Bombardier: CSeries jets won't be ready for service until second half of 2015

MONTREAL – Bombardier Aerospace has delayed delivery of its first new CSeries commercial aircraft by several months and potentially more than a year, saying it needs more time for testing and preparation.

The Montreal-based company said the CS100 is now expected to enter into service in the second half of 2015, to be followed about six months later by the larger CS300 aircraft.

Analysts speculated that the delay could add to the costs of the CSeries program and on the Toronto Stock Exchange, Bombardier (TSX:BBD.B) shares tumbled 35 cents, or 7.74 per cent, to $4.17 on very heavy volume of 35.7 million shares.

A delay of the CSeries delivery was widely anticipated due to the small number of test flights since Sept. 16, when the CS100 flew for the first time after years of preparatory work.

The company initially targeted 12-months of test flights, with the first CSeries plane going into service within a short but undefined period after that.

The plan announced Thursday provides Bombardier a six-month window for getting the first CSeries into service, between July 1 and Dec. 31, 2015 — up to 15 months later than expected.

Bombardier (TSX:BBD.B) said the CSeries flight test program is “making solid progress” and initial performance results are “in line” with its expectations.

But it said the flight test phase requires more time to ensure it has what it calls “overall system maturity.”

“We are taking the required time to ensure a flawless entry into service. We are very pleased that no major design changes have been identified. This gives us confidence that we will meet our performance targets,” said Mike Arcamone, president Bombardier Commercial Aircraft.

Arcamone said the CSeries test program should gain traction in the coming months following the first flight of the second 110- to 125-seat CS100 test aircraft on Jan. 3. The first test aircraft is being shipped to Bombardier’s flight test headquarters in Wichita, Kan., to escape Quebec’s cold winter in order to record more test hours. A third test aircraft should be ready for flight in the coming weeks.

Cameron Doerksen of National Bank Financial said he doesn’t expect the delay will lead to any order cancellations, but it’s unclear if Bombardier will incur any penalties.

“It is no surprise that the EIS date has been pushed to the right,” he wrote in a report. “However, the new date is even later than our expectation and certainly beyond the consensus view…for the first quarter 2015.”

Doerksen said the delay could add several hundred millions of dollars to the US$3.9 billion program, mainly related to engineering, flight testing and interest expenses. But he doesn’t foresee a liquidity problem for Bombardier because of the expected strong cash generation in the fourth quarter.

He said the “clearly negative news” was tempered somewhat by a firm order for 16 new-generation CS300 jets for SaudiGulf Airlines, a deal worth about US$1.21 billion at list prices before options. That deal was announced shortly before word of the delay came out.

“We believe further negative news could be announced by Bombardier in the near-term (from) reduced margin guidance, (and a) possible miss on 2013 aircraft deliveries,” Doerksen said.

Walter Spracklin of RBC Capital Markets said increased costs from the delay means that Bombardier will need to sell more than 800 aircraft to break even, or 12 per cent market share over the next 20 years.

He suspects the delay is prompted by issues with the aircraft’s avionics and fly-by-wire system since it continues to fly under “direct” mode.

Meanwhile, Bombardier spokesman Marc Duchesne said the delivery delay approved by Bombardier’s board of directors on Wednesday would be the final one.

“This is serious. Trust me, people are not happy about this and we’re not proud of this,” he said in an interview.

The company gave similar assurances before again delaying the aircraft’s first flight. The aerospace industry has a poor track record of delivering new aircraft on schedule. Boeing and Airbus both experienced lengthy delays in introducing their new wide-body aircraft.

Bombardier hopes the fuel-efficient aircraft that’s been in development for a decade will be a game-changer for the company, whose regional jets face an uncertain future amid increased competition. Bombardier is also the world’s leading producer of business jets.

The program is expected to generate US$5 billion to US$8 billion in annual revenues as it seeks to capture about half of the global sales for this size of plane.

The newly designed aircraft, built partially with lightweight composite materials and powered by Pratt & Whitney’s fuel-saving engines, is targeted at established carriers looking to replace older, inefficient planes, and new airlines launching in developing countries, such as China, to service the growing middle class and airport expansion.

Duchesne said CSeries suppliers are on board with the delay and customers have been notified over the past couple of days.

“Of course they’re not happy about it but they’re definitely supportive.”

He said Malmo Aviation of Sweden will become the first CS100 operator. The company has firm orders for five CS100s and five CS300s, plus 10 options.

In the earlier announcement, Bombardier said SaudiGulf’s contract would increase to US$1.99 billion if the buyer exercises options to acquire another 10 of the 120- to 160-seat CS300 aircraft.

The agreement with Al Qahtani Aviation company, signed at the Bahrain air show, means that Bombardier has firm orders for 198 CSeries planes plus nearly 250 options or commitments from a total of 17 customers.

The manufacturer has stated it hopes to secure 300 firm orders from more than 20 customers by the aircraft’s entry into service.

SaudiGulf Airlines will operate domestic and international flights, with the international route network focusing on main capitals in the Middle East and Gulf as well as the Indian subcontinent. It becomes the third Middle Eastern carrier to order the CSeries.

Note to readers: This is a corrected story. An earlier version said the delay would be six months but in fact it could be up from 10 to 15 months.