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Aeropolitics, Airline Management, Bombardier, General Aviation, UPDATES

UPDATE: Bombardier’s 5th round of layoffs in 26 months to affect 7,000 employees, as the company posts a $5.34 billion loss after ‘special items’ like writing off part of the CSeries, Learjet 85 and the CRJ-1000 programs. Recent article in Maclean’s (8.2.2016) confirms that “Quebecois nepotism” is for real at Bombardier and it originates at the top, ex-President/CEO Pierre Beaudoin wanted only French Canadians to be hired (aka discrimination), this is the man most responsible for the current disaster at Bombardier today and who won’t go away. No Canadian company deserves Federal aid if it systematically and deliberately discriminates against any Canadian employees, simple as that. Boeing has won the 2nd round at United against the CS300, this time 25 x B737-700’s were ordered on top of last month’s for 40 x B737-700’s as it is clear that any Bombardier CS300 deals where the duopoly competes head to head with Bombardier, a win will be extremely difficult and when it happens to win one, you can bet it will be extremely costly for Bombardier (e.g. reported 60% off for latest Air Canada order), so where is the light at the end of the tunnel ? There is none, that is why they tried to sell the program in October to Airbus and Embraer, so why would any airline buy the CSeries knowing Bombardier wanted to dump it ? The 100 to 150 seat market had only 53 deliveries in 2015 ! so where is this huge 7,000 aircraft market over the next 20 years (350 units per year) market ? Airbus, Boeing and Embraer have not seen it in years, and dropped their A318 and B737-600 because it was NOT there, and even thought about dropping the A319neo and B737Max7, until Bombardier said it wants to enter the 160+ seat market with its CS500, now all bets are off. Bombardier just has to look at it’s own 100+ seat CRJ-1000, to see the that the segment is dry, for after 45 deliveries (only 25 in backlog) and now it is being slowly written off as few orders are foreseen and existing orders are cancelled, surely a RED FLAG on the 100-150 seat market segment ? No, Bombardier is determined heaven or hell to ignore all signs that go counter to it’s marketing myopia/fantasy. Oh well, their Waterloo will come, juts a matter of WHEN not IF. I will show you what happened to the 100-150 seat market in this article. Bombardier delivers 76 (44 x CRJ’s and 29 x Q400’s and the last 3 x CL415’s), and only 38 orders (25 x CRJ’s and 13 Q400’s) for a sad book to bill of only 0.50 (Embraer delivered 101 commercial jets and took in 223 firm orders, for a book to bill ratio of 2.21), while firm order backlog at Bombardier is an extremely low 79 x CRJ’s and 39 x Q400’s, at best 22 months. Business aircraft deliveries stood at 199, but new orders were 119 but cancellations were a whopping 143 ! (74 x Learjet 85’s and 69 x ??? models), for a net negative order book of 24 aircraft (can’t even do a book to bill ratio) ! has to be worrying. Air Canada’s Letter of Intent (not an order) for 45 x CS300’s plus 30 options, is not a “win” for CSeries really as Airbus, Boeing and Embraer did not compete (even though AC has 69 x B737Max8/9’s on order + 48 options/rights), in fact it was a single sourced order as Quebec drops 4 year lawsuit against Air Canada, and hence the LOI at a reported 60% off ($92.2 million) from the $82 million list price, can’t make money on the CSeries at $32.8 million a piece ! and now every airline will want 60% off ! It is obvious the Air Canada deal was a quick LOI to put some positive spin on the 2105 financials. Smells like coercion or just the “old boys” network in Montreal at play ? Just like Russia’s Aeroflot buying 50+ Sukhoi SSJ-100’s because it has to, Air Canada buys CS300’s because it indirectly has to, the market knows what is going on as do investors (Air Canada stock already low, dropped from $8.41 before the order to $7.15 today a -15% drop in a week). A new 90 seat Q400 ? yes, at a crunching 28″ pitch, great for Asians, useless in North America and Europe. Bombardier “penny stock” climbs to $1.18 today after being as low as $0.77 on February 8th, it ‘hopes’ the Federal Government will give it $1.0 billion like the local Quebec government did 4 months ago. Yet should it get any money from Canadian taxpayers, it discriminates against some Canadian workers, hides $500 million in 2014 in a “brass plate” company in dubious Luxembourg so that it can pay less Canadian taxes, announces 5 rounds of layoffs since January 21, 2014 totaling 13,950 workers, yet more work goes to Mexico and Morocco, and the families that control the company put nothing in ? and expects Government bail-outs of their firm ? while the man responsible for the mess is still Chairman of the Board ? why not help the western oil industry or the +25 % of Toronto’s and Montreal’s children, that today live below the poverty line instead ? Sounds good to me, rather help the children then the Beaudoin’s, Bombardier’s and the investors who still hang around “hoping” things will change.

Bombardier announces it’s 5th round of layoffs in 26 months, this time it is 7,000 over 2 years on top of the previous 4 rounds (21.1.14 -1,700, 23.7.14 -1,800, 21.1.15 -1,700, 11.5.15 -1,750) of 6,950 announced layoffs (total now is 13,950 in just 26 months), as it announces a mind blowing $US 5.34 billion net loss for 2015 ($US 326 million of adjusted net income without “Special Items”).

Results are due to poor management and leadership by ex-President/CEO Pierre Beaudoin, now Chairman of the Board, who brought in “Quebecois nepotism” (aka hiring discrimination) hiring practices that favored French Canadians no matter how inexperienced or trained over Anglo Canadians.

This open discrimination has left the company with poor management at many levels and former employees say the problems with the company are all self inflicted, and one of the major reasons it is in big trouble on many fronts.
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Yet, Bombardier is looking for $1.0 billion from the Canadian Federal Government, our tax money to cover their business failures, as Quebec has pumped in $2.5 billion in the past 4 months, while the 2 families that destroyed the company and still control the company through special voting shares, put zero money into the business and Pierre Beaudoin stays as Chairman of the Board ?

The company hides money overseas so as not to pay Canadian taxes, it outsources more and more work to Mexico and Morocco and has received hundreds of millions in Federal money over the years, but still it wants our taxpayers money ? seriously ? not a penny in my opinion.

Boeing has just won the 2nd round of United Continental Holdings Inc. (UAL) for 25 x B737-700’s beating out the CS300 again, like last month when UAL won a 40 x B737-700, so as it stand so far, head to head open competition between Boeing versus Bombardier, the score is 65 to 0 and from here on every contest will be very tough for Bombardier, as Airbus and Boeing have huge pricing power, not only on the models being sold, but they can ‘sweeten’ wide-body deals to get narrow-body deals.

This is a contest that can only go bad for Bombardier, the duopoly will want to make sure it does not establish itself in the market so it can then focus on the newcomers the Comac C919 and Irkut MC-21 by 2020, it is not personal, it is just business.

This is a contest Bombardier cannot win, and when it does win a deal here and there, you can bet it was priced so low, it will be a money losing deal, the writing is on the wall, just a matter of WHEN NOT IF it will fail. The market for 100 to 150 seat aircraft is NOT what they forecast, declining for 9 years, hitting bottom in 2015 with only 53 deliveries !

It is not the aircraft that is the problem, it is the market it is positioned in and it is about people making things happen, and many insiders tell me they are lacking in many levels of management with experience and know how, thanks to the discriminatory hiring and firing practices at Bombardier.

But it’s full speed forward at Bombardier in 2016, they have till June to cancel the program, once they deliver the first unit to Swiss they are committed to the program heaven or hell. Aviation guru Richard Aboulafia (Teal Group) says cancel the CSeries, while  Dr. Kevin Michaels (ICF International) says the CSeries is good for about 50-60 units per year.
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The company is building up it’s liquidity, which now stands at $6.5 billion, as CDPQ took 30% of BT Holdco for $1.5 billion and $1.0 billion for 49.5% of the CSeries from the Province of Quebec. The company will need $1.0 billion a year for the next 2 years according to the company, but given predatory pricing by Airbus and Boeing, it will need that for years (5+ years), as it will not make money on a deal for years, and the 100-150 seat market is not there.

Look at the poor selling, super stretched Challenger 600 business jet, into a 108 seat CRJ-1000 (PHOTO BELOW) that just took a $243 million write down-very quietly, as it is not selling and will probably not get past 50 deliveries (45 as of today), so where is this mysterious market ? they have been selling this 100+ seat airliner for several years but still blind to the fact.

The 100-150 seat market is NOT THERE to the level they keep talking about, the market has been in decline for 9 years now hitting a new low in 2015 at only 53 deliveries by 3 OEM’s ? with 4 different aircraft ? and Bombardier will become the 4th OEM with 2 more aircraft type, sure will be a dogs breakfast in the next few years in this segment.

Somebody wake up ! anyway read my Analysis of the 100-150 seat market and below, and see why the CSeries is heading for dark waters.

crj-1000_PlanespottersNet_249178

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The company also has $US 3.7 billion in debt due between 2018 and 2021, and where it will get this money to support the money losing CS100/300 and G7000 programs is a good question.
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The current 2015 loss was due to many large “special item” write-downs:
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1. CSeries = $3.235 billion
2. Learjet 85 = $1.163 billion on top of $1.357 billion in 2014 (yes, $2.52 billion !)
3. CRJ-1000 = $243 million impairment charge, the 100+ seat RJ aircraft is a disaster
4. Termination of Sales Representatives = $133 million, long time Middle East TAG-gone
5. Customer Commercial Agreements = $194 million, for deferred costs with representatives
6. Changes Residual/Fair Value = $ 353 million, guarantees on decreasing values
7. Tax Litigation = $50 million, brass plate Luxembourg based subsidiary hid $500 million ?
8. Learjet = $53 million impairment charge on family of Learjets

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Bombardier Stock (TSE:BBD.B) (Last month Graph Below) has recovered from being a ‘penny’ stock, only on the news of the Air Canada CS300 order and the “hope” the Federal Government will provide $1.0 billion in aid money. The company will do a reverse split to get the stock up to the $10-$20 mark, which will require a split of at least 15 (so 15 shares for 1 new share, so if old share was $1.00, new share will be $15.00+/-), and outstanding shares are reduced by diving them by 15. READ MY BLOG ON BBD REVERSE SPLIT

BOM feb 24 month
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Oh, but it has “won” a LOI (letter of intent) from Air Canada for 45 x CS300’s plus 30 options, a deal at the last minute to have some spin on the February 17, 2016 presentation of Bombardier’s financial performance, bringing the “firm” orders to 288, even though I believe the real number is only 155 as 7 current customers are “high risk” NO shows (read further down in this blog why).

The LOI was NOT won really, but given to Bombardier by Air Canada without getting offers from Airbus, Boeing or Embraer. Air Canada says that the CS300 will provide on a per seat basis, 15% lower fuel and maintenance costs and CASM will decrease by 10%, well I can assure you the B737Max7, A319neo and the new E195-E2 can equal or better that as well. Well, Bombardier investors were happy-finally that there is some good news, but Air Canada investors were not.

But a reported 60% off is very interesting, to make a deal at $32.8 million on a list price aircraft of $82 million is very aggressive, desperate is a better term, considering there was no competition, they just needed NOW for PR reasons. Problem is, now all airlines will want the same del, yet surely at 60% off list price, Bombardier will go bankrupt very quickly, so much for a premium pricing strategy that Pierre Beaudoin pushed for. This discounting is the NEW NORMAL, and Bombardier will not be able to play at this level.

The odd thing is that last year Air Canada said it was happy with its E190’s economics, when fuel prices were 50% higher than today, and I do have to add WestJet Airlines CEO Gregg Saretsky’s comments on the CSeries only 2 weeks ago:

  1. The CSeries “not a great match for what the world is looking for”, very true, as airline’s have since 2009 increased their average seats per departure, to 143 seats in Europe (equals 178 seat aircraft at 80% LF) 122 seats in Africa (152 seat aircraft at 80% LF), 139 seats in South America (173 seat aircraft at 80% LF) and 109 seats in the USA (136 seat aircraft at 80% LF).
  2. “If Bombardier has asked WestJet, the airline would have told Bombardier that the CSeries is too small for its mainline needs”.
  3. “It’s the kind of size we’re getting rid of”.
  4. These 130 seat units going away and being replaced with 168 seat units and the trend is to larger airplanes”.
  5. I Don’t know if they had dated market research or they didn’t talk enough to customers to know”, this is a problem stemming from inexperienced people hired under “Quebecois nepotism” policy, they were poorly trained, I have seen a Airline Analysis Study of the CS100, as a former Boeing de Havilland Airline Analyst from the 1980’s (left before Bombardier takeover) I can honestly say it was the poorest and useless study I have ever come across, I knew then why they can’t sell, they have replaced good people with off the street people that did not know their job.
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Below graph shows the past 12 months of share values, Bombardier in the blue is down 55.17%, WestJet Airlines is in the green down 48.25%, Air Canada in the red is down 43.25% and Delta Air Lines in the purple is up 5.6%.

Airline executives at WestJet and Air Canada are trying to figure out what the heck is going on, as they have produced very good numbers for 2015, but their respective stock values keep sliding, while Bombardier deserves the stock collapse, hard to explain the trouble with WJ and AC.

 

BBD-AC-WJ-DAL-Feb 24
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The industry knows the Air Canada deal was a “gift” and to many industry observers and insiders the perception of the CSeries program does not change, it is like Russia’s national airline Aeroflot buying 50+ Sukhoi SSJ100 SuperJets, a given since 35% of the manufactured fleet is “white tails” sitting around waiting for a buyer, in this case the aircraft are just not made yet and won’t be till 2019, and then they may be “orphans” anyway.

Right now it is only a LOI (letter of interest) NOT an order yet as obviously this was put together very quickly in a well orchestrated PR exercise to try and put a nice spin on the horrible 2015 Bombardier financials, and given CEO Rovinescu’s out of character remarks about the short term investors, he probably was under great pressure days before the announcement, as surely all of Quebec ganged up on him and Air Canada, as their “White Knight”.

This comes at a time Bombardier lost 2 contests to Boeing at United for 65 aircraft, no new order in 18 months and Republic Airways one of the several ‘phony’ orders on the books, ready to file Chapter 11 bankruptcy and its 2010, 40 aircraft order plus 40 options was really out of date and only kept on the books to fool people and investors that the program had more sales than it did.
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This was a deal made in Montreal between the ‘old boys club’ which Air Canada’s CEO Calin Rovinescu and Bombardier’s Pierre Beaudoin are part of, and which Quebec’s Premier Philippe Coullard orchestrated brilliantly, this is Quebec Inc. the business model of big business and government working together.

Recent corruption investigations in Montreal have shown that many government officials have become to ‘close’ to big business, and vast corruption in the construction industry and other industries as been discovered, from the Mayor’s office in Montreal to firms like Lavalin people have gone to prison, so it’s a dog’s breakfast there, even Canada’s Maclean’s magazine named Quebec as Canada’s most corrupt province.
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The Air Canada deal was typical political coercion that Quebec is known for, where the province of Quebec has been in court with Air Canada for 4 years for closing down it’s Aveos Fleet Performance maintenance center there in 2012, contrary to the 1988 Air Canada Public Participation Act, which required the airline to keep heavy maintenance operations in Quebec, Ontario and Manitoba.
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Air Canada did not agree, and laid off 2,600 and moved out, with Quebec suing the airline ever since. The province won the original court decision in 2013, Air Canada appealed, and lost that appeal this past November, even though it had maintenance in Quebec at Premier Aviation and Avionor. Anyway, aviation is a federal matter and provinces have no jurisdiction in that matter.
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This is business Quebec style, and Air Canada’s CEO Calin Rovinescu did a deal, and not a good one for Air Canada shareholders, as the stock (TSX:AC) has plummeted from $8.41 to $7.29 today (7 days), a drop off 13.3% for a stock that has lost almost half it’s value in the past 12 months.

Look at Air Canada (TSE:AC) stock the past month (Left Graph Below) and then past year (Right Graph Below):

ac feb 24 month ac feb 24 year
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Part of the decline in the stock last week, is the fact that CEO Calin Rovinescu is frustrated with the poor stock performance Air Canada has, even after buying up it’s own stock it is not showing a good valuation of the airline’s performance, which in 2015 was very good:
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Net Income of $221 million, adjusted net income $1.222 billion ($4.18 per diluted share), revenue of $13.87 billion, operating income of $1.496 billion, EBITDAR margin of 18.3% and ROIC of 18.3%. The frustrated CEO of Air Canada told “short term investors” to sell the airline’s shares.

This was in regard to the fact Air Canada’s decision to stop giving out monthly traffic figures, he said, “if short term investors don’t like this, I can encourage them to leave, we are running this company for the benefit of our long term stakeholders”, and they did just that, selling off AC shares, causing the recent drop. Cooler heads are needed, I understand the frustration and probably the pressures he was under for doing the CSeries deal, which was goof for Bombardier, but as an investor I would question it.
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With 61 orders and 18 options plus 30 rights to purchase (up to 109 aircraft when all is done) for the Boeing B737-Max8 and Max9 placed in December, 2013, Air Canada could have had a sweetheart deal from Boeing for their B737-Max7, or Embraer on for it’s new E195-E2, all very competitive with the CS300.
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The 45 + 30 CS300’s will start to arrive at Air Canada in 2019, to replace (as of 6/2016), 42 x A320’s, 18 x A319’s, 45 x E190’s at Air Canada and then there are 20 x A319’s at Rouge (AC LCC) down the road to replace. Right now it is a LOI, hopefully the experts of Air Canada will look at the numbers for the CS300 vs E195-E2 and B737Max7 to get the best aircraft and deal for it’s operation.

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Let’s take a look at how Bombardier Aerospace did in 2015 in terms of sales.
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1. Business Aircraft had revenue of $6.996 billion, EBIT (earnings before interest and tax) of $308 million, but “special items” for the Lear 85 and Learjet family reduced that to a loss of $1.252 billion.
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The company delivered 199 business jets (32 x Learjet 70/75XR, 68 x Challenger 300/350’s, 25 x Challenger 605/650’s, 1 x Challenger 850 and 73 x Global 5000/6000’s.
The deliveries were off by 5 units from 2014, with a decrease of 7 Globals, 11 Challenger 605/650’s and 1 Learjet 70/75XR, while recording an increase of 14 Challenger 300/350’s and 1 x Challenger 850.
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Net orders were -24, as 119 orders were received and 143 cancellations (74 x Learjet 85’s) were received, which means 69 unknown cancellations, which has to be worrying.
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I do not see a big future for the Learjets, Challenger 605/650’s and the Globals are slowly dying, waiting for the G7000 to save the day, BUT as I will cover in my next blog, the $75+ million segment where the G7000 will compete is tough, the duopoly offers it’s ACJ and BBJ line of VIP narrow-body airliners and the market has not been bigger than 20 units a year ! Here lies more trouble for Bombardier ! again a market they “hoped” would be there, like the CSeries, but it won’t be there to match the 60-80 units per year of the Global 5000/6000’s, times have changed, maybe they should get their heads out of the sand every now and then and look around and do a reality check of what is happening in the world.

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2. Commercial Aircraft has revenues of $US 2.395 billion, EBIT -3.970 billion (CSeries and CRJ-1000 write downs). The company delivered 76 commercial aircraft (2 x CRJ700’s, 38 x CRJ900’s, 4 x CRJ-1000’s, 29 x Q400’s and the final 3 CL-415’s, as that line closed in October for good).
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Orders were poor with only 38 orders, 25 x CRJ900’s (7 for Messa-USA, 8 x China Express-China, 9 x undisclosed-CityJet/SAS ??) and only 13 Q400’s for Chorus Aviation-Canada, so a book to bill ratio of only 0.50.
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So 44 CRJ deliveries, which means production is down to 3.7 per month on the CRJ line and 2.4 per month on the Q400’s. This all has to be worrying, and no way can the company keep the CRJ and Q400 line going to 2020 as planned at these order rates.
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Presently the company has 79 firm order backlog for the CRJ’s (10 x CRJ-700’s, 44 x CRJ-900’s and 25 x CRJ x 1000’s), plus 33 options (24 x CRJ-900’s and 9 x CRJ-1000’s), so at best 112 CRJ aircraft if all options are taken. The CRJ-1000 will experience more cancellations and it will not even get to deliver the 70 unit once had on order, right now deliveries are around 45 units and probably 3-8 more at best to deliver.

This should have been a RED FLAG for Bombardier as to the demand in the 100-150 seat segment, but they chose to ignore any sign that would rain on their ‘fantasy’ market.
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This means that the CRJ line, barring any future orders or cancellations, has at this time 22 to 31 months of production at current rate, which means production up to December 2017 to September 2018 at best.
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The Q400 has 39 firm order backlog with 77 options, so at best all else equal, 116 units to go, which means at current production 17 to 48 months, which means production up to July 2017 to February 2020 at best.

For comparison, Embraer delivered 101 commercial airliners in 2015 (2 x E170’s, 82 x E175’s, 8 x E190’s and 9 x E195’s), and took in 223 orders (87 x E175’s, 11 x E190’s, 21 x E195’s, 17 x E190-E2’s, 40 x E195-E2’s, so it had a book to bill ratio of 2.21.

Lets, look at the current list of customers for the CSeries, as surely any aviation professional will quickly notice the lack of Quality customers and the low Quantity, which after almost 8 years says novels about the attractiveness of the market for 100-150 seat airliners, especially after last years very low 53 deliveries in that “fantasy” segment of a forecast 7,000 over 20 years when at best I expect 2,000 at the very best over 20 years between 4 OEM’s and 6 aircraft types, which is not going to make any OEM rich.

Current CS100/300 “firm orders” stand at 288 (46.2% highly risky/questionable), and forget this magical 300 number, it is a stupid number that has been used since 2009 as a target, after spending $US 6+ billion on the CSeries it means zip, other than they have not achieved their sales goals, far from it, they very well know that they have a serious problem with their current customer line up, which anyone can see :

CSeries customers

Let’s look at some of the “highly risky orders” on the books, as the current 288 order may be as low as 155 orders.

Lets, start with Republic Airways which orderd 40 CS 300’s on February 25, 2010 that is 6 years ago, a life time in aviation, as it no longer owns Frontier Airlines, and it is barely surviving as a US Regional CPA (capacity purchase agreement) carrier, that is headed for Chapter 11 bankruptcy, so take that order for 40 x CS 300’s and 40 option OUT.

Gulf Air of Bahrain, has it’s order for 10 x CS100’s and 6 options since June 20, 2011 and since then it has restructured and ordered new A320’s.A321’s and A330’s, and had planned to meet with Bombardier to discuss the order earlier this month, but the current CEO quit, so talks will wait, but don’t expect anything here, they have moved on, so 10 X CS100’s and 6 options, are OUT.

Iraqi Airways order from December 4, 2013 for 5 x CS300’s plus 1 options are not looking good, the airline is banned from European skies for safety reasons, the government has no money due to oil prices being very low and the country is fighting a war that will most likely result in the split of the country into Kurdish, Sunni and Shia sates, so take these 5 x CS 300’s and 10 options OUT.

Odyssey Airlines (UK), a planned start up from London City Airport, ordered 10 x CS100’s on June 24, 2011, so far it has not raised the money and it is not going to happen after almost 5 years of nothing, so take these 10 x CS100’s OUT.

Lease Corporation International (Ireland) is an aircraft lessor, that way back on March 30, 2009 ordered 3 x CS100’s and 17 x CS300’s, not much there from this small lessor, don’t count on I after 7 years, so take OUT these 3 x CS100’s and 17 x CS300’s.

Al Qahtani Aviation Company for SaudiGulf (Saudi Arabia) a new start up in the Kingdom of Saudi Arabia ordered 16 x CS300’s and 16 options on January 16, 2014, and just recently it finally moved forward by bring in it’s first A320’s into the Kingdom, but delays in getting approvals for granting AOC’s are slow in Saudi Arabia, and the airline may receive it’s AOC by the end of March, 2016 now, after years of effort. The competition is fierce, Saudia, FlyNas (LCC with 26 x A320’s), Al Maha Airways (owned by Qatar Airways), and not sure if the CS300 will be competitive against the A320. I would not count on these 16 x CS300’s and 16 options, so take them OUT.

Ilyushin Finance Company (IFC) of Russia ordered 32 x CS300’s and 10 options on June 4, 2013 and lots has happened since then politically between the West and Russia, from Russia military annexation of Crimea, new ‘Cold War’ with NATO according to Russia’s Prime Minister, shooting down MH17 (Malaysian Airlines B777) by rebels in Eastern Ukraine supported, coaxed and armed by Russia, plus dangerous NATO/Russia tensions along the Baltic borders with Russia.

Add in EU/US/Canada economic sanctions on Russia’ military industrial complex (inc. IFC as part of United Aircraft Company, which owns Sukhoi, and other arms manufacturers) and Russian banks. With the Dutch criminal investigation of the downing of MH due this spring, expect further economic sanctions on Russia, and it is highly unlikely that Bombardier will do business with Russia, so take out these 32 x CS300’s plus 10 options.

So the above 7 highly “IFFY” CS100/300 customers add up to 13 x CS100 and 120 x CS 300 orders, which is 133 out of the current 288 orders, or 46.2%, so the “realistic” order may be as low as 155 orders, but we will not hear that from Bombardier, it is the last thing they will admit, that their order book is full of “highly risky orders” that will NOT materialize. All os this will come out soon, the first apple to drop from the tree will be Republic Airlines any time soon.

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The Q400 is a challenge, yes they have come out with the “titter-totter” Combi version and now the 90 seat version with 28” pitch, which builds on the 29” pitch 86 seat version which only Thailand’s Nok Air ordered, all good efforts but the sun is setting on this aircraft. This year Horizon will return 14+ units while Republic gets rid of its last Q400’s. At present, it is existing operators from Canada, WestJet Encore and Chorus Aviation that give it any life.

The 90 seat idea was around a long time, even with a baggage pod, they had a crazy 102 seat version that would put 3 rows in the baggage compartment (see diagram below).

The problem with stretching it is tail strikes, the Q400 has had many, it is very long and rotations have to be made carefully. Anyway the Combi and 90 seat version is a nice try, but they will generate little in the way of orders, just a PR exercise.

The Q400 is still getting it’s but kicked by the ATR-72-600, for when you run the numbers the economics are heavily in favor of the ATR on routes below 300nm, the Q400 was designed for 300-400nm routes, below that it was the DHC-8-300, and above 400nm it was the CRJ-700/900, a very narrow band to be positioned into.

Q400 brochure

Q400-90 seater with pod

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Let’s now look at the delivery history of this 100-150 seat market, from 1965 to 2015, and you will see the story unfold in the graph below, which includes everything from:

>  DC-9-10/20/30/40/50, MD-87/88’s, B737-200/300/400/500/600/700, B717-200, BAe 146-200/300’s, Avro RJ85/RJ100’s, Fokker F-100’s, E190/195’s to the CRJ-1000.

BBD-100 to 150 seat deliveries

The market deliveries above in the 100-150 seat category hit there peak in 1991 at 330 units per year, and the last 9 years, from 2007 it has been steadily dropping, to only 53 units in 2015. In fact, the last 9 years have seen only 1,566 deliveries (an average of only 174 units per year), in short.

this market segment cannot sustain Airbus (A319neo), Boeing (B737Max7), Bombardier (CS100) and Embraer (E190/195-E2), that is 4 OEM’s and 6 different aircraft for a market that accepted 53 airplanes in 2015 ? OMG its clear to see that this is a disaster in the making, worst than Titanic as it did not see the iceberg, Bombardier is looking at the iceberg and heading straight for it and full speed.

Bombardier should have seen the trend, they should have seen the disastrous A318 with only 81 delivered, they should have see the B737-600 fiasco with only 69 delivered and now they should have seen the dismal order book for the A319neo (50 out of 4,414 neo’s on order) and the B737-Max7 (60 orders out of 2,931 Max orders).

What made them think there was a market for 7,000 units over 20 years, that is 350 per year ? WHERE IS THIS MAGICAL WORLD ? Dr. Michaels of ICF was right that the CSeries is a 50-60 unit per year aircraft !

The past 9 years saw a steady decline in this market, only 1,566 deliveries in 9 years (174 per year average), again where was Bombardier looking ? Seems they wanted the CSeries at all cost, ignored trends, developments, studies, surveys and forecast by other OEM’s, a huge mistake that is costing $+6.0 billion by today !

Look at the graph above, it is obvious the market has faded dramatically, and the CSeries will NOT be a commercial success, and then add in predatory pricing by the duopoly of Airbus and Boeing which rightly wants to destroy Bombardier’s ambitions as soon as possible.

The duopoly will face the Chinese government backed Comac C919 and the Russian government backed Irkut MC-21, both narrow-body aircraft will take market share away from the duopoly in their respective home countries and a few foreign orders as well, the market will have an all out price war for market share, a war Bombardier would be slaughtered in, best it folds before then.

They wanted to a BIG player, but did not have the resources to play in the BIG league, should have stayed in the minors instead of trying to play in the NHL of commercial aircraft manufacturers.

Simply, Bombardier screwed up its forecast, no way is there 7,000 aircraft deliveries over the next 20 years (350 per year) as Bombardier claims. In fact, I count 5,185 aircraft in this group today, not 4,400 Bombardier uses as it’s base calculation. So let’s look at the numbers (in service/total built):

> A318 (47/81), A319 (1,328/1458)

> BAe 146-200/300 (59/221), Avro RJ (101/166)

> B737-200 (99/1,114), B737-300 (483/1,113), B737-400 (259/486), B737-500 (192/389), B737-600 (57/69), B737-700 (1,036/1,266)

> MD80 (426/1,194), MD90 (71/117)

> E190 (506/523), E195 (134/147)

> Fokker F-100 (136/281)

> DC-9-30 (20/975)

> TU-154 (20/1,026)

> Yak-42 (34/185)

We have 5,185 units (41% of all built) in service out of 12,667 built over the past 50 years, the population is declining fast as older models are 30+ years old, and being retired at quicker rates then new deliveries which numbered only 1,566 units in the past 9 years (174 per year), half of the 350 Bombardier forecast per year !

Now where did that 100-150 seat market go ? well as you can see in the below graph of A320 and B737-800 deliveries (150 to 190 seats), it is obvious where they went, most up-gauged, and from 2005 you see the steady rise of annual deliveries to today’s 700 units per year just for those 2 models, and the market will grow as they up their production to around 115 per month (A320neo family and B737Max family) by 2018-2020, just in time for the C919 and MC-21, they will have huge economies of scale to compete on price against the new incumbents.

Note that the fast growing 150-190 seat segment over the past 9 years has managed to deliver 5,335 aircraft (an average of 593 per year) while the fast declining 100-150 seat market averaged 174 units, again only 53 deliveries in 2015 !

Hello ? do people now understand me when I have been saying that the 100-150 seat market is NOT what it used be ? and will NOT sustain Bombardier against 3 other OEM’s all with good product with new fuel efficient engines and aerodynamic “tweeks” that all re-engine aircraft (e.g. A319neo, B737Max7, E190-E2, E195-E2) will be within 2-3% of the brand new $6+ billion CSeries products, and there is the huge problem for Bombardier, NO REAL COMPETITIVE ADVANTAGE, especially in a low fuel price era, CHECK MATE.

Bombardier is facing a squeeze from the top and bottom and the CS100 will face the E190/195-E2 and SSJ-130 while at the top the A320neo family, B737Max family, C919 and MC-21, and it going to get ugly. I figure they have till June to decide if they want to get into this, as that is when the 1st delivery to Swiss will take place, once it does they are in it till heaven or hell, and many experts say, cancel it, in the long run it will be cheaper to do so, and the recent write offs are a signal.

Having tried to sell the whole program to Airbus and Embraer what does that say bout their commitment to the CSeries ? think about it, they wanted to dump it on someone, is that an OEM you want to buy an airliner that will be in service for 25+ years ? because this thing has a 90% probability that it will be orphaned in the near future !

BBD- 150 to 190

CSeries_comparable_aircraft

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Let’s discuss Bombardier’s need for Federal money, $1.0 billion is what it is asking for. So, Bombardier wants Federal money, from normal Canadians, to take a risk in it’s messy business. My first problem which has NOT received anywhere the deserved attention it should have, and that is what former employees call “Quebecois Nepotism”, a common term used inside the company for years after the 1992 acquisition of de Havilland Canada by Bombardier.

I have written about this a few times, as I have talked to many former employees who lost their jobs to much less qualified French Canadians, and there are hundreds of ex-Bombardier employees with the same story, many have commented on my blog about it, yet no investigation has been launched or a class action case against Bombardier, for what is openly job discrimination by language, nationality and home province, it is against the law in this country, and the government needs to investigate, before any money is given to Bombardier.

The word needs to get out, and I hope you readers out there who have been damaged by Bombardier’s “Quebecois Nepotism” and discrimination, start to speak out and organize yourselves, let you MP’s know you want an investigation of Bombardier’s hiring practices.

The recent (February 8, 2016) Maclean’s article entitled “The Inside Story Behind the Bungled Bombardier CSeries” by Martin Patriquin, touched on this issue briefly but it confirmed what so many knew, that this came from the top, from ex-President/CEO Pierre Beaudoin.

It was Pierre Beaudoin who has destroyed billions of dollars of investors money with his poor management and leadership style and who has ruined hundreds of ex-employees lives with his racial discrimination of employees.

Here is what is written in Maclean’s, “Yet according to the two former executives, Pierre Beaudoin had curious hiring criteria. Any new hire had one thing in common, which was they were French Canadians”, “this was totally different than his dad, who basically wanted the best executives to run the company, irrespective of where you come from”.

To get rid of people with the name Steve, Randy or Brandon and replace them with Pierrre, Henri, Jean Claude or Marcel is just plain wrong, and I know that the employees at Bombardier know this has been going on, feel for those that lost their jobs and shame on those that benefitted from the policy.

This company, that discriminates against English Canadians wants our money ? to save it from the mess Pierre Beaudoin created ? say NO ! I have heard of many school friends of Pierre Beaudoin joining the company with no qualifications, I recently talked to a former Airline Analyst who was replaced by a French Canadian aircraft mechanic with no analytical training or experience, I talked to a former salesman that was replaced in Asia, by a former Quebec school teacher, who was fired for sexual improprieties and his family knew Mr. Chretian, who helped him become a Bombardier salesman, and on and on the stories go.

The Maclean’s article also revealed Pierre Beaudoin’s management style “Pierre would tell people that he wanted to be challenged, but this would change when people actually challenged him”, many good executives left the company or were pushed out. Good to read also that “Pierre wasn’t his father’s chosen successor. Rather, Laurent Beaudoin wanted his daughter Elaine to eventually lead the company”.

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Next reason why Bombardier should get NOTHING from the Federal Government, is that the International Consortium of Investigative Journalists discovered in 2014 that Bombardier transferred $500 million to Luxembourg, a well known tax haven/fraud center, to save on paying Canadian taxes. Quebec’s Finance Minister Carlos Leitai said in December, 2014 that Revenu Quebec would investigate, off course nothing has come of it, but Quebec’s tax payers got burned for tax income and now they are $2.5 billion investors in the future of Bombardier, whether they like it or not.

Bombardier had a brass plate company outside of the capital city, that was and is all you need, and you can circumvent taxes back home, where CRA will hound ‘Joe Blow’ for every dollar but allows BIG corporations to hide billions of dollars from Canadian taxes.

While these tax scams are allowed, since politicians who make these laws are in bed with big business, they do rip of Canadians of tax revenues and for a company that has received billions in Canadian tax payers money, it is immoral and unethical, and in kind, we Canadians should say NO to any money for Bombardier, you want to rip us off but now you have your hand out for help ? Shame on Bombardier for screwing Canadians in so many ways, it is not a good corporate citizen or a company that values Canadians as equals, so let them sink or swim, say NO to any Federal money.

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Come on Canada, I have been away for 20 years and saddened to see how Canadians have become ‘sheep’ to our government, we allow this “corporate welfare” helping BIG business in Canada, when today 27.5% of Toronto’s children live below the poverty line, and 25% in Montreal, but we give away money to companies like Bombardier, who care not for Anglo Canadians, they care about French Canadians only and themselves.

Remember, Bombardier was to be the ‘show case” for an independent Quebec, it would show the world there is more to Quebec then cheese and maple syrup, and after the 1980 referendum, Bombardier went on a buying spree of Aerospace companies, in 1986 it bought Canadair, Shorts Aircraft in 1989, Learjet in 1990 and de Havilland in 1992, just in time for the 1995 Referendum on independence for Quebec.

Another reason why Bombardier should get NO Federal money is the fact that they have announced almost 14,000 layoffs in 26 months, yet jobs are going to Mexico and Morocco. Governments give money to BIG companies to help them grow, hire new employees and the government gets it back through taxes on employees and more profits from local businesses that grow at the same time.

When you lay off the government pays out unemployment insurance and when you send the jobs overseas the government sees nothing here. So why give them money ? will we save the oil patch in Alberta, will we cave Newfoundland & Labrador for it’s oil industry crisis too ?

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Lastly, I want to talk about the Bombardier Challenger, as in mid-January, 2016 Bombardier in an effort to improve long term profitability of its Business Aircraft, dropped its third party representatives to go direct to market. It seems ridiculous at this time to take a$278 million special charge in 4Q/2015 with $145 million of that being non-cash, so $133 million in cash charges, $50 million in 4Q/2015 and the remaining $83 million in 2016.

The worst part is that they let go long time Middle East representative TAG Aeronautics which has a 40 year history with Bombardier/Canadair. In fact, TAG under Akram Ojjeh (founder of TAG) rescued the Canadair CL600 Challenger program. Few may remember, but the program started as the LearStar 600 in Wichita, later to become the Challenger 600 powered by Avco Lycoming 502L engines of which 81 would be built before the CL-601 came around powered by the GE CF34-3B engine.

TAG liked the Canadair CL-600 so much they ordered 21 to launch the program, without them they would not get the funding from the government. Canadair was born when the Canadian government bought the Montreal operation of general Dynamics in 1976 for $C 46.6 million.

In 1982, Canadair and de Havilland were transferred from the Canadian government to the CDIC (Canda Development Investment Corp.) and it ran the two firms autonomously. The Challenger program was a money loser, as the CL-600 had engine problems, shorter range than expected, and in 1982 the Challenger program was written off at $C 1.05 billion, now we know were all these Bombardier ‘special item’ write offs began.

Eventually, the Challenger program did well with the GE CF34 engines, but between 1981 and 1984 Canadair received $C 550 million in equity injection and $C 1.35 billion in loan guarantees backed by letters of comfort from Jean Chretian, Minister of Finance, who kept the commitments for Canadair a secret from parliament and the public for many years.

I am not convinced Bombardier can do what TAG has done in the Middle East, at a time when they have no money, beg the Canadian taxpayer for help, they take a $278 million hit to get rid of it’s representatives ?

Look I had a company that represented Cessna Citations and Gulfstream in Eastern Europe, and I was able to open doors they could not, I sold and operated the 1st Citation X in Europe in 1999, so I know how valuable representatives are to the OEM’s and the Middle East is tough, many Royals, nay personalities, ego’s and I not think it can be done from Montreal any better.

The representative, gets around 6% commission for light, medium and large jets, and up to say $1.6 million for the ultra long range jets, we worth it, NOT sure what this was about, but for sure this $278 million could have been spent elsewhere for sure.

Till next time, thank you, hope you learned something and for you ex-Bombardier employees, get out there and make noise about your discrimination experience at Bombardier, let you MP’s know and get together, this has to be punished, so many lives were hurt by these actions, you deserve justice, all Canadians deserve justice for discrimination in the workplace.

 

 

 

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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.

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