-T / T / +T | Comment(s)

Monday, February 5, 2007

Bombardier Continues CSeries Development

What was thought to be a go/no go announcement on the 110-seat CSeries aircraft, turned out to be simply an update of the Bombardier (BBD) aircraft, which is designed to grow the company beyond the corporate and regional field into the mainline service. The slow pace of the decision came down to customer preferences and technological advances coming on the market, forcing the delivery date to 2013.

The company continues discussions with potential partners, which, besides the Canadian government, must bring something to the table. Technology and investment and access to a strategic market is ideal, said President and Chief Operating Officer Pierre Beaudoin, in a conference call with investors and media on Wednesday. He also said that substantial progress with customers has been made on the CRJ900X but supplier discussions remain unresolved. Beaudoin added the Q400X turboprop is seen as a long-term development with good promise that must await further developments in the turboprop market.

In response to what was clear disappointment that this was not the go/no go announcement, Beaudoin noted that the CSeries decision will influence the company for the next 20 years "so we must take the time to make the right decision.

"Our customers want us to have enough time to get everything right rather than offering an aircraft that is a compromise," he said. "The 2013 date allows us to take advantage of the next-generation technology plus advances in systems and material technology. It became obvious, with all the new developments going on in engine technology, it was better to wait to 2013. We continue to see the lower end of the 100- to 149-seat market as a segment with a solid potential." Heightened customer and supplier interest confirm Bombardier's belief in addressing the lower end of the market segment, estimated at 5,800 aircraft over the next 20 years, he added.

Technological engine improvements and the composites for wings and fuselage have already achieved a 15 percent improvement in operating expenses on the competition, assuming $60 per barrel fuel. It promises good hot-and-high performance as well, he said. Bombardier has been working with Pratt & Whitney since the platform's inception, but Beaudoin said no engine decisions have been made. He also indicated that customers prefer to have more than one engine from which to choose.

The company has already spent $120 million on the program and anticipates spending $20 million per year before launch with ultimate development costs approaching $2 billion.

Focusing on the mainline market worries investors who clearly see the competitive market between Boeing and Airbus as a two-company field where others need not apply. Beaudoin noted that its current market is hotly competitive with Embraer (ERJ) on the regional jet market and a host of high-performance jets on the business market. Investors also noted that whatever technological improvements Bombardier is waiting for will also be available to its competition.

He indicated the company's main focus is on 110 seats since that seems to have the most potential market with the replacement of current aircraft with five-abreast seating. That allows customers to develop routes they cannot now do. He noted customers want a family which could stretch the aircraft further into Airbus and Boeing territory to 149 seats. Beaudoin also pointed out developments in the 737 and A320 aircraft puts them at 150 seats. He pointed to the weight implications of shrinking them compared to Bombardier's focus on the smaller end with a lighter design point.

Beaudoin does not see the CSeries as competing with the Embraer 190 since the CSeries "is a technological jump," from what he views as a regional jet rather than the mainline aircraft he is pursuing. However, he noted that, in the North American market, the typical airplane is 99 seats.

In addition to discussions with potential partners, the company is working on completing the business plan and technological readiness. Investors questioned whether the lack of suppliers signaled a lack of confidence in the program but Beaudoin noted that, with its track record, suppliers see an investment in a Bombardier platform as a "very good bet."

Developments, to date, include the loss of 2,500 pounds and a decision to make the wings shorter which would reduce the range. He added, however, these refinements will continue to evolve in an effort to ensure it remains a long-range aircraft. The next update on program status will be provided in late March 2007 when it releases its results.

Live chat by BoldChat