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Airline Management, Bombardier, General Aviation, Other Aviation Issues

UPDATE: Since 2013, Republic Airways 2010 order for 40 x Bombardier CS300s plus 40 options was a ruse by the manufacturer, as Republic sold Frontier Airlines and could not even dream of operating 130 seat airliners as a Regional CPA (capacity purchase agreement) carrier for US Major airlines, as it is limited to 76 seats by Major airline pilot scope clauses with their respective airlines. Not sure what all the fuss is about, as I explained in my previous article, that of the 288 ‘orders’ the CSeries now has (inc. LOI for 45 x CS300’s for Air Canada, not an order yet), only 155 I believe are solid orders, and 133 are ‘weak’ orders. Bombardier is desperate to reach it’s magical 300 sales, a number used since 2009 that does not mean anything, as it is surely not it’s breakeven as that is much higher, just a goal that is NOT going to be achieved by EIS (entry into service) in any real sense of the word. Bombardier now wants the Federal Government and Quebec to join it in a 1/3 share for each in the CSeries program, that will be separated from the company, to make it’s numbers look better and to get $1.0 billion from the Federal Government. I think it is a ruse on Canadians, as Bombardier itself does NOT believe in the CSeries, as recently as October they tried to sell the program at a reported very low price to Airbus and Embraer, wake people, they want out ! they know it is going to be a disaster. Otherwise why would they sell the CSeriest program just before certification after 8 years of effort ? because they see that demand is not there in the 100-150 seat market to carve out an existence with 3 other OEMs and their 4 aircraft types, plus the pricing discounts that we have witnessed in the past 2 months (United’s 65 x B737-700 deals at -71% of list price, Air Canada’s 45 x CS300’s LOI deal at -60% off list price). Predatory pricing by Airbus and Boeing will make profitability next to impossible to achieve. Low demand and low prices is a recipe for ultimate disaster for Bombardier. So, with no OEM’s interested in the CSeries, now they want to ‘dump’ the program on the Canadian taxpayer ! still looking to get out somehow. Meanwhile, the 2 families that control Bombardier do want to give up their controlling interest and don’t want to put in their money into the program, as they know the ultimate outcome will be an “orphaned aircraft”, that the hopefully for them, we the dum ass Canadian taxpayers will be stuck with it thanks to our naïve government that will take the Quebec bait. We have in the past given aerospace so much money, billions of taxpayers money went to Canadair and de Havilland, and the companies for very little. In fact Boeing in 1985 bought de Havilland for $112 million from the CDIC, yet between 1981 and 1984 we the taxpayer put in $950 million to develop the DHC-8, and then in 1992 Bombardier bought de Havilland. I say NO Federal money to Bombardier, we just don’t have it, budget deficit will be huge this year, let them swim or sink.

Republic Airways Holdings Inc. (NASDAQ:RJET) has filed for Chapter 11 bankruptcy, which is a reorganization process, but has raised concerns about the CSeries order for 40 x CS300’s from 2010 and 40 options, as the stock drops to $0.92 per share (93.7% in the past 11 months from $14.67), and market cap drops to $47 million.
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I understand reporters cannot follow all industries, so they do not always get their stories right, it is why I write my blog, to point out what is the “real” story behind the headlines.

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Look, 2013 regional airline Republic Airways Holdings Inc. sold Frontier Airlines for who the CS300’s were intended, as a US regional airline flying for Major US airlines cannot operate aircraft with more than 76 passenger seats as per Pilot Scope clauses between the Major airlines pilot unions and the Major airlines.

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So as of 2013, the Republic Airways order was done, and the only reason it is still there is because Bombardier is desperate for orders, but has been struggling for almost 8 years to get 234 orders (17% are for Republic).
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It is a Bombardier ruse on investors and customer prospects to keep the embarrassingly low number inflated, as I just pointed out in my last blog, I believe 155 is the real number of orders and I am counting the new 45 x CS300 order from Air Canada, which is NOT an order yet, just a LOI as it was done so quickly by Bombardier and the Quebec government to cover up the February 17, 2016 Bombardier release of it’s 2015 financials, which think is the single worst corporate net loss ever reported by a Canadian corporation at $US 5.3 billion.
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In my last blog, I explained in detail why I believe the CSeries is a disaster in the making, a definite “orphan” in the few months/years ahead, and her is why.
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To be successful, you need to be in a market that is growing and can sustain your product and your competitors, so DEMAND has to be big enough to profitably service the market, just look at the dismal CSeries order book after 8 years, 288 official orders, 155 real orders, it is nothing to be proud off.
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The PROBLEM is simply that the demand is not there. Then, you need a market where you can get a good return, so PRICING is important, but Airbus and Boeing are using and will use predatory pricing to drive Bombardier out of the market.
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The two United deals for 65 aircraft was won by Boeing against Bombardier, by pricing the B737-700 at 71% below List Price ($US 23+/- million per unit), and Bombardier apparently did the Air Canada CS300 deal at 60% of List Price ($US 32+/- million per unit).

Boeing make sits money on the 150-190 seat market with the B737 family and the B777/B787 long haul aircraft, Airbus makes it’s money on the A320 family and then the A330 and A350 long haul market, Bombardier HAS TO make money in the 100-150 seat market or it will die. But when it has to price so low and lose money on deals, it cannot recoup those loses anywhere else, CHECK MATE, it’s over.
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Boeing forecast demand for 7,000 aircraft in the 100 to 150 seat segment over 20 years, which averages to 350 units per year., yet the last 9 years it has been decreasing year by year, and only 1,566 aircraft were delivered in this segment (174 average per year), with ONLY 53 aircraft delivered in 2015. So where is the DEMAND to sustain the Airbus 319neo, Boeing B737Max7, Embraer E190-E2, Embraer E195-E2, the CS100 and the CS300 ?

The 2 graphs below, I used in my previous blog, but for those that did not read, it is a simple explanation of the market. The 1st graph shows total deliveries of 100 to 150 seat aircraft from 1965 to 2015, note highest yearly delivery was in 1991, at 330 units, last 9 years a steady decline to only 53 deliveries in 2015, I would say this is a case of LOW DEMAND.

The second graph shows deliveries of 150-190 seat Airbus A320 and the Boeing B737-800 airliners from 1988 to 2015, note the steady rise the past 9 years to 700 units per year delivered, this is where the 100-150 seat market went, it up-gauged,

BBD-100 to 150 seat deliveries

BBD- 150 to 190

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One only has to look at the failure of the smallest versions of Airbus and Boeing to see that this segment is lacking demand, as only 81 x A318 were built, only 69 B737-600’s were built, and today the A319neo has only 50 orders out of 4,414 A320 family orders (1%) and the B737Max7 has only 60 orders out of the 2,931 Max orders (2%), numbers do not lie, they show a trend, a history that some chose to ignore.
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The only reason Airbus and Boeing are in this market is to keep Bombardier out of the 160+ seat market as they foolishly talked about a larger CS500 version (see below) to take on Airbus and Boeing, so naturally they will want to see the back side of Bombardier as soon as possible. It was ignorant, stupid and very foolish for Bombardier to talk about a 165 airliners so early, even before certification, as from then on the CSeries program had a target on it’s back from the duopoly.

paris-CSeries100300500FakeAirlinerscom

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The market for 150+ seat aircraft is the biggest market segment there is (A320 family and B737 family), and this is where the 100 to 150 seat market has gone the past 9 years especially, up-gauged, and left that segment, and globally airline are up-gauging, globally 11.9%more seats per departure in 2015 than in 2009, average is now 136 seats.

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Now, Bombardier wants more government money, and wants to now sell the Federal Government the remaining 50.5% of the CSeries program, as Quebec already owns 49.5% after committing $1.0 billion to the company.
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This is a major scam on the taxpayers of Canada and Quebec, but they are used to being screwed there, but we the taxpayers of Canada should stand up to this, as it is money down the drain !

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Look, even Bombardier DOES NOT BELIEVE IN THE CSERIES PROGRAM, they tried only 4 months ago to sell the whole program to Airbus and Embraer, they wanted OUT ! But Airbus and Embraer are not interested, so that itself says novels about what they think of the market, as Airbus’s John Leahy said “it’s a nice little airplane”. 
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Bombardier knows the program (not the aircraft) is loser in the end, because after 8 years of sales and marketing they see the lack of market demand and the low pricing due to intense competition from Airbus and Boeing to a lesser degree Embraer with it’s new E2’s at the lower level will make this program a commercial disaster !
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The deal that is now apparently on the table is that Canada, Quebec and Bombardier 1/3 stake for each in the CSeries program that will be separated from Bombardier with it’s own Board and CEO/President (French Canadian off course).
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This structure will benefit Bombardier tremendously, it probably will not be transparent since it’s going to be separate, so open to corruption in Quebec, where politicians have a history of dubious business practices.
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Bomabrdier will be able to alter the way it accounts for the CSeries business which has cost publicly $5.5 billion, with at least $2.0 billion over the next 2 years still to go for FAA/EASA certification of CS100, certification of CS300, production ramp up, EIS (entry into service) of both CS100’s and CS300’s, and all the unknowns that can still burn a hole in Bombardier’s finances.

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Remember Bombardier already received $777 million from the Quebec, Canadian and British governments to launch the CSeries, which we won’t see. This brings us back to the days when the Canadian government owned Canadair and de Havilland before putting them under the CDIC (Canada Development Investment Corp.), which sucked Canadian taxpayers of money, due to mismanagement on so many fronts.

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Between 1981 and 1984 Canadair lost a lot of money on the Challenger 600 fiasco, with a $1.05 billion write off, and a $434 loss in 1983, and then received $1.35 billion in loan guarantees and $200 million equity injection in 1982, followed by $240 million in equity injection in 1983 and again $310 million equity injection in 1984, so $750 million to Quebec for the crap Challenger program, what did we get for that ? nothing and Bombardier bought it in 1986, sold off Cartierville Airport, and did real well out of it. What did we get out of it ? zip.
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Now de Havilland was not much better, it received $450 million for the DHC-8 development in 1981, followed by $200 million equity injection in 1982, $60 million equity injection in 1983 and another $240 million equity injection in 1984, so $950 million in 3 years to develop the DHC-8.
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What did we get ? zip, in 1985 Boeing bought de Havilland for $112 million, with $65 million on closing, and the balance of $47 million spread out over 15 years ! Good deal for Boeing, but we the taxpayers got screwed.
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Now, we are on the same path, we are going to bail out the Beaudoin and Bombardier family, who are very much opposed to giving up their +/-54% of voting rights, yet responsible for the current fiasco and not willing to put any of their billions of dollars into the company either ?
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When Bombardier does not believe in the CSeries program, and the two controlling families don’t believe in the program, so why the hell are we being screwed again to put money into a program that no one, not even the airlines out there believe in it ? (evident from the low sales numbers after 8 years of effort).
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Call your and write your MP’s and let them know, NO MONEY FOR BOMBARDIER, we have a huge budget deficit coming up this year, we cannot afford to support losers, we are not in the business of corporate welfare, especially when that corporation discriminates (Quebecois nepotism) against English speaking workers, hides $500 million in brass plate subsidiary in Luxembourg, a company that is not a good Canadian company that cares about Canadians.

Till next time, cheers.

 

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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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