Bombardier offers majority stake in C Series to Airbus

[J.O.]

When oil was $100 a barrel, the C Series was a great idea. At $47, not as much.

[peekay4]

AirBaltic seeks CSeries reassurances

“We would like a clear statement from Bombardier on the status of the program,” Gauss told ATW on the sidelines of the European Regions Airline Association general assembly in Berlin. “I want certainty, not only on deliveries—which I think they will achieve—but that they will still be supplying and building these aircraft in five years’ time.”

AirBaltic seeks CSeries reassurances | Airframes content from ATWOnline

Translation: let's talk discount or else...

N.B., AirBaltic is the CS300 launch customer and had expected delivery in Q4 2015.

[ExDubai]

“I want certainty, not only on deliveries—which I think they will achieve—but that they will still be supplying and building these aircraft in five years’ time.”

Frankly speaking, nobody with Bombardier is able to give such a commitment.

[Willie Everlearn]

"After a year suffering the economic consequences of the oil price slump, OPEC is finally on the cusp of choking off growth in U.S. crude output. As the U.S. wilts, demand for OPEC's crude will grow in 2015, ending two years of retreat, the IEA estimates.
While cratering prices and historic cutbacks in drilling have taken their toll on the U.S., OPEC members have also paid a heavy price."

How long are the 'greedier' OPEC states likely to continue to suffer lost oil revenues? How do you suggest they pay for those palatial extravagances, VVIP wide bodies, not to mention all those A380s, 777s, 787s? With oil at 45 bucks a barrel??? I suspect the price of their vanity will soon return to former levels.

Bombardier offer more in their C series than just a 20% fuel saving. Somebody needs to read their brochure.

I don't see the C series listed for DXB next month but I wouldn't read much into it if it doesn't show. They have an aircraft to certify and it doesn't sound likely they'll announce any additional sales this close to the wire.

What launch customer of ANY new aircraft wouldn't want some assurance. Including Air Baltic. A Bombardier customer.

FWIW, Canada doesn't need F35s. We need a gazillion armed drones to create drone pilot jobs for us retirees.

Giddy up

Willie

[peekay4]

Willie I think you're underestimating the changes taking place in the oil & gas industry.

Saudi Arabia is dumping oil at cheap prices not because of choice, but because they are forced to. They are running budget deficits of over 20% annually. They'll turn into another Venezuela if this situation continues on for many years!

Oil will not return to $150/barrel any time soon, barring some massive unforeseen geo-political event. That's because oil is facing pressures from both the supply and demand sides:

1. While the Saudis will succeed in killing a lot of shale production in US & Canada, the fact remains that most US shale producers can make profit at $60/barrel, and some shale fields (like the Bakken shale) can be profitable at under $30/barrel. This puts an effective cap on the price of oil.
2. Any loss from shale oil declines will be made up by Iranian oil coming online soon as sanctions are being lifted, so there will be plenty of supply both OPEC and non-OPEC countries for the foreseeable future
3. From the demand side, the economic weakness in China, etc., is forecast to persist for years (China's GDP growth is nearing a 25-year low)
4. Further reducing demand for oil, this year for the first time in history the majority of new energy capacity is coming from renewables. In many parts of the world, the price of solar & wind energy is already cheaper than energy from oil.

Airlines don't order planes by reading brochures. Those penny-pinching bean-counters who run airlines would buy the CSeries in a heartbeat if it means more profit to them. Yet no one has placed a new order in well over a year now, and Bombardier needs hundreds of new orders just for the program to survive.

[Willie Everlearn]

I read this this morning over a coffee.
"Low oil prices today may be setting the world up for an oil shortage as early as 2016. Today we have just 2% more crude oil supply than demand and the price of gasoline in Texas is under $2.00 a gallon. If oil supply falls too far, we could see gasoline prices doubling within 18 months. For a commodity as critical to our standard of living as oil is, it only takes a small shortage to drive the price up."

True. Airline fleet planners rarely read brochures, but my reference had more to do with comments by other posters who see the C series as a regional jet with only a geared turbo fan on offer. Really???

F35? How about a sufficient number of drones and a few Eurofighters?

Gino

[peekay4]

Low oil prices today may be setting the world up for an oil shortage as early as 2016. Today we have just 2% more crude oil supply than demand and the price of gasoline in Texas is under $2.00 a gallon.

Hey Willie that "article" was written last year (Dec 2014) as a prediction of what will happen this year, but pretty much all of his predictions have turned out to be wrong.

At the time that article was written, Brent crude was at $60/bbl and he predicted the price would shoot up to $90/bbl by the end of this year, with break-even near $100/bbl. He also predicted that $60/bbl oil for six months would be "catastrophic" to shale (non-OPEC) producers. This will cause supply shortages and will drive up gasoline prices, he says.

But what actually happened this year... we have more supply as compared to last year and demand is down; Brent crude has gone down to $48 and many shale producers are still making money at this level.

And you can find $1.64/gallon gasoline in Lubbock, TX.

The U.S. Government (EIA) is now predicting Brent crude to recover slightly to $55-$59/bbl in 2016 while gasoline prices will remain flat. They also predict that average oil prices won't go above $70/bbl through at least 2020.

[Willie Everlearn]

Looks like we're reading the same material. (Yes, that article was from last year. Took me awhile to find it.) The point being, what you read today, may not be the result you see tomorrow. Certainly last years prophecy of a price rebound was to be questioned. For me, that's hindsight.


The conventional 'wisdom' suggests things could bottom out around $20/barrel. Really? 50% of what I read conflicts with that prediction, so what's my take away? Continue reading, I guess. I looked at a chart yesterday that shows the average oil price won't get above $60/barrel till closer to 2030. It's all rubbish to me. What if they're wrong? They might be right. But, what if some event or events (Black Swan) play into things? Which is likely. Allow for that possibility and others and all those wonderful charts, facts, predictions, guesses are out the window. 10 to 15 years out is nothing more than an imaginary future at best. Like you said, a prediction.

As long as people continue to spend, it creates demand for oil. If a 2% supply over demand is accurate, that spells trouble no matter what we might think the price per barrel will do next month or next summer. That in itself will force the price up. If any low supply-high demand economic theories are to be believed. I'll take a look to see what the supply-demand ratio is today.

Willie

[peekay4]

Bombardier Inc will lose US$32M for each CSeries built in 2016-17: analysis

FP / Leeham have some numbers on CSeries financials:

Bombardier Inc. will lose US$32 million on each of the first 50 CSeries aircraft it builds, meaning the program will continue to bleed billions of dollars through at least 2018, according to a new analysis by U.S. aviation consultancy Leeham Co.

It’s normal for an aircraft manufacturer to lose money on the first several planes it builds, as production costs are highest at the beginning of a program and an all-new aircraft such as the CSeries is often priced aggressively to lure customers.

However, Bombardier lost control of the program’s timing, meaning it’s now stuck dealing with high costs at a time of weakening revenues.

More from:

Bombardier Inc will lose US$32M for each CSeries built in 2016-17: analysis | Financial Post

[ExDubai]

Interesting numbers. Together with the delayed Global 7000/8000 development BBD will burn more then 1 billion USD/Year 2016-2018.

[Willie Everlearn]

You might be disappointed to learn that Bombardier management seem to have a pretty damned good idea of how much they're spending, I suspect on a minute-by-minute basis so, admittedly, while the present situation is pretty gloomy, they're still in business and look to be for awhile yet.

From what I read, it also appears that they aren't just sitting around crying over it. They seem to be making some logical decisions that are likely reducing the blood flow and buying them some time.

I think they'll hang in there. I hope so, at least. Besides, despite all the so-called expert opinions, if this aeroplane can make money for any airline, it will sell. Of that I am certain. How much is Airbus losing on each A380. Post that one of you naysayers.

Willie

[ExDubai]

Willie, the difference between Airbus and BDD is, that Airbus has products which subsidize the loss on the A380. Similar like Boeing and the 787.

[Willie Everlearn]

Really
Are you suggesting BBD don't have other products and services that contribute to their cash flow as well?
On Oct. 2, BBD announced the sale and options for several RJs. Since all RJs they build are well beyond that programs break even, the sales are mostly profit for their Commercial aircraft division. That firm agreement signed by Bombardier and its customer is valued at approximately $369 million USD. The value could increase to $651 million USD if all options are exercised.
I don't think you've found the ultimate answer yet, but keep looking.

I would suggest the NG and Max more directly subsidizes the B747-8, but I agree with you. A&B are much larger than BBD and benefit from more successful and established programs across many more types than BBD to soften the financial pain of losers like the A380 and A340.
Not to mention the B787, which I believe will be an eventual winner, based on present day sales.

Willie

[peekay4]

Willie, just because a program is beyond break-even, that does NOT mean sales are "mostly profit". It just means that they're no longer losing money on each sale.

And those numbers Bombardier provided are mostly a lie. Why? Because manufacturer announcements are based on "list price", but we know no one actually buys at list price!

Bombardier won't tell you: what was the discount from list? What is the actual margin on revenue?

Suppose we assume industry-standard 50% discount and a very generous 15% margin, that means even if all $651m in options are exercised, Bombardier's total profit from the entire deal is only $50 million, spread over several years.

That's nothing. Bombardier is burning more than $80 million per month on the CSeries. So even Bombardier closes similar-sized CRJ/BBJ deals each and every month for the next three years, that still won't come close to covering the CSeries program costs.

That's how big of a hole Bombardier have dug themselves in!

[ExDubai]

Are you suggesting BBD don't have other products and services that contribute to their cash flow as well?

I'm suggesting that BBD's other products do not contribute enough to the cash flow.

BBD lost the battle against Embraer during the last 3 years. The sales of the E-Series overtook the CRJ sales. Embraer also launched the next generation E2
Series with significant sales numbers. BBd'snew CEO recognized that BBD has to invest some R&D time and a certain amount of money into the CRJ Series. Most of the R&D work for the C-Series is done, so hopefully BDD will start soon on the CRJ series.

On the BizzJet side, they lost the market for the long range Jets to Gulfstream. I'm not that confidant, that BBD will be in track with the Global 7000/8000 development. Another delay on those Aircrafts might be possible.

[ExDubai]

Bombardier to book writedowns, get cash from Quebec: sources | Reuters

WASHINGTON/MONTREAL (Reuters) - Canada's Bombardier (BBDb.TO) is set to book a writedown on its CSeries program and announce that the government of Quebec will be investing in the narrowbody jet program, according to several sources familiar with the matter.

The embattled Montreal-based company will also permanently mothball its Learjet 85 program, the sources said.

To form a joint-venture, Bombardier will write down billions of dollars it has already sunk into the CSeries, said the sources. If a deal is reached, the government would be on the hook to fund half the final development costs on the new jet, which is slated to enter service next year.

A Bombardier spokeswoman and Quebec's economy minister Jacques Daoust both declined to comment.

A similar deal with European aircraft giant Airbus Group SE (AIR.PA) fell apart earlier this month when news of the talks leaked.

Bombardier and its Brazilian rival Embraer S.A. (EMBR3.SA) vie for title of the world's third-largest civil aircraft maker behind Boeing Co (BA.N) and Airbus Group SE (AIR.PA). The Canadian company is the world's only manufacturer of both trains and planes.

In a note to clients on Tuesday, Sterne Agee analyst Peter Arment noted that CSeries program development costs have already topped $5 billion and he expects that another $2 billion in cash will be required to finish certification and absorb the ramp-up in production in the first three years.

That would mean Quebec would potentially front $1 billion or more in order to fulfill its side of the deal.

Quebec's government has repeatedly said it will support Bombardier and its 18,000-strong workforce in the province.

The stock was last up 12 percent at C$1.62.

[Willie Everlearn]

Ok.
You win. You've stumped the chump. I'm tapping out.
Bombardier are finished.
The experts are right.
The industry analysts are right.
The PPRuNe pundits are right.
Each has a very clear and informed ability to predict the future than the management at BBD, who apparently don't see this coming.
All the other OEMs are better, produce better products, have stronger financial records, better sales departments.
That's all she wrote for Bombardier.
It was fun while it lasted, but thanks for the economics lessons.


I concede defeat and bow out gracefully.
Have a nice day
Willie

[peekay4]

Well, reportedly the total write-downs to be announced tomorrow may be in excess of $5 billion CAD, equivalent to the entire value of the CSeries investment to date, and almost 20% of Bombardier's total assets.

That practically guarantees the CSeries will be a multi-billion dollar loss to Bombardier, regardless of what happens going forward.

And they're not "out of the woods" yet, even with investments from Quebec.

It will be difficult for Bombardier's founding family to retain control, after all of this mess.

[ExDubai]

Bombardier are finished.

Not finished Willie, but IMHO in serious conditions.

[Grizzz]

Corporate welfare, when has that ever worked out for the lenders?

Those Provincial transfer payments will cover it but who will be paying? Alberta is now entering a deficit phase, maybe those Atlantic lobsters will pay the freight?