Bombardier Says CSeries Jet Talks Advanced

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Published: June 2, 2011

Bombardier broke a 16 month order drought for its new CSeries jet on Wednesday, announcing a small 10 plane deal and hinting that more orders may not be far off.

The world’s third biggest civil aircraft maker is also in advanced talks with up to 10 customers on sales of its newest single-aisle commercial aircraft, said Guy Hachey, president and chief operating officer of Bombardier’s aerospace unit.

“There are somewhere between seven and 10 customers that are much further along than just talking about general items around the aircraft,” Hachey told analysts and reporters on a call to discuss Bombardier’s first quarter results.

“We are getting down to negotiating LOIs (letters of intent) and turning out pricing issues, terms and conditions and performance guarantees,” he said.

There was also a “second handful” of customers, with whom discussions are “progressing well”, he said.

Montreal-based Bombardier has been under pressure for months to announce new orders of its 110- to 145-seater CSeries jet, which is set to enter the market in late-2013 and compete with Boeing’s 737 and Airbus’s A320.

The firm order announced on Wednesday from Sweden’s Braathens Aviation could help stir up more interest in the aircraft at this month’s Paris air show, a key aviation industry sales event, analysts said.

“We believe there is a good chance of additional orders at the show, which would clearly alleviate some of the concerns investors have had about the potential viability of the CSeries,” said National Bank Financial analyst Cameron Doerksen.

News of the order came on the same day Bombardier released healthy results, showing a 13 percent rise in first-quarter earnings.

The Braathens order, which is worth USD$ 665 million and includes an option for another 10 CSeries aircraft, brings to 100 the total number of firm orders for the plane.

Braathens is Bombardier’s fourth customer for the CSeries. Its firm order is for five smaller CS100 aircraft and five larger CS300 mainline jets. If the Swedish firm turns its option for 10 more aircraft into firm orders the deal value will rise to about USD$ 1.37 billion.

FORECAST UNCHANGED

Earlier on Wednesday, Bombardier released first-quarter earnings that beat market expectations due to increased aircraft deliveries, notably higher-margin Global Express business jets.

Despite the outperformance, the company left its March margin and delivery forecasts unchanged, raising questions from analysts as to whether the rest of the year would be weaker or if the company would beat its own outlook.

Hachey said he was still comfortable with the guidance and pointed out that the fourth quarter would comprise only two months as Bombardier changes its year-end from end-January to end-December.

Bombardier, which is also the world’s largest train maker, reported net profit of USD$ 220 million. That was ahead of analyst expectations as the market for business jets revived after a slump in 2009 because of the recession.

A year ago the Montreal-based company reported earnings of USD$ 195 million. Revenue rose 9 percent to USD$ 4.66 billion.

“I think it was a good quarter. We continue to see supportive trends and orders in business jets and transportation,” said BMO Capital Markets analyst Fadi Chamoun.

“That should continue to drive revenue and margin improvement in the next two years,” he said.

The company’s overall order backlog was USD$ 55.1 billion as of April 30, compared with USD$ 52.7 billion on January 31.

Revenue at the aerospace division rose 10 percent to USD$ 2.2 billion. It received 86 net orders during the quarter, up from 61 in the year-ago period.

Bombardier’s aerospace unit got a major lift in March from a massive order of up to 120 business jets from Warren Buffett’s NetJets, a deal that could be worth USD$ 6.7 billion.

Bombardier executives said they did not see any other deals as large as this on the immediate horizon.

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