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Wednesday, February 17, 2016

Bombardier Shifts Focus to C Series Ramp Up

Juliet Van Wagenen

Bombardier’s CS 300 has completed over 70 percent of its certification activities to date and is on target for full certification approximately in mid-year 2016 with launch customer Swiss International Airlines
Bombardier’s CS 300 has completed over 70 percent of its certification activities to date and is on target for full certification approximately in mid-year 2016 with launch customer Swiss International Airlines. Photo: Bombardier

[Avionics Today 02-17-2016] Bombardier CEO Allain Bellemare led an eventful fourth quarter 2015 conference call on Feb. 17 in which the company announced an order from Air Canada for 75 C Series 300 aircraft amid plans to cut the Canadian manufacturer’s workforce.

“At this price, the full order, firm and options could reach a value of up to $6.4 billion and with this significant milestone and the certification of the CS100 last December, we are now building great momentum to successfully compete and create superior value for airlines,” Bellemare told analysts and journalists on the call. While questions surrounding C Series sales arose as the manufacturer competed with the Airbus A320neo option, the company has now received orders and commitments for a total of 678 C Series aircraft, including 243 firm orders, according to Bellemare.

According to a statement released by Air Canada, the acquisition of the C Series aircraft represents a key element of the airline's narrowbody fleet renewal program and complements the acquisition of 61 Boeing 737 MAX aircraft announced in December 2013 to replace Air Canada's mainline narrowbody fleet. The Boeing agreement provides for Boeing to purchase up to 20 of the 45 Embraer E190 aircraft in Air Canada's fleet and the first 25 C Series will replace the remaining E190s. Boeing 737 MAX deliveries are scheduled to begin in late 2017 and extend to 2021, while the C Series deliveries are scheduled to start in late 2019 and extend to 2022.

"The purchase of CS300 aircraft [is an important] part of the ongoing modernization of Air Canada's narrowbody fleet," said Calin Rovinescu, president and CEO of Air Canada, in a Feb. 17 statement. "The renewal of our North American narrowbody fleet with more capable and efficient aircraft is a key element of our ongoing cost transformation program.”

Bombardier’s CS 100 completed certification testing in November 2015 and achieved Transport Canada Type Certification in December. Alongside CS100 launch customer Swiss International Air Lines (Swiss), Bombardier has moved the CS300 aircraft program forward. The CS300 has completed more than 70 percent of its certification activities to date and is on target for full certification approximately in mid-year 2016, followed by its planned Entry-Into-Service (EIS) in the second half of 2016 with airBaltic of Latvia.

The order is significant for Bombardier, which has been working for the last year to “de-risk” and “stabilize” its business with the recent “pause” of the Learjet 85 program and reduction in the Global 5000 and 6000 production. As part of its turnaround plan, Bellemare also announced the company would reduce its global workforce by 7,000 employees worldwide, including 2,000 contractors, over the next two years. The adjustments will impact all units aside from the commercial aircraft segment and aim to enable Bombardier to resize its organization in line with current business needs, according to the company.

“We are taking this difficult decision to make Bombardier stronger,” said Bellemare.

The restructuring action is driven by three key factors, the Bombardier CEO said, “First, we are adjusting our business aircraft production volume to be in line with market demand. We are currently going through an industry wide sloppiness, especially in markets such as Russia, Middle East and China. Second, our major development programs in aerospace and some large projects in transportation are ramping down and it is as expected. We are resizing our manpower in these areas to match future workloads. And finally, our transformation plan is getting traction. We are driving productivity, and operational efficiencies across all sectors of Bombardier.”

Bellemare was careful to note that the company would continue to grow its workforce around the C Series ramp-up to full production, adding 2,500 employees to its Quebec facilities to augment the company’s remaining 64,000-employee workforce.

The C Series ramp up has contributed to downed earnings in 2015, however, with full-year revenues at $18.2 billion for the company, a 3.7 percent dip compared 2014. John Di Bert, Bombardier’s senior vice president and CFO, attributed the dip to both the new aircraft production ramp up as well as lower aircraft deliveries for the year, which totaled 275 for 2015 as compared to 290 the previous year.

The increased insurance and other costs surrounding the C Series program will continue to impact revenues going into next year. For 2016, Bombardier expects to generate between $16.5 billion and $17.5 billion in revenues

“In 2016, our focus will be on disciplined execution,” said Bellemare during the call.

“Bombardier is in a better place today and we are on the path to greater profitability. We are engaged in a rigorous process that will increase our earnings power and cash flow generation over the next five years," said Bellemare in a statement accompanying the call. "We now have a clear plan in place and are applying disciplined execution to make Bombardier stronger."

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