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Bombardier, Commercial Airliners, Other Aviation Issues, Regional Aircraft, UPDATES

UPDATE: Well, things are really BAD with Bombardier and the CSeries program, as in desperation the company has offered to sell it to Airbus and Embraer for for next to nothing, a desperate plea and MAYDAY signal for help in selling the CS100/300 ! the program is in MAJOR trouble, worst than anyone thought possible. The fact that Airbus and Embraer said NO to the program and confirming there are serious production problems with the aircraft has to be scary for customers, airlines, investors, employees and any would be ‘white knight’. Its worst then I imagined, and when industry ‘guru’ Richard Aboulafia of Teal Group says “Bombardier should pull the plug” and “that this is the beginning of the end for the very troubled program”, as I have always advocated it is time to start talking to Comac (China) about “Combardier” or pull the plug on the program. Comac is very interested in Bombardier, the two OEM’s already cooperate on commonality between the CSeries and the C919, and they need each other, one needs money the other needs industry know how and experience, and Bombardier is the only commercial jet airliner manufacturer in the world one can buy today. Bombardier (TSX:BBD.B) rose last week on news that United Airlines may buy a fleet of 100+ seat airliners if its pilots agree to a 2 year contract extension, its a ‘game’, Delta’s CEO Richard Anderson tried the same thing this July with a 60 aircraft/$US 4.0 billion order/ ‘carrot’ with his pilots, they rejected his deal, and he cancelled the order, relax we are very far away from any major US airline order. Bombardier investors are hard-up for any good news, stock is very volatile right now and I am looking for it to break the $1.00 mark before Christmas. Latest launch of the Q400 “combi” is troubling to me, up to 50 passengers in the front and 9,000 lbs of cargo in the back through a small 1.72m x 0.71m door ?, its a weight and balance operational nightmare on a 32.81 meter long “teeter totter” (aka seesaw), good luck with that ! Bombardier needs money, lots of it by mid-2016, look for it to sell Learjet for sure, and then a part of Aerostructures and Engineering Services, part of Transportation, “pause” the new G8000 program and bring in the Quebec government through Caisse (2nd largest pension fund in Canada) and Quebec’s public pension manager, poor pensioners in Quebec ! These are truly dark days for Bombardier, the next 10 weeks will determine its future one way or another.

The last time I wrote about Bombardier was September 15, 2015 and I was thinking at the time, it cannot get worst, but here I am 24 days later and I am seriously worried about the viability of Bombardier’s viability as a going concern, as the bad news just keeps getting worst, the fact Bombardier is willing to sell the majority of the program to Airbus and Embraer (and others ?) for very little money, and the fact Airbus and Embraer said NO, says novels about the CSeries problems, of which we know so little about, but it is very serious indeed.

Now the whole industry knows Bombardier wants to get out of the CSeries, though they do not come out and say it, but actions speak louder than words,  so what are its customers, prospects, other airlines, employees and investors to make of this ? Is this the right environment for any airline to order the CSeries ? off course not, they just shot themselves in the foot and the prospect of a new large order anytime soon is now very remote in my opinion.

Now, even industry expert/guru, Richard Aboulafia of Teal Group says that Bombardier should pull the plug on the 110-160 seat CSeries !, he says that “Bombardier’s effort to sell the majority stake in the aircraft to its European rival and its rejection, weakened the market’s view about the viability of the CSeries program” also adding “that this is the beginning of the end for the very troubled program“.

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The Bombardier infamous CSeries, not interesting for airlines and now not even interesting for Airbus, I think Combardier (China’s Comac acquiring the commercial aerospace division) is very real, my inside contacts say Comac is watching events at Bombardier very closely, they need each other, Bombardier needs more money, Comac needs the industry know how and experience that Bombardier has, and its the only major commercial aircraft manufacturer that can be bought.

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So what can happen in 24 days at Bombardier ? a lot these days !

The investment community, the customers, employees, prospects and senior executives have to be worried as they are reading and hearing nothing but bad news these days, and no wonder the Bombardier stock (TSX:BBD.B) was down to $1.54 (Oct 8th) down from $1.88 on September 10th, but rebounded to $1.65 on Friday, October 9th when United Airlines (UAL) said it will acquire 100+ seat airliners IF it can get a 2 year extension of its existing agreement with pilots.

Just shows how desperate Bombardier investors are for good news, even a hint of something positive sends the volatile stock up, for a short time and then back down again.

It is an old trick used by airline executives to get pilots on board an agreement, a “carrot” to draw pilots into an agreement, Delta Air Lines CEO Richard Anderson did that on June 10, 2015 year promising to order $US 4.0 billion worth of 40 x B737-900ER’s and 20 used Embraer E190’s, when 65% of the 12,000 Delta pilots rejected the agreement on July 15, 2015, Anderson cancelled the orders, expect the same at United where labor relations are presently not very good.

Presently, United has 521 regional aircraft (714 mainline aircraft) of which 229 are 70-76 seat regional jets with 109 x CRJ-700’s and 120 x E170/175’s so pretty even between Bombardier and Embraer, and most worrying for UAL is its 251 small 37-50 seat regional jets (50 x CRJ-200’s, 196 x ERJ-145’s and 5 x ERJ-135’s) which comprise 48.2% of the whole regional fleet, plus 41 turboprops (20 x Q400’s, 5 x DHC-8-300’s, 16 x DHC-8-200’s).

The 37-50 seaters are now targeted for phase out, and here lies an opportunity for CRJ-900’s and/or E175’s, but not a one for one exchange. It is worth noting that only 7 CRJ-900’s have been ordered this year, that is it for the CRJ line, while Embraer’s order book this year is close to 140, the CRJ line is dying a slow death.

UAL has been adding E175’s at a very fast pace, and by 2017 it will have 153 (71 more than today) so Embraer is the preferred Regional Jet supplier at this time for UAL, and will lease in 25 narrowbody aircraft to replace RJ’s, it would make sense that a IF they buy a 100 seater, it is the E195-E2.

The airline industry is doing very well this year in North America, with record profits, but airline stocks have been on a 6 months slide, and since the beginning of the year United (UAL) is down 16.7%, American (AAL) is down 45.1%, Southwest (LUV) is down 39.9% and Delta (DAL) is down 3.9%, as only JetBlue and Allegiant had stock price increases the past 6 months, as US airlines are spending billions buying back their stock, hoping to reward investors, a common ‘strategy’ by many airlines and aerospace companies around the world looking to increase the value of their shares, NOT the best strategy for building a sustainable business for the long term, just a short term gain for greedy executives who have their bonus tied to share price value increases.

Yet, United has $US 22.5 billion in debt, pension, post-retirement obligations, Delta has $US 26.4 billion and American has $US 34.3 billion, so not all is rosy in the US airline industry,

Now, back to Bombardier, which get this, has had the desperate talks with Airbus, that’s right, Bombardier is now scrambling for help with the CSeries, as it realizes it is in deep trouble. No new order for the CSeries for over a year now, 243 “firm” orders are around 140 “realistic orders” after 7 years, and the program is today $US 3.0 billion over budget at $US 6.2 billion and climbing.

The talks surely were ‘brokered’ by Henri Courpron, strategic adviser to Bombardier through his Plane View Partners firm, and also Board member at Brazilian airline Azul (owned by David Neelman, ex-Morris Air, WestJet and JetBlue founder/facilitator) and past CEO of ILFC.

A quick side note here, while Bombardier has a great new sales team in place with lots of aircraft leasing experience, the down side is that aircraft leasing companies do not have to sell airlines on the type of aircraft they should buy, when you go to a lessor you know what aircraft type you want to lease, airlines today mostly go to aircraft lessors as they have tied up orders with manufacturers through speculative orders years in advance, ‘hoping’ they will have customers for them.

It takes a lot to go to an airline and convince an airline like American Airlines that you need to change your fleet planning strategy and look at having the 110 seat CS100 for instance, lots of work, analysis, costing, pricing, discounting, contract negotiating, a whole lot different than having airlines come to you looking for A320-214’s or B737-800’s, now try working an airline into a CS100 when they came to see you about an B737-800 !

I am not so sure having too many aircraft leasing experts is the best choice, they can make calls and open doors, but if American Airlines CEO Doug Parker or United Continental Holdings new CEO Oscar Munoz does not plan on operating 100 seaters, no golf, dinners, fishing trips and lobbying will change that view in any short period of time. Great to have contacts, but if you do not offer the product the airline NEEDS, then you are out of options.

Now if Bombardier’s strategic adviser suggests Airbus as a partner, you know things are bad and that even senior executives are worried about the future of the company, even though the CSeries is 4-6 months away from receiving its type certificate for the CS100, and entry into service of the first CS100 is set for June, 2016 with Swiss.

Surprisingly Bombardier asked for little in the way of financial inputs from Airbus, it really wants help to increase orders and Airbus could help there, but Airbus is at this time NOT interested, and this move has to be worrying for everyone, as Bombardier is realizing that is cannot on its own make the CSeries successful, which could mean the end of the company. Airbus has the slow selling A319neo to compete with the CS300, but the sad reality is that the 100-149 seat market is not that big anymore.

I have been warning about this situation for some time, the fact is that the market for 100-149 seats is NOT what is was when Bombardier did its marketing study, using past sales numbers and fleet numbers of DC-9-30/40/50, B737-200/300/500, MD-90/95/B717’s, MD-81/82/83/87, Fokker F-100’s, BAe 146-300/RJ-100 and there was and is a reason all of those OEM’s (McDonnel Douglas, Fokker and BAe) went bust or got out of the market, but Bombardier’s ex-de Havilland executives were on a mission after the cancelled BRJX to have a bigger commercial jet at all cost.

One can could see the trend of up-gauging a long time ago, and it continuous today, the B737Max7 has 60 orders out of 2,869 Max orders (2.0% share), the A319neo has 49 orders out of 4,193 A320neo family orders (1.1%) share, that is 109 orders for 125-149 seat Airbus/Boeing aircraft. At Embraer EJet orders shows the E195 orders atl 165 out of 1,401 orders (11.8% share), while Airbus has 1,553 orders for the A318ceo aircraft out of 7,985 A320ceo family orders (19.5%4), seems to be a pattern above 100 seats lately and below 130 seats, very few orders !

In short, rightsizing today is about the 150+ seat market, that is where the huge growth is happening, and yes Delta is using B717’s and Embraer has done well with the E195, but it still does not add up to the 7,100 aircraft ($US 465 billion in value) in the 100-149 seat segment Bombardier “hopes” will be delivered over the next 20 years (355 per year), which according to Bombardier means the current fleet in that category will go from 4,650 aircraft to 8,450 aircraft (in 20 years with 3,300 retirements (e.g. MD-80’s, B737NG’s, F100’s, BAe146’s, etc.).

Bombardier has lied to itself, its investors and they really believed in their fantasy, now reality is settling in, Airbus knows it, Boeing knows it, now Bombardier knows it, at best you are looking at 4,000 new aircraft in this category over the next 20 years (200 per year) split between E195-E2, CS100/300, stretched SSJ-100 and a few more B737Max7 and A319neo’s, so an optimist might say 60% market share to the CS100/300, and you have at BEST 120 aircraft per year (10 per month) and there lies today’s Bombardier’s nightmare scenario in a nut shell, demand will be low and production will not reach economically viable rates.

In fact, Airbus after it terminated discussions with Bombardier, said that “there are production difficulties” with the CSeries airliner, what else do we not know ?

To back up my claim about the demand side, the recent Ascend Consultancy Fleet Forecast for 20 years, shows a total delivery of 25,350 single aisle delivery market worth $US 1.4 trillion, with Airbus and Boeing commanding 87% market share, the CSeries is given 5% (1,268 aicraft over 20 years, or 63 per year) ouch !

The same 5% share for Comac’s C919 and only 3% for Russia’s MC-21 (760 aircraft over 20 years), so according to this study, the CSeries, MC-21 and C919 will together deliver only 3,296 aircraft over the next 20 years, or 165 per year, the now obvious conclusion once again that the CSeries has a poor future, and that an acquisition by Comac of Bombardier (aka Combardier) is a real possibility, and I know from my sources Comac is waiting for the right opportunity to make its move.

Bombardier is the ONLY commercial OEM that the Chinese can acquire, as Airbus, Boeing and Embraer are not possible acquisition candidates for the next 20 years at least.

Next, is the problem of new orders, or lack of, with 2015 book to bill ratio of only 0.4 for aerospace (4 new orders for every 10 delivered), while transportation (trains) is at 0.45, all this adds up to less cash advances, and a forecast FCF (free cashflow) of minus $US 1.7 billion for 2015 and according to Scotiabank Bombardier may be out of money by mid-2016. Even though it raised $C 1.1 billion in equity in February, 2015 which is now only worth $C 753 million (stock value dropped 31.5% since the equity offering, a loss of $C 350 million in 10 months-ouch) and $C 2.25 in new debt.

The company’s debt is now over $US 9.0 billion in long term debt and $US 3.1 billion in hand, and having burned $1.5 billion in the 1st half of this year, the company will need new capital next year.

The company is scrambling to find new sources of cash, either through selling part of its Transportation unit (worth up to $US 8.0 billion) in a planned IPO in 4th quarter, 2015, or selling of Aerospace assets, most likely Learjet will be sold soon and parts of its Aerostructures & Engineering Services (majority of work is for Bombardier, with little 3rd party work), the Amphibious CL-415 is at the end of its life/production and surely the Global 8000 will be delayed as well to save money.

Desperate times call for desperate measures and even the Government of Quebec is open to possible foreign investor, and after Airbus, it is the Chinese turn to make an offer, though Quebec is prepared to bail out the “crown jewel” of Quebec, once its planned showcase firm to the world of what an independent Quebec can do.

Low oil prices are not helping the CSeries, in fact the market for B737-700’s and A319’s has been hot for the past 4 years, and today’s low fuel prices, purchase prices and lease rates make their economics highly competitive with a new CS300, with 950+ sales and leasing transactions while the CSeries struggles with a realistic 140 orders and Embraer’s new E2 line has 325 firm orders (150 x E175-E2, 85 x E190-E2 and 90 x E195-E2), and while the E175 is outselling the CRJ-900 by a mile these days.

Also, it has come out that the Global 8000 will most likely be delayed as well, and that 2019 EIS is most likely not going to happen, as CAPEX is tight these days, trying to get the CS100 certified and into service in the next 8 months.

With Bombardier desperate for money, we could see money coming from the Quebec government and Caisse de depot et placement du Quebec, already a big shareholder in Bombardier and a very large pension fund, OMG will pensioners money now be gambled away on the CSeries ? glad my pension is not with Caisse, and the more the government controls Bombardier the worst off the company will be.

So there it is, Bombardier has 3 options to fund its future 1. Government of Quebec 2. Sell a bigger than planned slice of Transportation (trains) or 3. Sell the CSeries, but to whom ? Comac off course, they are already working with Bombardier for years and working on making the Comac C919 airliner with a great deal of commonality with the CSeries, it so clear what will happen, but no one thinks I am right, but Combardier is is a very real possibility in the next 12-18 months.

Lastly, I want to touch on the recent order for 5 x Q400’s (previously unidentified order from 2014) by Japan’s Ryukyu Commuter Co. (operating 2 x DHC-8-200’s and 1 x DHC-8-300) worth up to $US 168 million at list, realistically $US 120 million at best. The combi Q400 will offer 50 passenger seats and up to 1,150 cubic feet of cargo space of up to 8,200 lbs. It is “intended for regions where there is a “sweet spot” in terms of passengers and freight, like  Canada’s north and I guess Japan’s offshore small islands.

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Bombardier has a launch customer for its Q400 Combi, yee ha ! come on look at the length of that airframe (Above photo), and the small rear door (1.72m x 0.71m) as the cargo is in the back, in a 50 seat configuration you clear 7 rows of seats, and you can put 9,000 lbs in the back, now with no passengers you will need a “po-go” stick to keep the aircraft from falling on its ass ! or you can load the plane with 50 passengers, and wait for a long time as the ground crew loads 9,000lbs through a tiny rear door ! The weight and balance will be a nightmare.

Look at the plane, 32.81 meters long, it is a DHC-8-100/200 (length 22.25 meters), then stretched 3.43 meters into the DHC-8-Q300 and then stretched 7.13 meters into the Q400, its a “teeter totter” (aka seesaw) good luck with getting this to balance, when passenger loads can change very easily. I would like to see this loading process as it will be very dependent on the passenger load, which places like Canada’s North, could be as little as 10, how much will you be able to put in the back ? even though max. payload is 16,216 lbs ? surely not 9,000 lbs of freight. Anyway, someone bought it and that is good, Bombardier has more important issues anyway.

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Look it’s ridiculous, look at the length of the Q400, and the door at the back of the aircraft is smaller than the front one, and you want to put up to 9,000 lbs in the back through a small door ? when ? while the passengers sit in the front for weight and balance, or before passengers get on board ? the maximum load in the back will depend on how many passengers you will have on the flight, so you never know how much cargo you can carry !

Nice try, but balancing the passengers way up front with cargo way in the back will be a nightmare and then loading 4 tons through a small door at the back, how long will that take ? OMG what are they thinking ? anyway we shall how this works out, as a an airline executive, I cannot see it, time will tell.

Anyway, the situation is sub-normal at Bombardier even for this troubled company, and you know I feel bad for the current executives, they inherited a huge mess from the previous executive team, and I know they are doing everything and anything to make it work, but then so did the crew on the RMS Titanic.

Again thank you for reading my Blog, and to you Bombardier employees, my heart goes out to you in this period of uncertainty, I know that all Canadians are proud of what Bombardier has achieved, and only due to very poor senior management is the situation what it is.

 

 

 

 

 

 

 

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About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

Discussion

One thought on “UPDATE: Well, things are really BAD with Bombardier and the CSeries program, as in desperation the company has offered to sell it to Airbus and Embraer for for next to nothing, a desperate plea and MAYDAY signal for help in selling the CS100/300 ! the program is in MAJOR trouble, worst than anyone thought possible. The fact that Airbus and Embraer said NO to the program and confirming there are serious production problems with the aircraft has to be scary for customers, airlines, investors, employees and any would be ‘white knight’. Its worst then I imagined, and when industry ‘guru’ Richard Aboulafia of Teal Group says “Bombardier should pull the plug” and “that this is the beginning of the end for the very troubled program”, as I have always advocated it is time to start talking to Comac (China) about “Combardier” or pull the plug on the program. Comac is very interested in Bombardier, the two OEM’s already cooperate on commonality between the CSeries and the C919, and they need each other, one needs money the other needs industry know how and experience, and Bombardier is the only commercial jet airliner manufacturer in the world one can buy today. Bombardier (TSX:BBD.B) rose last week on news that United Airlines may buy a fleet of 100+ seat airliners if its pilots agree to a 2 year contract extension, its a ‘game’, Delta’s CEO Richard Anderson tried the same thing this July with a 60 aircraft/$US 4.0 billion order/ ‘carrot’ with his pilots, they rejected his deal, and he cancelled the order, relax we are very far away from any major US airline order. Bombardier investors are hard-up for any good news, stock is very volatile right now and I am looking for it to break the $1.00 mark before Christmas. Latest launch of the Q400 “combi” is troubling to me, up to 50 passengers in the front and 9,000 lbs of cargo in the back through a small 1.72m x 0.71m door ?, its a weight and balance operational nightmare on a 32.81 meter long “teeter totter” (aka seesaw), good luck with that ! Bombardier needs money, lots of it by mid-2016, look for it to sell Learjet for sure, and then a part of Aerostructures and Engineering Services, part of Transportation, “pause” the new G8000 program and bring in the Quebec government through Caisse (2nd largest pension fund in Canada) and Quebec’s public pension manager, poor pensioners in Quebec ! These are truly dark days for Bombardier, the next 10 weeks will determine its future one way or another.

  1. I read with interest your comments about Q400 being already a very long double-strech of the original DHC-8-100/200.

    Yet, we regularly see industry observers claim that Bombardier should further stretch the Q400 to make a 90-seat version. I have had my doubts about this, if only because the take-off angle would be compromised. I even think that Bombardier has said in the past that the Q400 could not be stretched any further.

    Like

    Posted by Murray Henley | October 13, 2015, 9:35 pm
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