A version of this article appears in the September 8 Issue of Aviation Week & Space Technology.
Bombardier’s answer to when CSeries flight tests will resume is: In the coming weeks. That has remained constant since the test fleet was grounded more than three months ago. But there are clear signs from customers and analysts that the manufacturer’s assurances are no longer working.
Last week, Goldman Sachs downgraded Bombardier stock because of the CSeries issues that were caused by a severe engine failure on FTV-1 May 29. Malmo Aviation, which was to have been the launch customer, wants to delay deliveries to avoid having to deal with the expected teething problems of early aircraft. It says the troubles “may cause another delay to the CSeries introduction.” And another important CSeries customer says that it suspects another schedule disruption “will come for sure.”
Bombardier is still sticking to its official guidance that the first CS100 will be delivered in the second half of 2015. Although that guidance is flexible enough to compensate a delay of up to several months, Goldman Sachs analyst Noah Poponak believes that margin will not be enough. He calculates that if flight tests were to resume in September, Bombardier would need to reach an average of 160 flight-test hours per month to still make 2015 deliveries. “We see that as very unlikely given the pace achieved before grounding, momentum (not just time) lost during grounding, and the high risk of new problems occurring other than this engine incident,” he writes.
Poponak projects that the “CSeries will negatively impact Bombardier’s financial results and create negative catalysts for the next several years.” He reduced his price target from C$3.20 to C$3 ($2.94 to $2.75) for Bombardier shares.
Bombardier, which recently announced the departure of Guy Hachey, its top aerospace executive, has moved a lot of ground testing forward to limit the time lost. It is also telling customers that the larger CS300 is not affected by previously announced delays for the CS100 and that the current engine issues are not a major concern.
Malmo Aviation nonetheless no longer wants to be first in the row. Its parent, Braathens Aviation, said in a regulatory filing: “We have informed Bombardier that we will not assume the role of formal launch operator of the aircraft type.” The company added that “due to increased uncertainty we are discussing other possible changes to the aircraft delivery schedule with Bombardier.”
Malmo is the Swedish domestic division of Braathens Aviation. The carrier has ordered five CS100s and five CS300s. Most of the CS100s are understood to be due for delivery next year; the CS300s are set to follow in 2016.
The decision is further complicating an already fluid situation. The test fleet is still grounded. Pratt & Whitney has delivered modified engines to Bombardier and those are in the process of being installed on the flight-test aircraft.
Based on its current orderbook, Bombardier does not have a long list of airlines willing to take the first few aircraft. The most obvious candidate is Lufthansa, which has signed for 30 CS100s for its subsidiary Swiss International Airlines. The carrier urgently needs to replace its aging fleet of 20 Avro Regional Jets. Swiss has decided to remove an initial four Avros from service before year-end, in spite of the fact that a long-term replacement is not yet available. The airline is leasing four Embraer 190s from Helvetic Airways to bridge the gap until the CSeries arrives.
In addition to the aircraft planned for Malmo, other parts of the CSeries backlog look shaky for economic or political reasons. The manufacturer has orders from IlyushinFinance Co. and Iraqi Airways, among others. U.S. regional carrier Republic Airways, which holds the largest order—40—has indicated some uncertainty, although it has not publicly raised the possibility of canceling the order or deferring deliveries.
In a Bloomberg Businessweek interview last May, CEO Bryan Bedford said: “We are focused on our fixed-fee business. There is no place to operate the CSeries in that model. The question we will have to address is whether the aircraft purchase agreement has value or not and, if it does, then it becomes an asset and assets can be sold.” Republic’s order is for the larger CS300. Bedford also voiced concerns about an insufficient orderbook that would put pressure on residual values and make remarketing more difficult.
Bombardier lists 203 firm orders for the CSeries, including 63 for CS100s. A firm order for two CS300s from Falcon Aviation (United Arab Emirates) was logged in July, but has not yet been added to its official list. Several letters of intent for a total of 60 CSeries were announced at the Farnborough air show in July, but have not yet been turned into firm commitments.