Too Optimistic

National Bank Financial’s Cameron Doerksen, Canaccord Genuity’s David Tyerman and Tim James of TD Securities all assume entry into service will be pushed out to 2015, based on interviews and research reports.

Entry into service in 2014 “is likely too optimistic,” Doerksen said in an Oct. 9 note to clients. “A more realistic date is the first quarter of 2015.”

A delay until the first half of 2015 “is almost a certainty,” Bank of Nova Scotia’s Quettawala said in an Oct. 25 report.

Philippe Poutissou, a vice president of marketing at Bombardier’s commercial aircraft unit, told Bloomberg News in July that the company would “reassess where it is we are with respect to the entry into service” after first flight.

In an Oct. 17 interview in Ottawa, Poutissou said Bombardier is continuing to work under the assumption that the flight-test program will take about a year.

No Date

“We haven’t fixed a date for when we come out and give guidance on the entry into service,” he said. “We’ve designed the program to take 12 months, and that’s still what we’re working on.”

Bombardier has said the CSeries, which features the new geared turbofan engine from United Technologies Corp. (UTX:US)’s Pratt & Whitney, will cost about 15 percent less to operate, cut fuel burn by about 20 percent and produce less noise.

Each flight allows Bombardier to collect data on about 14,000 parameters, and initial results suggest the plane will probably meet the company’s expectations on variables such as speed and altitude, Poutissou said.

Bombardier will probably need another four to six months to compile “concrete” performance data -- including fuel efficiency and noise performance -- on the aircraft, David Newman, an analyst at Cormark Securities in Toronto, said in a note published Oct. 22.

Bombardier will report third-quarter results tomorrow before trading opens on the Toronto Stock Exchange. Excluding some costs and gains, the company is expected to earn 10 cents a share in the period, the average estimate in a Bloomberg survey of 21 analysts.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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