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Liberal Party wins, Bombardier wins

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Liberal Party wins, Bombardier wins

Old 3rd May 2016, 20:16
  #181 (permalink)  
 
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GF
Don't I wish, but not to mislead anyone, I haven't flown in a few years now. I just cheer from the sideline. I have previously flown Boeings, including the 700/800/900 series NGs, just not recently. I've flown Airbuses as well, but not FBW Airbuses. I've flown Bombardier products too for that matter. So perhaps to clarify, I might have more accurately said I've flown (products from) all 3. (not to mention others)
There are differences between these 3, as you probably know. Following the C series as I do, it's obvious they're onto something quite impressive (Bombardier, that is). Why wouldn't any Canadian hope to see this aircraft succeed? I'm surprised it's taking so long to sell but not as shocked to see how afraid A and B are of the little guy as evidenced by their deep discounts. I'm hoping they do better than many skeptics in here seem to want, and I believe they will. Whatever. It's okay to disagree.
Concorde was suppose to render the B747 useless. We know how that turned out so, I understand what my opinions are up against.

peekay4
Great post.
Unfortunately, more 'analysis' to back up the logic. Tough to argue.
To me, airlines aren't necessarily logical. Delta bought their own refinery. How dumb was that back when? Wait. How smart is it today?
It wasn't that long ago you said Bombardier was done. Well, we don't know yet whether or not they're done but one thing they are, is fighting hard to survive and compete. They're still here and this sale helped. Their success has the entire Canadian aerospace industry on its back. Let's hope this Delta sale is the first of many more.
They'll never get to the same level of sales as A or B with their older competitor aircraft. That isn't saying much.

Willie
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Old 3rd May 2016, 21:24
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The plane's great, very passenger-friendly cabin; range and performance as guaranteed, better in some areas, wonderful avionics (I fly the Vision on Globals); great cockpit; pretty short BFL at max gross weight (CS100); but that's not the issue keeping airlines from buying it. The problem is BBD and its perceived poor customer support and questions about the long-term. As someone said, nobody was fired for buying Airbus or Boeing.

That said, the DL deal is a shot in the arm. Along with AC, with a strong oerformance at EIS, it might just get to breakeven.

GF
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Old 5th May 2016, 03:15
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An interesting article by one of the CSeries' chief critics.
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Old 5th May 2016, 15:03
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@ Willie

I'm not so sure a CS500 isn't in Bombardier's future plans. They've copyrighted it and the C Series type rating is the BD500 (for all variants).
I wouldn't read too much into the designation on the type certificate. The first of the "BD" designations was the Global Express, which took BD-700 (likely because it was a bigger aircraft than the CL-600, which it was supplanting as the company's big business aircraft). The Challenger 300 (ne Continental) is the BD-100, as indeed is the Challenger 350. So there's no real link to the marketing designation from the Type certificate ID.

At the time of Cseries launch, when the type certificate number would have been applied for, there was no BA aircraft numbered "500", but there were already aircraft using most of the other "hundreds" either in the TCDS or the marketing name. Likely it was simply the "untaken" number, nothing more.
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Old 6th May 2016, 04:48
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Have to agree with M(F)S, the BD500 is just the basic Bombardier Type Number registered with Transport Canada. Believe the fuselage would be getting so long as to have definite problems with tailstrike during takeoff. The other possible consideration is that BA contracted with China several years ago to help with all aspects of testing and certification of the C919 - essentially a wider-bodied CSeries rumoured to use the same wing and many of the systems.
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Old 6th May 2016, 22:19
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Doesn't FBW come with tail strike protection?
I don't think BBD will have problems with a stretched body. It's easier to stretch than shrink anyway, I believe.
The Chinese 919 is taking forever to get going so I'm not sure it's a threat to anyone. Like it or not, Chinese carriers will HAVE TO buy it. I don't think BBD has a gun to anyone's head as far prospective as buyers go.

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Old 6th May 2016, 23:45
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Well, there are limits to stretching a fuse--look at the 737-900. A tailstrike waiting to happen, in fact, the refs are based on tail strike prevention. Yes, the FBW can help bug can't overcome geometry and aerodynamics.

GF

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Old 7th May 2016, 01:06
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Willie,
Tailstrike is built in but there comes a point where the protection negates a lot of the takeoff performance - shades of the A340-500 "uses the curvature of the earth to takeoff".
My comment about the C919 was not from the sales point of view or program success but whether there was an agreement as far as non-compete in exchange for help with product development.
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Old 7th May 2016, 18:10
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It wasn't that long ago you said Bombardier was done.
What I've repeatedly said is that the CSeries has been a financial disaster; that Bombardier will not be able to recoup their investment for decades (if ever); that the investment by Quebec (and possibly the Feds) is unfair for taking on all the risks and little of the rewards; and that any further missteps from Bombardier may threaten the solvency of the company.

And I stand by all those comments.

I also for months wrote what steps Bombardier management must take to get out of this mess, including selling the CSeries at an upfront loss (e.g., detailed in this post from way back in October) -- which BBD supporters in this thread said was complete nonsense but now has been proven exactly true with the $500 million accounting write down for the Air Canada & Delta deals.

On the CS500, Bombardier "sources" now walking away from the concept:

Bombardier not studying bigger version of CSeries jet: sources | Business | Reuters

MONTREAL/PARIS (Reuters) - Canada's Bombardier BBDb.TO is not looking at building a bigger version of its CSeries jetliner, three people close to the company said on Wednesday.

There has been persistent analyst and media speculation that Bombardier would add a third member of its slow-selling 108-130-seat jet family to compete with best-selling Airbus AIR.PA and Boeing BA.N models that carry at least 150 people.

But despite earlier suggestions that Bombardier could enlarge its new jet to boost sales, the so-called 'CS500' version, which could cost up to $750 million to develop, is not being considered, the people said.
Without a CS500, Bombardier cannot be a serious threat to take on Airbus & Boeing. And again it means Bombardier is unlikely to ever recoup the investment made into the CSeries program, even if they sell CS100s and CS300s by the thousands.
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Old 7th May 2016, 22:00
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Another wildcard is of course Embraer also crowding the market with a larger E2, but so far they're on the record that they don't want to compete in the 150-seat market.
No surprise there. Can you imagine trying to turn a (very) narrow bodied a/c with 37-38 seat rows on 60-90 minute flights?
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Old 8th May 2016, 02:51
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A 37 - 38 row aircraft may not be certifiable from the passenger escape point of view as there is a maximum distance allowed (36 feet?) from a usable escape door plus the maximum allowable time for every pax to get out in an emergency. In addition the turning circle for such a long bird might mean it wouldn't fit on smaller airfields.
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Old 10th May 2016, 00:39
  #192 (permalink)  
 
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ICT
Having flown the B757 earlier in my career, I understand the interest in tail strike avoidance. I'd agree, tail strike should be possible in the C series, but likely far less likely with FBW protection than the B737-800 or 900 without it. I'm not comfortable guessing about the A320 series, long or short body. But, I'm guessing it's FBW would offer similar decreased possibilities.
FBW should recognize aggressive rotations beyond 3-5 degrees per second and limit rotation rates to reduce the likelihood.

I'm uncomfortable with any Canadian hi tech businesses, especially Aerospace, selling out to China just to wriggle into their market. Look how many OEMs are sleeping with the Chinese, including A and B. But I suspect you're C919 comment is right on as well, they likely have a "deal" with Beijing.

peekay4
Risk partners take on risk, right? I don't know that the Quebec Pension fund took on any more than 49% of the risk, so by my weak math skills, that's not 100% of the risk. Even at a discount, another sale like Delta would mean a combined potential for $15B income for BBD, following deliveries, despite, as you've correctly stated, their (previous) disastrous financial state. The Quebec Pension fund will get a ROI, which is not accounted for in your remarks. Bombardier have repeatedly said it would give the Feds a ROI for their investment as well. But JT wants to put 'his political appointees' on the Board, which is idiotic when you consider what he wants in return. Sorry, but I'd have to wonder what political appointees know about running an Aerospace company like Bombardier?
Don't get me wrong, I find your perspective thought provoking despite some disagreement. You've even changed my opinion on a couple of things. The new management team at bombardier are having a positive effect. Whether or not things continue in that direction is hard to know. Besides, it's early days.

It has been reported in the Gazette, Bombardier have copyrighted CS500 and are allowing for the 'possibility of a larger C series. Present day denial seems sensible to me so as not to scare off investors who still hold the belief this company is tenuous at best. Besides, I don't think they have the development money in hand to take it on. It also seems sensible to me they'd be eager to not show their hand to A and B.
One last point regarding the sensibility of deep discounting on the part of A and B. Yes. They have the clout and the sales to bully Bombardier or any other threat to their duopoly but, when price point and deliveries reach ridiculously into the future, prospective buyers will turn to an alternative with competitive pricing, newer technology, and better delivery dates. IF oil ever increases in price I suspect the CASM gap will make A and B even less attractive to buyers. Today the CASM spread is already significant as AC and DL figured out.

I stand to be corrected. Much more is to be written on the C series but I still think better things are ahead for BBD. Meanwhile, I'll go do more reading on the deal with the QC government.

Cheers,
Willie
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Old 13th May 2016, 01:24
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Risk partners take on risk, right? I don't know that the Quebec Pension fund took on any more than 49% of the risk, so by my weak math skills, that's not 100% of the risk.
It's not the Quebec pension fund, but the Quebec government (i.e., all Quebec taxpayers) which invested 49.5% in the CSeries.

But that does NOT mean that Quebec will see equitable rewards to the investment's risk profile. That is because there are provisions in the deal allowing Bombardier to "buy back" the shares at any time at a fixed interest rate.

So really Quebec's "investment" is more an unsecured loan. Using the loan analogy, if the CSeries goes bust the "loan" goes in default and Quebec gets nothing. If the CSeries makes any money, Bombardier simply "pays off" the loan at the fixed interest rate.

Quebec will never see the big upside, just the potential downside of losing everything. All the risks, little of the rewards. From an pure financial perspective the "investment" is worse than buying junk bond at Bombardier's credit rating.

Another deal like Delta means Bombardier will LOSE another $300 million. Revenues mean zilch when you're selling at negative margins!!

And I think Bombardier must continue to close key contracts at negative or zero margins for the next couple of years, although Embraer is keen to make that a little more difficult:

Embraer: Bombardier’s Delta CSeries order enabled by unfair subsidies

Embraer Commercial Aviation president and CEO Paulo Cesar Silva has alleged that Bombardier won an order from Delta Air Lines for the CSeries based on improper government subsidies. ...

“Of course, we win and lose deals in the market,” Silva said. “My remarks and my complaint are given [because of] the way we lost this campaign.” ...

Silva said Embraer is considering its legal options: “We are looking at the alternatives that we have in order to act against this. Could be the WTO, for instance.”
Complete article:

Embraer: Bombardier's Delta CSeries order enabled by unfair subsidies
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Old 13th May 2016, 14:28
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I don't know that the Quebec Pension fund took on any more than 49% of the risk, so by my weak math skills, that's not 100% of the risk.
Not quite... It would be like 'only' taking on 49% of the Titanic. If it sinks, it all sinks.

Fingers crossed.
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Old 14th May 2016, 06:15
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Present day denial seems sensible to me so as not to scare off investors who still hold the belief this company is tenuous at best.
Bombardier is now on the record that the CS500 is not currently being considered.

It has been reported in the Gazette, Bombardier have copyrighted CS500 and are allowing for the 'possibility of a larger C series.
I think you mean "trademarked" instead of "copyrighted".

But Bombardier abandoned the trademark in 2014, when it became clear that the CS500 will not be forthcoming:

Canadian trade-mark data: 1425349 - Canadian trade-marks database - Industry Canada
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Old 14th May 2016, 22:13
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I wouldn't hold up press reports as any clear indication Bombardier aren't planning on or haven't already trademarked the CS500. I know what's been reported in the press, Bombardier know what customers are asking for and while the finances aren't supportive of a 500 series today, I can wait to see how the future unfolds, and I believe the CS500 will one day be rolled out.
That said, Bombardier has yet to run to the WTO to protest (lost CRJ sales to) Embraer over the last 5 years. But, if corporate lawyers aren't tuned into trade law, and Embraer is, then BBD might just have taken on another gigantic problem. Not that they haven't taken Embraer on in the past. But, if Embraer wishes to call out BBD, then they might as well call out the leaders, Boeing and Airbus, for the same reasons.
BBD will continue to discount, continue to lose money while increasing both sales and market-share. The only thing we're debating here is whether or not BBD can get through the cash flow problem of today, to build the aircraft for tomorrow's delivery and receive payment to strengthen cash flow and strengthen their balance sheet.


I'm not an economist. I'm not an accountant. I'm not even financially smart, but BBD are here for the long run. Despite all factors you like to mention.


Willie
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Old 17th May 2016, 13:40
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And I think Bombardier must continue to close key contracts at negative or zero margins for the next couple of years, although Embraer is keen to make that a little more difficult:
Why do you continue to be surprised at the standard business model of the aircraft manufacturing industry? It works and the back end is very profitable. Its called the 'learning curve'.

Last edited by twochai; 17th May 2016 at 18:07.
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Old 18th May 2016, 06:04
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Why do you continue to be surprised at the standard business model of the aircraft manufacturing industry? It works and the back end is very profitable. Its called the 'learning curve'.
No, it is NOT.

Launching a new aircraft, there is a big difference between the routine practice of selling below initial manufacturing cost, vs. selling below the book value of the aircraft.

E.g., let's say a plane has a list price of $100 million. For a simple math (ignoring inflation, etc.), assume the plane costs $60 million to build at program start, but only $40 million at program end, averaging $50 million per plane throughout the program.

In a normal "learning curve" you might sell the plane at $55 million (45% discount), which is a $5 million loss under unit-cost accounting. But this amount is still higher than the program average cost. And in fact under GAAP you are allowed to record a $5 million profit against the program average.

That's very different than selling the same plane at $45 million (55% discount). You are now selling the plane below the program average cost. You will never recoup money under this deal. You are getting $45 million revenue but must deliver $50 million in average value. So in all cases you must record a loss.
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Old 18th May 2016, 23:16
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Peekay, you're choosing to ignore the corrective actions the company has already taken. Apply the write-offs BBD has already applied (including for the recent sales) and you're very close to a normal program at Entry in Service.

The Quebec taxpayer now stands to do very well from its 49% investment!

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Old 19th May 2016, 05:04
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Lol, if the deal is so good for Quebec they wont be begging Ottawa to make an "investment" which would DILUTE the 49.5% share, now would they?

There is a reason why they've delayed making the first payment and are still hedging on closing the deal.
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