Bombardier CSeries Suffers Blow as First Operator Backs Away

Aug 29, 2014 5:07 pm ET

(Updates with closing stock price in fifth paragraph.)

Aug. 29 (Bloomberg) -- Bombardier Inc. will have to find another CSeries jet buyer to become the troubled plane’s first operator after Sweden’s Braathens Aviation AB said it’s seeking changes to its delivery schedule.

“We have informed Bombardier that we will not assume the role of formal launch operator,” Braathens, a buyer of 10 of the jets, said today in a quarterly filing. “Due to increased uncertainty we are discussing other possible changes to the aircraft delivery schedule with Bombardier.”

Braathens’s move adds to Bombardier’s struggles to develop and sell its biggest-ever model. The CSeries has been parked for three months after an engine fire during a ground trial, an incident that followed two delays to Bombardier’s timeline to get the plane in service. The May 29 blowout “may cause another delay to the CSeries introduction,” the Swedish company said today without elaborating.

Bombardier is sticking by its most recent forecast to have the smallest version of the jet -- the CS100 -- make its commercial debut in the second half of 2015, Marc Duchesne, a spokesman for the Montreal-based manufacturer, said today in a telephone interview. Bombardier has said it expects the bigger CS300 version to follow suit six months later.

The Canadian company’s widely traded Class B shares fell 3.2 percent to C$3.66 at the close in Toronto, their biggest one-day decline since May 15.

Engine Failure

Bombardier halted test flights of the CSeries after the blowout in which a Pratt & Whitney engine failed during ground testing in Mirabel, Quebec. Bombardier has repeatedly said it expects flight testing to resume in coming weeks and Duchesne reiterated that position again today. Work on the engine “is progressing very well,” he said.

A three-to-four-month halt to flight testing, “assuming the program resumes next month, will probably push entry into service toward the end of 2015,” Konark Gupta, an analyst at Macquarie Capital Markets in Toronto, said today in an interview.

Bombardier isn’t likely to announce a new timeline for introducing the aircraft because the current schedule is “wide enough to absorb a three-four month delay,” he said. Gupta rates the shares outperform, the equivalent of a buy.

Planemaker Dominance

With a seating capacity ranging from 108 to 160 people, the CSeries is trying to crack a duopoly in single-aisle models held by Boeing Co. and Airbus Group NV. The dominance of those planemakers and the delays in the introduction of the jet mean it will be that much harder for Bombardier to achieve a goal of $8 billion in annual revenue from CSeries by later this decade.

Braathens agreed in 2011 to order 10 CSeries jets in a pact valued at $665 million, based on list prices. The accord also contained options for a further 10 aircraft, boosting its potential value to about $1.37 billion, Bombardier said at the time. Bombardier didn’t disclose a timeline for the deliveries when it announced the deal.

The Swedish company “has changed its business plan and asked for a later delivery slot,” Duchesne said. “It’s not unusual for an airline to ask a manufacturer to deliver planes at a different date. So it’s not a catastrophe for us.”

Malmo Aviation, the domestic unit of Braathens, was scheduled to receive the first CSeries jets in July or August of next year, Gupta said. Duchesne, citing confidentiality agreements, declined to say when Malmo wants the jets to be delivered.

Bombardier is talking with other potential customers to find a replacement for Braathens as the entry-into-service operator, Duchesne also said. An announcement will be made “in due time,” he said.