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Friday, January 16, 2015

Bombardier Suspends Learjet 85 Program Indefinitely

Juliet Van Wagenen

[Avionics Today 01-16-2014] Bombardier has announced it will immediately halt work on its Learjet 85 aircraft program due to what they site is a lack of market demand for the midsize business jet. In suspending the program, Bombardier will be forced to lay off 1,000 employees, effective immediately, from facilities in Wichita, Kan. and Queretaro, Mexico — a component manufacturing facility opened in 2010 for production related to the Learjet 85 program.

Bombardier LearJet 85 in production
Bombardier LearJet 85 in production. Photo: Bombardier

“The pause is due to weak demand for the Learjet 85 aircraft and follows a downward revision of Bombardier’s business aircraft market forecast,” the company stated in a Jan. 15 press release announcing the pause. “This reflects the continued weakness of the light aircraft category since the economic downturn.”

The lack of market support may not be the driving factor, however, according to Rolland Vincent of business aviation consulting group Rolland Vincent associates, who sees the midsize bizjet market as robust and the economy particularly welcoming to this type of aircraft at this space in time. The issue may, in fact, be more internal.

“The midsize market has been slammed in this recession, but our indicators are that the U.S. economy has turned. The market indicators are all green lights, so now is exactly the time to be coming out with airplanes like the Legacy 500 and the Citation Latitude — it’s actually perfect timing,” Vincent told Avionics Magazine.

The program has been plagued with problems since its launch in October 2007. The aircraft’s original entry into service was planned for 2013 but unspecified problems in the structural design led to delays of more than two years. Bombardier, however, stresses that these delays have little to do with the program’s suspension.

“We did have some challenges we pointed out years ago, but these technical challenges have been fixed and we feel very confident that this is a great aircraft for the market. I’m not suggesting that the market is less than what we have been anticipating. The market is smaller and has not come back since 2008 and we think it is the right decision for the company right now to take a pause,” said Bombardier President and CEO Pierre Beaudoin in a conference call Jan. 15 arranged to discuss the decision with investors and media.

Vincent, on the other hand, thinks the real reasons may actually be linked with the manufacturer playing in technologies it wasn’t familiar with.

“Lear 85 was a technical advancement for Bombardier using technologies they did not have a lot of experience and depth in,” said Vincent. “This was always going to be a challenging and new program for them, that proved to be a bigger challenge than they had anticipated, so that was causing delays and clearly driving up costs.”

While the first flight of the Learjet 85 took place on April 9, 2014, with a second flight test vehicle in development, Beaudoin insisted that the business jet market hasn’t picked up enough to justify moving forward toward its entry into service at this time.

“We’ve monitored the market constantly,” Beaudoin said. “We keep saying that it’s going to bounce back in the next year and now we’ve been patient for quite a few years. We look at the trends forward and we say it’s a great market [in the] long term and there’s a lot of aircraft that will trade in this category, but we think the appropriate decision given the market right now is to pause.”

With three programs currently on Bombardier’s plate, alongside the CSeries and Global 7000/8000 projects, Vincent believes that the market is there, but the manufacturers resources have been stretched too thin to continue the program.

“I think it’s a resource allocation issue,” Vincent said. “When you only have so much capital to spend — and the capital markets are all over this one, they’re watching it carefully — Bombardier’s cash position is diminishing and we think it’s all hands on deck to get the CSeries done. That program is challenged, they’re delayed and there are probably more unannounced delays coming.”

Bombardier’s CEO’s statements seem to reflect this move to back their other aircraft programs as they look to focus efforts toward these other clean-sheet aircraft programs under development. “These programs are making great progress and have great markets in front of them,” said Beaudoin. Flight testing for the CSeries aircraft just passed 800 flight test hours with the Global program making steady progress toward certification as well, Beaudoin added. “There’s still a lot of work to do but I feel that we’re making the progress to have them certified in the second half of 2016,” the CEO said of the CSeries program. “The big win for Bombardier is to get these aircraft to market as soon as possible.”

Bombardier will refund or renegotiate contracts with customers who have already placed orders for the Learjet 85, including an order by FlexJet for 60 aircraft with an option for an additional 65 of the bizjet model. However, these negotiations may be minimal; given the many delays in the 85 program, many customers have already chosen to switch to other bizjet models in lieu of waiting out the aircraft’s completion, noted Pierre Alary, senior vice president and CFO of Bombardier during yesterday’s conference call.

More information on the impact of the program’s suspension on Bombardier’s financial outlook is expected to come to light at the Feb. 12 conference call regarding the company’s 2015 outlook. In the meantime, Bombardier will record a pre-tax special charge in the fourth quarter of 2014 of approximately $1.4 billion mainly related to the impairment of the Learjet 85 development costs, according to a press release. This will free up the $1.4 billion for work on their other programs.

While Beaudoin stressed that the company has ruled out the possibility of terminating the program completely and will bring it back in time, once the market is available, Vincent doesn’t see a comeback happening any time soon.

“We think this is a cancellation of the program, not a pause,” he said. “We don’t see it coming back [but] it might, the design and the concept is a good one. The market does want this type of aircraft, long range, middle market price, but they’ve given this up now to the others.”

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