Liberal Party wins, Bombardier wins

[BeechNut]

@ Willie:

Remember? The CRJ wasn't supposed to sell and many said it would kill this company. The day the CRJ was certified there were only 12 firm orders.

CRJ was a derivative of the Challenger though, much cheaper and less risky to develop. The C-Series is BBD's first clean-sheet design. The C has almost killed the company as the stock price shows, and the jury's still out on whether AC's order will prove palliative or curative.

[Willie Everlearn]

GF

To be honest, I wouldn't know the first thing about aircraft finances or the financing of new or used aircraft. So, I have to ask, if A and B sell at 50% how is it for no other reason than to try and maintain a duopoly or to kill Bombardier. (Business is business.)
That said...
By comparison, if I buy an expensive car today and the dealer sells it to me at half price, what happens to my resale value 5 years on? What if he sells all of those expensive cars at half price? Doesn't the impact on resale values 5 years down the road take a nosedive? Isn't this exactly what A and B are doing right now in an attempt to kill BBD? How is that a good thing for A and B? How is that a good thing for the airlines buying those aircraft today? Aren't they going to be mad as hell with A and B in about 10-15 years? Who's going to eat those used aircraft values? What will that do to share prices of A and B 5 years down the road?

I have no insight as to who may or may not buy the C series but I'd think replacing the B717s at Delta puts C series in a great position for an order from DL. With AC buying C series, their partner UA might well choose to buy it as well.

I think the best thing for "the industry" is a third (or fourth) choice of aircraft OEM to break that single aisle duopoly of A and B. If LCCs are good for "the industry" so would breaking the current duopoly.

I don't think BBDs imminent demise is as imminent as some seem to think.

Your comments are always welcome.

Willie

[galaxy flyer]

A & B have been discounting at those levels long before the C-Series came along. It's true the C-Series bringing the GTF engine forced A & B's hand to refresh their offerings.

The C-Series problem isn't the plane, it's the financing and the cloud over BBD's future. Everyone is absolutely sure the B737/A320 will have a resale market in 2023, that can't be said of the C. BBD is fighting a huge installed base and support system versus some real after delivery support questions. When CRJ F/Os complain about BBD support, you can bet there's a problem.

GF

[peekay4]

Large discounts vs. list is standard practice in many industries. In the airline business no one buys just one single plane without numerous additional contract items (parts, training, services, options, guarantees, etc).

Thus when an airline comes to buy 40-50 planes, the single plane list price is basically irrelevant. Similarly when Hertz talks to Ford or Toyota to negotiate a huge fleet of rental cars, that deal isn't going to be based on the MSRP of a single car.

In the secondary (used) market, the large initial discount is already priced in -- as one factor among many -- and reflected as the residual value of the aircraft.

What A & B are doing is called competition, a word sadly lacking in the vocabulary of most Canadian conglomerates. A & B are not selling at a loss prevent the CSeries from entering the market. That would be illegal under antitrust laws, and I have not heard Bombardier allege either A or B of doing so.

What A & B can do is to put together very sweet packages for their potential customers, because they have a large range of aircraft and services to sell.

E.g., the United Airlines mainline fleet has a dozen different Boeing variants, a couple of Airbuses, and zero Bombardier products. It's an uphill battle for Bombardier to sell into United mainline, but still not impossible for them to do so if they can offer a more compelling total deal than Boeing can.

In the Air Canada sale the total deal included incentives from other than Bombardier, such as Quebec's agreement to drop a lawsuit, plus perhaps other incentives we don't even know about (special financing, tax breaks, etc.). And the deal was likely made possible based on close business and personal relationships between the players.

While those incentives and relationships are great to get this critical deal done, the problem is they cannot easily be replicated elsewhere. Quebec can't offer to drop some lawsuit against Delta, for example.

So the big question then was the Air Canada sale indicative of a sustainable business model for the CSeries, or was more of a "one off" based on special circumstances?

[Willie Everlearn]

The C-Series problem isn't the plane, it's the financing and the cloud over BBD's future
Sorry, I simply disagree with that idea. They just sold 75 to Air Canada. It's just a matter of finalizing the details, including financing. I imagine discounts were or will be part of the finalizing of that deal and I'm pretty sure whatever discount may have been offered was agreeable to both parties.

Everyone is absolutely sure the B737/A320 will have a resale market in 2023,
Every aircraft has a resale market but what dollar value will be found in those 320s and NGs in 10 or so years time? Probably NOT what it should be. Somebody's going to eat that and I think A and B are going to be force fed a heck of a meal by some very disappointed and angry customers. We'll just have to wait.

BBD is fighting a huge installed base and support system versus some real after delivery support questions. When CRJ F/Os complain about BBD support, you can bet there's a problem.
Dispatch reliability with the RJs and Dash 8s are at 99 point 3 digits. The support for that program is second to none. I'm not sure where your opinion is coming from but I haven't read too much negativity about BBDs customer support.
Niki Lauda is on record regarding their customer service and he's a guy who bought the CRJ for his airline back when and he now flies a Global Vision which he's sounds very happy with.

Willie

[Willie Everlearn]

peekay4

Thanks.
I'm sure business deals involve lots of schmoozing and wheeling and dealing as you've illustrated. I know many, many people believe Air Canada was forced into a deal they somehow didn't really want. I'm not one of those people. Whatever the 'dealings' might have been, they bought the aircraft and I can't imagine, if it isn't a commercially viable aircraft for AC, they'd even consider bringing it into their fleet. If AC caved into the politics, then the deal is not only idiotic, you'd have to wonder about AC management.

Like I said earlier, the big two have been telling the airlines for so long now what they (the airlines) need they don't even think about it. Well, the airlines are starting to think about it and now seem to realize there is a need for another single aisle aircraft that isn't necessarily that big and a lot closer to what they actually want. If BBD can deal with some of the issues you've pointed out, this aircraft may be around just long enough to be successful.

Willie

[galaxy flyer]

Willie.

Are you in the aviation business? Your pretty assertive about things that don't jive with what I'm hearing and, yes, I'm in the business. At one point, the CRJ program went 5 years without a sale due to Horizon's problems along with the Q400 landing gear problems.

The major airlines know very well what aircraft types work for there business and networks, they aren't just buying whatever A & B tell them to buy, I can assure you if that. As pesky said, there are a lot of unique circumstances to the AC deal, not likely to be replicated.

GF

[Willie Everlearn]

GF

Yes. I've been in aviation since 1976. Employed as a pilot since 1978. Still am today. I'm not and have never been involved in determining fleet composition, financing or purchasing aircraft.

What I suggest is further reading regarding the Dash 8's landing gear issues. The problem was in-house maintenance at Horizon and SAS, not exclusively Bombardier. But, since you're in aviation, I suspect you already knew that from following that particular collapsing gear issue.

Horizon was having a disagreement with BBD over an engine issue at that time but Bombardier sales of the CRJ continue today. City Jet recently ordered 10 900s. How long between sales I doubt has or had anything to do with Horizon's Q400 gear problems.

Since you mentioned it, Horizon stayed away from Bombardier over an argument concerning CF34 replacement. Horizon pilots "cooked" a couple of CF34s by using the High Power Schedule switch in flight when they knew never to use it and whose use is prohibited by the FAA and CRJ Limitations in the AFM. Horizon believed Bombardier should pay for replacement engines. Bombardier didn't agree. Therefore the falling out.
The FAA insisted the High Power Schedule switch be installed on FAA registered RJs, not Transport Canada or EASA. So, I think Horizon's anger might have been better directed at the pilots involved and the FAA. one man's opinion

I wouldn't blame Bombardier or their products for pilot stupidity or maintenance issues.

You're right. Airlines do know what aircraft suits their needs and most are unlikely to buy what isn't needed or suited. I suspect Air Canada also know whether or not the C series fits into their fleet planning and future needs. But, if you believe there's political maneuvering and arm twisting involved in making that sale, fair enough. I don't.

I've heard Alaska Airlines have been discussing C series with Bombardier, but as we both know, it's 'out of scope' for Horizon. It's an aircraft, should Alaska decide to purchase, that could shrink Horizon's network.

Who knows? Like you, I'm only offering an opinion and my perspective. GF, I always enjoy your posts, whether we agree or disagree.

Willie

[peekay4]

Alaska is heavily pushing to expand Horizon's network, and will almost certainly pick the E175 pending discussions with their union (the E175 is also currently out of scope for Horizon) -- assuming of course a workable deal with Embraer.

The CSeries would be a long shot for Alaska. First of all, Alaska needs replacements on routes currently operated by Q400s, so it's doubtful the economics would support even a CS100. Secondly they already have E175s in the network operated by SkyWest.

Also they want planes starting next year and must have them by 2018 since many of the Q400 leases are ending. I doubt they'll want to risk waiting on an aircraft that has yet entered into service.

I'm sure Bombardier is continuing CSeries discussions with Alaska but here they have to downmarket the aircraft and compete against regional jets.

[striker26]

galaxy flyer - according to my source who is an engineer at BBD, they designed the plane to maximize interchangeability of as many parts used on the CRJ but im assuming some parts on aircraft are already universal.

Willie - AC bought 75 of the CSeries from BBD because they got a discount and it fit their finances as you stated. Any airline would. I ask you, why hasn't any other airline bought numerous CSeries for their fleet? You think its simply because they cant agree onto a number? I think it's because the initial price tag is already too high for the plane, the only reason as per the various news reports this week AC bought 75 is because they got a HUGE discount. The billions infused into BBD as subsidies allowed them to lower the cost significantly. The new EMB jet is significantly lower on the price tag, more haggle room, im sure we'll see lots more EMB order upcoming. The airplane simply took too long to come into market, especially a market thats already been developed.

I think AC had ordered 61 737 MAX to initiate their short/medium fleet renewal and were going to delay the the remainder until they got a deal just like this.

Peekay as you stated "they have to downmarket the aircraft and compete against regional jets." - This is the main issue i am sure many airlines looking at the CSeries are having, why buy such an expensive aircraft for short haul or CRJ/Q400/ERJ replacement. AND why for a route say JFK-LAX would you buy a CSeries and transport 133 or 160 pax when you can get a 737 or a320 and do 149/200/220 pax? Yes the price tag is higher but efficiency is not gained with the CSeries in terms of pax. Then there is EMB E2, if you really want something smaller than a 737/a320, why would you pay 20 million more for a CSeries when you can get an EMB for cheaper. The airplane is in a world of trouble. They will sell, but not at the rate to support the cost and that's what sucks. They need billions in aid. Yes, they are Canada's only international aircraft maker but honestly their vision needs to change, maybe that CEO should fork some of his salary to reduce the selling price.

[er340790]

Per The Economist: Bombardier Plane truths

A wounded Canadian planemaker may get another bail-out

Feb 20th 2016 | From the print edition

IN SPITE of booming demand for jetliners across the world, North American planemakers have had a miserable few months. So far this year Boeing, America’s biggest aerospace group, has suffered the two biggest daily falls in its share price yet seen, caused by downgrades to its production forecasts and news that regulators were investigating its accounting methods.

But its woes look as nothing compared with those of Bombardier, a Canadian maker of planes and trains. On February 17th it announced net losses of $5.3 billion in 2015, mainly due to write-downs, and a $10 billion shrinking of its order book since 2014. Many are asking if the company will run out of cash.

The trainmaking division is doing fine. But Bombardier’s aerospace division, which made only $138m in profit in 2015 before $5.4 billion of write-downs, is giving its executives nightmares. Those parts that used to generate good profits are stalling. The market for business jets, particularly large ones, is suffering from slower growth in emerging economies, says Stephen Trent of Citigroup, a bank. Bombardier has also been losing ground against more specialised competitors such as Textron and Embraer in the market for small and medium-sized business jets.

The company’s biggest problem, though, is the CSeries, its project to develop a 100- to 150-seater plane to break the duopoly of Airbus and Boeing in this area (see table). Three years late and costing $5.4 billion to develop instead of the $3.5 billion originally forecast, the project has been soaking up cash. Although the plane’s entry into service is planned for later this year, it still has not been awarded safety certification by authorities in America and Europe. Ruthless pricing by Airbus of its A320neo and Boeing of its 737 MAX, as well as fears over Bombardier’s financial viability, have made the company’s cashflow situation worse by discouraging new orders. Until Air Canada announced the purchase of up to 75 of the plane’s larger CS300 variant, on February 17th, there had been no orders since 2014.

It will be a long haul before Bombardier recoups its costs on the project, says Bjorn Fehrm at Leeham Company, an aviation consultant. The first 15 planes produced this year will cost Bombardier $60m each to make, he says, but will sell for just $30m or so. The programme will not become cashflow positive until around 200 planes have been delivered. The CSeries’ fuel efficiency may bring it more orders if the oil price goes back up. But so far, including Air Canada’s order if it is confirmed in full, it has sold only 318.

To keep it going in the meantime, Bombardier needs cash. Last year it offered Airbus a majority stake in the CSeries project, but was rebuffed. Instead, the company’s home province, Quebec, offered C$1.3 billion ($1 billion) for 49.5% of the CSeries venture and a further C$1.5 billion from its pension fund for a stake in the rail division.

This is unlikely to be enough. So the question is, where will the next cash injection come from? Airbus is unlikely to change its mind, and Boeing is busy sorting out its own problems. An investment from COMAC, a Chinese state-owned planemaker which is also trying to bust in on the Airbus-Boeing duopoly, and with which Bombardier signed a co-operation agreement in 2011, seems too politically toxic to be feasible. The Canadian electorate would not want to see a national champion fall into Chinese hands.

So a further bail-out from either the Canadian federal or Quebec provincial government, in return for a stake in the CSeries, is most likely. This week Bombardier announced 7,000 job losses; the fear of even bigger cuts may force politicians’ hands. If so, taxpayers will not see a return on their investment for years, if ever.

[peekay4]

Looks like United has decided against the CSeries, E2 for their second order:

Boeing Beats Out Bombardier, Embraer for Coveted United Orders -- Wall Street Journal
United Continental finalizes second deal with Boeing for new single-aisle jets

By JON OSTROWER

Boeing Co. is finalizing a new deal to sell its single-aisle jets to United Continental Holdings Inc. that would enable the U.S. aerospace giant to block smaller rivals Bombardier Inc. and Embraer SA, from gaining a coveted spot in the airline’s fleet, according to people familiar with the negotiations.

United is expected to order 25 Boeing 737s in the newest deal, the people said, after an earlier deal in January to buy 40 737-700s.

[ExDubai]

According to the rumor mill the discount was in the range of 70%

Interesting comment: https://twitter.com/jonostrower/stat...53226308657152

Boeing Commercial CEO told staff that it couldn't tolerate a Bombardier win at United. Shades of Airbus in 1993.

[peekay4]

Boeing can definitely afford to discount the 737-700 heavily:

• They've recouped all the investments associated in manufacturing the -700. Bombardier has to set up new production lines and it will be years before they reach breakeven point.
• Boeing can offer the older -700 at a steep discount, while offering the new MAX 7 at a standard discount -- protecting future profitability. Bombardier can't do the same with the CSeries since they don't have old vs. new models to offer.
• Boeing may be offering the -700 as part of a "package deal" with an upcoming 777-300ER order. So the average discount between, while very aggressive, is still workable for Boeing. Bombardier can't offer mainlines any package deals for the CSeries unless they partner up with e.g. Airbus (hence they tried).

[ExDubai]

Embraers CEO said last year during a presentation "it's better to stay away from Boeing and Airbus and do business within your own niche"

[galaxy flyer]

striker,

I've seen both planes at the Mirabel plant and walked thru the C-Series, pretty hard to believe there can be many interchangeable parts except for pretty minor stuff. The C is huge by comparison, completely new avionics, engines, systems, seats, interior furnishings, windows, etc.

ExDubai,

Paul Tellier told Beaudoin the same thing in 2004-ish, they showed him the door

GF

[_Phoenix]

The ball is rolling

C Series Program Update - February

[striker26]

great marketing ploy, mgmt is sure happy about having a "government" job until they retire

[er340790]

Interesting. If any of the above $ numbers can be believed, a typical 737 going for 70% off-list would be around $26m vs the $30+m for the C.

You know, I bet there's a lot of airlines who'll revisit their pax / rev business models to make the 737 fit with prices like that!!!

[galaxy flyer]

Boeing's not discounting that much, it's rolled into other sales--UA will replace the 744s with new 777s. Boeing can afford to play this game, BBD can't.

GF