This is the event few would have expected at Bombardier a few years ago, but today the Bombardier shares (TSE:BBD.B) went to $0.99 a share, the lowest in +25 years (since 1991), and it is a “penny” stock today, this is how bad the company is now perceive don the market, a total mess from A to Z, no fault of the current senior executives, it all falls on ex-CEO Pierre Beaudoin and his mismanaged programs, poor executive team underneath him. Now investors have to be seriously worried, my previous Blogs lay out why the 5 year Transformation will NOT work, why the CSeries cannot compete in the market segment and why the Global G7000 will not be successful either, and with little success from CSeries and the Global 7000 there is little hope for recovery of the Aerospace business, sorry.
Bombardier shares (TSE:BBD.B) continue decline, see graphs below, on the top graph is the decline in the past 5 days (Jan 20 to Jan 26), on the lower graph is the 1 year decline (Jan 27, 2015 to Jan 26, 2016), in both cases it’s a constant decline and massive erosion of shareholder’s value, and now they want the Federal Government to buy 50.5% of the CSeries for $US 1.0 billion just like the Province of Quebec did a few months back.
Any Federal money must be conditional on the two tier share system to be abolished, as the 2 families that run the company control almost 60% of the voting shares, and they should put in some money as well, to show they have confidence in the company. Lastly, Quebec’s Mayors are stalling the East-West pipeline to new Brunswick because Quebec gets nothing from it, but the oil industry in Alberta and Saskatchewan needs it at a time the industry is struggling with low oil prices, and also wants help from Ottawa, can’t help one without helping the other without troubles.
Prime Minister Trudeau cannot give Bombardier $US 1.0 billion if Quebec is creating problems for Western Canada, it must be a condition of the investment that Quebec’s Mayors stop their opposition, if not than give nothing to Bombardier, as again Quebec shows it really is not part of Canada and only looking out for itself. We are one country and if Trudeau helps Quebec and not the West there will be a great deal of animosity and division from Western Canada. Just because there is no money in it for Quebec does not mean you ignore the needs of western Canada, the province is still a part of Canada, no ?
The graphs below show the poor situation of Bombardier shares (TSE:BBD.B), as share values go down and down, the upper graph is the last 5 day chart and the lower graph is the past 12 months chart:
In my last blog, I discussed the recent loss of the United Airlines deal to Boeing (40 x B737-700’s) in the first head to head clash between the two OEM’s (Boeing’s discount was around 70% off from List Price, a sign of things to come), and in this case, there was maybe a 1% probability of Bombardier winning that deal, and Bombardier should NOT be so vocal about its campaigns, it makes them look real bad when they lose. There is no point in raising investor and employee hopes only to have them crushed, Bombardier should just get on with selling aircraft and when they have something announce it, this up-front PR exercise of letting everyone know you are in a certain airline campaign is not needed, when you win let the public know, till then best to just shut up.
So off course know everyone knows about Delta Air Lines (DAL) “interest” in the CSeries, which for those who read my last blog on DAL’s comments and fleet plan, were very general, nothing was said by DAL’s CEO Richard Anderson that should arouse great excitement at Bombardier, as those are common comments made by airlines when they are looking to buy aircraft and wish to play the OEM’s off against each other for the best price. Yes, DAL is “taking a serious look” at the CSeries, but also at the Embraer E195/190-E1/E2, Airbus A319neo and Boeing’s B737Max7, and yes DAL likes the P&W geared turbofan engines, which are not exclusive to the CSeries, but also on the Airbus A320neo line, Embraer’s E2 line and the MRJ.
The main competition for the CSeries will come from the above left Embraer E195-E1 (soon E2), Boeing B737Max (center photo) and the A320neo (above right photo), as well by 2019 we should see the Russian Irkut MC-21 (bottom photo left) and the Chinese Comac C919 narrow-body airliners enter the market and then the 125-200 seat market will get really interesting.
Lastly, DAL CEO Richard Anderson said what it will take to win their order “At the right price, it’s quite competitive airplane”, that applies to all 4 OEM’s in the running, the right price for DAL is for sure in the +60% off from List Price, there it is, the competition will be on PRICE, support, delivery schedule, etc. but PRICE is the deal maker so everyone will have to sharpen their pencils and we shall see, for now DAL has it’s B717-200’s, E190’s are coming and I do not see a decision anytime soon, so Bombardier would best just keep quiet, as the probability of this deal happening is very low for sure.
I do not under the company’s PR and Communications, as any deal from here on where Airbus and Boeing are the competition the probability of a realistic successful campaign are in my opinion less than 10%. Everyone knows the company is deep trouble, yes Certification of CS100 is done, but now they need to ramp up production while new sales are still absent since September, 2014, and the 243 “firm” orders (53 x CS100’s and 190 x CS300’s) are incredibly low after almost 8 years, in fact 4 deals are from 2009 and 2011:
- March 30, 2009, LCI-Lease Corporation International (Ireland) 3 orders and 17 options for CS100’s.
- February 25, 2010, Republic Airways (USA) 40 orders and 40 options for CS300’s.
- June 20, 2011, Gulf Air (Bahrain) 10 orders plus 6 options for CS100’s.
- June 24, 2011, Odyssey Airlines (UK) 10 orders for CS100’s.
Meanwhile, CEO Al Musallam said recently that Gulf Air expects to conclude talks with Bombardier “within the next couple of months” about a planned order for 10 CSeries narrowbodies. The carrier has a pending order for 10 CS100s, but he notes: “We don’t have the luxury of time to discuss the details.”
“We were supposed to receive the first aircraft in December 2013,” Gulf Air’s acting CEO Maher Salman Al Musallam said as the Bahrain International Air Show opened. “We’re supposed to be the launch customer in the Middle East—that’s how they are referring to us.” “We are going to meet with them very soon to look thoroughly through the contract [and at] the regional jet concept that led Gulf Air into buying the CSeries. This concept needs to be studied completely … whether it’s going to be viable for Gulf Air to continue to renegotiate a delivery date with Bombardier or something else.”
He anticipated a decision would be made around March. This has to be worrying for Bombardier, as there is little talk of the CSeries at Gulf and I believe this order will be cancelled, when ordered the CSeries promised around a 20% fuel saving on the Airbus A320 family, Al Musallam noted. However, Airbus was now introducing the modernized, re-engined A320neo, which it said would deliver a 16%-17% improvement in fuel costs on its predecessor. “I don’t know, as a small airline, whether we are able to operate a third type or not. This is a big decision,” Al Musallam said.
It is interesting to note that the A320 neo fuel efficiency is now 17% (Gulf Air should know since they just bought A320neo’s) better than the A320ceo, and not good news for Bombardier, the entire value proposition of being the most fuel efficient aircraft by wide margin (20%) is no longer applicable, and now they compete on PRICE, and they can’t afford to do that with decreasing CRJ and Q400 deliveries and orders, they have nothing else to make up for order where they lose money and I think that is anything below 50% off on List Price ($US 36m for CS100 and $US 41m).
It is worth noting that on top of entry into service investments still needed by Bombardier($2.0 billion), they have lots of debt maturities coming up : $750m, (2016), $650m (2018), $600m (2019), $850m (2020), $947m (2021), $1.7 billion (2022), $1.25 billion (2023) and $379m (2024). So during its 5 year Transformation (2016-2020) on top of everything to do with CSeries and $1.0 billion for Global G7000 they have to deal with $2.85 billion in debt, pay it or renegotiate terms and conditions.
I think the bad news for Bombardier over the next few months will be more cancellations than orders, on top of the airlines/lessors already mentioned that will NOT be taking their ordered CSeries, you also have “risky” orders from Iraqi Airways-IRAQ (5 x CS300’s), Ilyushin Finance Corporation (IFC)-RUSSIA (32 CS300 + 10 options) and SaudiGulf Airlines (Al Qahtani Aviation)-SAUDI ARABIA (10 x CS100 + 6 options), so another 47 orders and 16 options, which brings down the order book to a possible 143 “REAL” CSeries orders, but time will tell, but definitely no more than 190 for sure at this time, pretty sad indeed.
SaudiGulf Airlines is a start up that will use A320’s, eventually they will see that the CS100 cannot compete on unit economics, and they are facing a growing onslaught from flynas with 26 x A320’s, while Qatar Airways’s subsidiary for Saudi Arabia, Al Maha (Oryx in Arabic) is waiting for some time to get started with up to 8 x A320’s and national carrier, Saudia operates 35 x A320’s (30 on order) and 15 x A321’s and is trying to restructure as Saudi Arabia’s economy is being opened up and made more competitive (we shall see), anyway lots of BIG competition and I do not expect SaudiGulf Airlines to take its 10 xCS100’s.
Last item for today is Iran, again Bombardier is talking about all the possible deals there, again they should just shut up and see what comes out of Iran in the next few months. This week it is expected that the President of Iran, Hassan Rouhani will announce a HUGE deal with Airbus when he gets to Paris. The deal is now looking like 127 aircraft worth over $US 20 billion (List Price), and includes (+45 x A320’s, 40 x A330’s, 16 x A350’s, 8 x A380’s and 40 ATR’s) ! as at best 150 of the countries 250 airliners are operational after years of economic sanctions, that crippled its commercial fleet, and raised aircraft accidents to 26 since 1979, with 900+ fatalities. The A350/A380’s would come after 2020, so deliveries are spread out over several years, and apparently Boeing will get 100 or so orders soon as well.
The Iranians say they need 400 long haul and mid range aircraft, plus 100 short range aircraft. The current Iranian regional fleet is composed of : 5 x ATR-72’s, 12 x Fokker F50’s, 46 x Fokker F28/F100’s, 8 x BAe 146-300’s, 1 x BAe 146-200, 3 x Avro RJ85’s and 7 x Avro RJ100’s, so maybe there is room for the CSeries, BUT with Airbus being the preferred supplier the CS300 will be shut out most likely, while the CS100 will face the Sukhoi SSJ-100 which Russia is pushing very heavily. Basically Canada has no clout in Iran, so I am not expecting much there, as Iran will not have have money for all OEM’s, the country is getting $US 50 billion that has been frozen, but it needs money for infrastructure and to raise oil production and with oil prices around $US 30 per barrel for the next few years, oil revenues will not be unlimited like they were in the “good old days”. With sanctions lifted, look for lots more travel and lots of up-gauging, which does not hold well for Bombardier.
Yes, Canadian sanctions will be lifted on Iran, so Bombardier can go and sell aircraft in Iran, but many are sold already, just have not been signed, and lots of the smaller airlines are financially strapped, so most deals will be done by Iran Air (36 aircraft), Mahan Air (48 aircraft with 13 being BAe146/RJ’s), ATA Airlines (9 aircraft), Iran Air Tours (6 aircraft), Iran Aseman Airlines (32 aircraft with 5 x ATR-72 and 19 Fokker F28’s), so Mahan Air and Iran Aseman Airlines are the best prospects.
That is for today, thank you again for reading my Blog, till next time, cheers.