I have covered Bombardier’s problems with the CSeries a great deal over the past 3 years, and anyone who has read the articles should by now know that I have been accurate with my predictions of low sales, becoming a ‘penny’ stock, President/CEO Pierre Beaudoin’s move up but unfortunately not out to predicting that Bombardier would try and get out of the CSeries program ‘somehow’.
The TSE:BBD.B shares of Bombardier are at $C 1.40 today and were down to $C 0.77 on February 8th, so what has changed ? nothing really Air Canada was coerced into signing an LOI for 45 CS300’s and 30 options, and Quebec dropped a long standing lawsuit against Air Canada for shutting down it’s Aveo maintenance operation in Montreal in March, 2013 to be free to out source aircraft maintenance. Now, miraculously it has agreed to come back to Quebec and maintain CSeries airliners ?? one step forward and two backwards ?
I am sure Air Canada did not all of a sudden change it’s mind on the maintenance business, everything in Quebec is politics, dirty politics as evident last week with 7 high profile politicians arrests last week of Quebec Liberal Party and Parti Quebecois members, including Liberal Deputy Premier Nathalie Nomandeau, exactly why the Government must come clean on money to Bombardier over the past 50 years, how much went in and how much came back, the place is hornets nest of corruption between politicians and BIG business, and I am sure Bombardier has something to hide.
No reason for the stock’s rebound, especially given the fact that Republic Airways a so-called ‘customer since 2010, filed for Chapter 11 bankruptcy/reorganization, and it’s order for 40 x CS300’s is finally being discussed openly as being “phony” they have not needed the CS300 since 2013 when they sold Frontier Airlines, one of several ‘firm orders’ that are being deceived by Bombardier, in fact 100+ aircraft are in question from the 234 ‘firm’ orders, to you investors I ask why do you think that after 7 years of sales/marketing they have only 140 ‘real’ orders ?
Think man, it says novels about the market for 100-150 seat aircraft, it is not there to make the CSeries a success ! especially with Airbus and Boeing out to kill the program early on, so that Bombardier does not move into the 150+ seat segment, in the end investors will lose a great deal on Bombardier.
Look, Air Canada single sourced the CSeries, even though it has a huge order with Boeing for B737Max8/Max9’s and Boeing surely would have done a sweetheart deal on the B737Max7 if given the chance, so Air Canada investors were NOT well served, screwed really, and Quebec got its PR CSeries order (so quickly done, it is still just an LOI-letter of intent), that was last seen in September, 2014. This is how Bombardier has to sell aircraft, not by competing but by politics, it shows they cannot sell when competing with Airbus or Boeing, and investors should be worried, my blog has laid it all out why the program WILL FAIL.
We are like the Russians, Aeroflot, Russia’s national airline bought 50+ Sukhoi SSJ-100-95 SuperJet airliners because Moscow said to do it, well sadly in Canada, our national flag carrier Air Canada is buying 45 x CS300’s because Ottawa made it happen (like in Russia’s, our “crony” capitalism is alive here as well).
In fact it was a Federal Minster that made the announcement of the deal, and don’t think Air Canada did not get future ‘favors’ from Ottawa for this deal, like raising foreign ownership of airlines in Canada to 49% ? as Air Canada seeks an international strategic partner, as it late in the game to form some equity alliances that airlines like Delta, United, BA, Etihad, Hainan, Qatar, etc. are doing around the world.
Seems Air Canada has a big problem with it’s falling shares, even after buying $US 27.7 million worth of it’s Class A and B shares for cancellation to drive the price, it has not worked. WestJet is also hurting, yet both airlines are making money, but investors are shying away, but it is serious Air Canada and West shares have fallen as badly as inept Bombardier’s shares in the past year, something is not right in Canada.
The graph below shows the 1 year stock performance of: Air Canada (RED line) -43.2%, Bombardier (BLUE line) -55.1%, WestJet (GREEN line) -48.2% and Delta Air Lines (PURPLE line) +5.6%.
The CSeries pitch did NOT work on Airbus, Boeing and Embraer but sadly it is going to work on Canada’s politicians, especially in Quebec, and the program will soon be 2/3 owned by Canadian/Quebec taxpayers at a price of $C 2.0 billion, relieving Bombardier’s financials of carrying the whole program on its books, and like the reverse share split that will soon happen, it masquerades the seriousness of problems with the CSeries program and the poor share price of Bombardier shares.
The problem is that Canada’s will have a $C 30+/- billion budget deficit in 2016, we cannot afford giving out “corporate welfare” to big corporations like Bombardier that want our tax money, but hide money from our tax authorities, advocates job discrimination against non-french speaking applicants and employees, exports jobs abroad even now, won’t reveal with the government how much it has received from the government in the past and how much was returned, this is our “crony capitalism” in Canada, help the big corporations but not the bottom 25% of our citizens.
When will Canada wake up that government is NOT on the side of the people but BIG business, it is why we have some of the world’s highest bank fees, cell phone fees, cable and internet fees in the world and only 2 airlines, and no low cost airline here.
On every front Canadians look we are being screwed by BIG business in Canada that produce very high profit margins for banks, cell phones, internet and cable TV, time to open up the market to the Americans and let Canadian banks and others face REAL competition, we do have Free Trade so why not ? could it be BIG business is in bed with politicians to keep competition out ? for sure.
The 5 year Transformation Plan targets Aerospace revenue of $ 14.9 billion ($5.8 billion for Commercial Aircraft and $9.1 billion for Business Jets) by 2020, which is pretty much a fantasy target that is void of reality, as the company’s sales and marketing is still is stuck in its own myopia (lack of foresight, intellectual insight) as to the 2 market segments its is about to enter with it’s CSeries (100 to 150 passenger seat commercial aircraft) and the Global G7000 business jet ($75+ million ultra long range segment).
READ past 2016 Blogs on CSeries troubles March 13, March 11, February 28, January 29, January 27, January 21 and January 17
READ past article on G7000/8000 May 10, 2015
Bombardier Global G7000 (above picture)
I have covered in great deal why the CSeries is doomed to fail, due to the LOW demand and LOW margins in the 100 to 150 seat market that Bombardier will have to share with Airbus, Boeing and Embraer with, a segment where only 53 units were delivered in 2015 by 4 OEM’s, including Bombardier with their disastrous 104 passenger seat CRJ1000, which has only 68 orders since 2010, 43 deliveries, no order in 2015 but 2 aircraft cancelled, and in 2015 $264 million write down of the program by Bombardier in 2015.
They MUST know that demand is no anywhere near the 7,000 aircraft over 20 years they forecast, there has NEVER been a demand for 350 units per year (maximum was 330 deliveries in 1991), and latest United deal for 65 x B737-700’s was at $US 23 million per aircraft (71% OFF List Price), this market is not for the financially weak Bombardier, it cannot compete in the BIG league, and therefore the program will FAIL, it is only about WHEN not IF it will fail. Westjet’s CEO Gregg Saretsky recently said it very well when asked about the CSeries, “not a great match for what the world is looking for”.
Saretksy nailed it on the head, it is about the market, and the market today for 100-150 seats has been in decline for 9 years, as airlines have up-gauged to 150-190 seat single aisle A320/A320’s and B737-800/900’s. Bombardier got it wrong, the aircraft is great and another time and place it would be a BIG hit, BUT the problem is current market dynamics, and great aircraft have failed in the past, either to early or too late into a market segment, just WRONG market at the WRONG time.
It’s like trying to sell a new station wagon today, no matter how good and economical it may be, customer sare buying SUV’s and cross overs and you cannot change that with a single product, it is the market not the product, Bombardier saw this coming, but chose to ignore the 9 years of decline, the increase in 150 seat aircraft orders and its own dismal sales with the 104 seat CRJ-1000, it is a grave they have dug for their program.
Commercial Aircraft will never near the $5.8 billion in revenue, the Q400 is down to 39 firm orders and the CRJ line is down to 79 firm orders, at 2015 production rates this equates to 16 months of Q400 production and 21.5 months for the CRJ line.
There are some options left, 77 for the Q400 and only 33 for the CRJ line, if I assume a 50% take-up ratio on the options, the Q400 has 32 months at BEST (July, 2019) of production and the CRJ line has 26 months at BEST (May, 2018) and then its over, just like the CL-415 water bomber program, which delivered it’s last aircraft in October, 2015 with little attention after 49 years of production (220 aircraft of which 125 were piston powered CL-215’s and 95 turbine powered CL-415’s).
Not good, and what is also NOT good is the market prospects for the new in development, Global G7000. I do not know why Bombardier chose to compete with the likes of Airbus and Boeing with the CSeries and now the G7000, but it really comes across as irresponsible of management of a $20 billion a year Bombardier to go up against Boeing ($US 96.1 billion in revenue, delivered 745 commercial aircraft in 2015) and Airbus ($US $US 67.9 billion in revenue and delivered 685 commercial aircraft in 2015), but it did, knowing its Strengths, Weaknesses, Opportunities and Threats (SWOT) showed it was a David versus 2 Goliaths !
So, let’s look at the Airbus Corporate Jet (ACJ) market and the Boeing Business Jet (BBJ) market over the past few years, as the duopoly has had a monopoly on the high end $75+ million VIP aircraft market, by converting their A318, A319, A320, A321, B737-700, B737-800, B737-900 line of single aisle commercial airliners to satisfy the demands of Governments and high net worth individuals (HNWI) and large international corporations.
The Airbus ACJ319 (photo above)
The duopoly also offers its wide body airliners as well which in some cases like the B747-8i can go to $800+ million a piece, but for this comparison I will limit it to the single aisle market as that is where the G7000 will have to compete and win if it is going to contribute to Bombardier’s future bottom line or become another fiasco that will add to the plight of Bombardier Aerospace.
Now ewe can look at deliveries in this VIP market, and the data below shows the size of the demand in this segment. The important graph is the RED line which shows single aisle/narrowbody deliveries between 2002 and 2015, though Airbus and Boeing started delivering their ACJ and BBJ aircraft in in 1998, but the latest trend is important.
Note the RED LINE from 2010 (ACJ data was broken down for the first time for each ACJ model) when the annual deliveries of single aisle ACJ and BBJ aircraft hit an all time high of 23 units ! that is it. The market is NOT very big, and right off the start you have to ask Bombardier, as I have with the CSeries, WHERE IS THIS G7000 MARKET ? Because it is not there right now and once again Bombardier went into a market segment that is small and what ? they “HOPE” they will stimulate demand where Airbus and Boeing failed to ? To risk $2.0+/- billion on the G7000 on a HOPE is crazy and I am afraid it will NOT be the success they so HOPE for.
Look, since 1999, Boeing has had 15 x B737 VIP, 164 x BBJ and 10 x BBJMax orders, that is 189 orders in 17 years, that is 11.1 BBJ orders per year on average.
Since 1999, Airbus has had 20 x A318, 79 x A319, 18 x A320 and 1 A321 orders, that is 118 order in the past 17 years, that is 6.9 ACJ orders per year on average.
Boeing BBJ (photo above)
With 307 BBJ and ACJ VIP aircraft orders in 17 years you have 18.0 aircraft per year, that is it for this market segment ? I am sure Bombardier is looking to deliver 50+ of these G700’s per year at some point, but I don’t see it ? This could be the straw that breaks the camels back at Bombardier, as the CSeries will NOT live up to its promise at BEST they may deliver only 70 units per year (50% of my forecast for the market segment) and with predatory pricing from the duopoly, they may get at BEST $2.59 billion in revenue from it (average price of $37.0 million with 3/4 of sales being the CS300), a far cry from the ‘planned’ $5.8 billion in the 5 year plan (and no Q400 and CRJ by 2020, though Bombardier HOPES they will be around).
The ACJ and BBJ have +100% the cabin volume of the G7000, and space equates to comfort especially on long haul flights, and that will be very difficult to overcome, as the ACJ and BBJ just have so much more interior options and layouts, plus global service anywhere in the world there are B737’s or A320’s which is everywhere. The ACJ and BBJ offer so much more aircraft for the money, that I fail to see why anyone would buy a G7000 over a ACJ or BBJ that are close in price, which should not be difficult for Airbus or Boeing as they only need to lower price by around 20% and you get +100% more aircraft.
The economics of the aircraft I do not wish to dwell into in too much detail as we have little info still on the new neo and Max models, but I can use some figures from 2014 with $US 7.25 per USG, I have on variable costs.
The B737-700 was $7,500 per flight hour, the A319 was 7,425 per flight hour while the Bombardier Global Express was at $5,637 per flight hour, now that has come down with fuel prices being now $US +/- 2.00 per USG, and off course higher weights of the ACJ and BBJ do contribute to higher landing fees. The difference today I estimate would be in favor of the G7000 off course, but probably no more than 20% per flight hour, and business jets do not fly more than 800 hours per year at best, so roughly $ 640,000 or $800 per hour could be in favor of the G7000, but too early to calculate today.
With widebodies included, currently Boeing has 238 BBJ orders with 215 delivered (inc. 8 x B747-8, 3 x B747-400, 9 x B787, 7 x B777, 8 x B767), while Airbus currently has 186 ACJ orders with 172 delivered (inc. 1 x A350-900, 14 x A340, 35 x A330, 3 x A310, 3 x A300), with the most popular model being ACJ319 with 79 orders/77 deliveries.
The Global 5000/6000 have been Bombardier Aerospace’s “cash cow” (READ BLOG May 15, 2015), as in 2014 with an all time high delivery of 80 x G5000/6000’s revenue from these 2 models was around $4.5 billion ($52 million for G5000 and $62 million for G6000), out of Aerospace revenue of $10.46 billion that year.
The Globals in 2014 with just 80 deliveries (27% of all Aerospace deliveries) were 43% of Aerospace revenue and 60% of Business jet revenue, with high margins the Globals have kept Aerospace in the black for the past few years, as CRJ and Q400 sales started to plummet. In 2015, Global deliveries were down to 73 and heading for the 50’s in 2016 as demand for the high end ultral long range aircraft is down for the first time, mainly in China, Russia and Middle East.
So, I believe I have made the point that the DEMAND side is not in this market, and that the G7000 is going to struggle for orders, and remember this segment is now in decline, with oil prices hurting demand in Russia and the Middle East while China’s anti-corruption drive and economic decline has slowed demand there a great deal, so if demand is low, then the G7000 better have a good value proposition right ? let’s see.
The $75 million G7000 is in development and should be delivered to the first customer by 4Q/2018 at BEST, and the aircraft has a cabin volume of 2,637 ft3 which is 20% more than the G5000/6000’s, can seat up to 17 passengers (standard) and has maximum range of 7,300 nm or 13,520 km with 10 passengers, the size surpasses the current $68 million Gulfstream G650ER, the reigning KING of the ultra long range segment, which still has an advantage in maximum range at 7,500 nm or 13,890 km.
So there is competition from Gulfstream, but most of the competition will come from Airbus and Boeing, and again prices on ACJ’s and BBJ’s are “flexible” and like with the CSeries, they will be very competitive on price (discounts of +20%), even though the ACJ and BBJ are not very important to each manufacturer in terms of sales, but more important for their prestige than anything else.
Below is the Airbus presentation of the cross section of its ACJ versus other ultra long range VIP aircraft. As you can see the Bombardier Global Express cross section looks very tiny versus the ACJ and BBJ, and if you want to fly 10-14 hour trips, then comfort is a must and equates to maximum volume (ft3) and cabin floor (ft2) which the ACJ and BBJ have but very lacking in the G7000, and it could be its “achilles heel” when up against the duopoly for a VIP order.
Let’s look at the BBJ line, the new biggest competitors to the G7000 are the BBJ/BBJMax7 and the ACJ2319ceo/319neo (all Max and Neo numbers are still estimates, as are G7000 numbers) :
BBJ (B737-700), priced at $81 million, has a cabin of 5,396 ft2 (104% more than G7000) and a maximum range of 6,141 nm or 11,360 km (16% less than G7000). The new BBJMax7 will have roughly +16% more range to 7,100nm or 13,135 km, so close to G7000 at a price probably up to $91+/- million.
BBJ2 (B737-800), priced at $96 million, has a cabin of 6,525 ft3 (147% more than G7000) and a maximum range of 5,644 nm or 10,441 km (23% less than G7000). The new BBJMax8 will have roughly 16% more range to 6,547 nm or 12,113 km, close to G7000 at a price probably up to $110+/- million.
BBJ3 (B737-900ER), priced at $102 million, has a cabin of 7,290 ft3 (176% more than G7000) and a maximum range of 4,790 nm or 8,861 km (36% less than G7000). The new BBJMax9 will have roughly 16% more range to 5,555 nm or 10,279 km, and price close to $116+/- million.
ACJ318, priced at $74 million, has a cabin of 5,300 ft3 (100% more than G7000) and a maximum range of 4,216 nm or 7,800 km. There will be no A319neo.
ACJ319, priced at $87 million, has a cabin of 5,843 ft3 (121% more than G7000) and a maximum range of 5,945 nm or 11,100 km. The new $97 million ACJ319neo will have a range of 6,756 nm or 12,500 km.
ACJ320, priced at $95 million, has a cabin of 6,825 ft2 (160% more than G7000) and a maximum range of 4,216 nm or 7,800 km. The new $106 million ACJ320neo will have a range of 5,945 nm or 11,100 km.
Now lets look at 2 graphs comparing the ACJ’s and BBJ’s to the G7000 on range (Km) versus price (in $millions) and cabin volume (ft3) versus price.
So the graphs show that the G7000 best advantage is range, but not by a great deal as the new ACJ319neo should have a range of 12,500 km only 635 km shy of the G7000, and yet offers 121% more cabin volume, that is more than double the space of the G7000.
If a customer is buying a long range aircraft then cabin space is very important, we are talking flights of up to 14 hours, and here you want space for a private bedroom, shower, conference and working area and when comparing the G7000 to the BBJMax7 or ACJ319neo, the cabin will be a major selling point.
So once again, the Bombardier Aerospace executives have taken a huge task upon themselves, not only will they compete on price, they will have to accept the comfort argument is lost.
Lastly, the other problem for not only Bombardier, but also Airbus and Boeing in this segment is the fact that in this segment they will face the new VIP versions of the Russian MC-21 and Chinese C919 airliners, and you can bet that both Moscow and Beijing, will ask/demand from their respective billionaires and corporate executives that they buy local. Today we see it in Russia already with the “Buy Russian and “Import Substitutes” policy is in place with the Sukhoi SSJ-100 already, as imported jets into Russia are gradually being replaced by local substitutes like the SSJ-100 SuperJet and now the TU-204-300VIP. Russia and CIS countries today have 30 x ACJ’s and 25 x BBJ’s out of 542 business jets.
Russian Irkut MC-21 (above left picture) and China’s new Comac C919 (photo right above)
The near future will see the Russian and Chinese markets being served by local products, again not good news for the G7000, and combined with the CSeries, I think Bombardier Aerospace will not be the same company in 3-4 years, as it is going to struggle in 2 new segments, while its Learjet’s brand is dying, the Challenger 650 is entering the decline phase of it’s product life cycle, and facing new competition from Cessna’s new Hemisphere, the G5000/6000’s once the “cash cow” of Bombardier Aerospace is facing new competition from the Gulfstream G500/G600, Dassault 8X and 5X.
The line up as I see it by 2020, will be the Challenger 350, G7000 and the CSeries, and that combination will not produce the revenue and profit targets that Bombardier thinks it will, but myopia has only one cure, a dose of reality and the CSeries has already convinced the company it has a short future and that is why it tried to sell the program in October, 2015 to 3 OEM’s which all said NO ! no other reason to dump a so called “game changer” after 7 years of work and 1 month to go before Canadian certification, that said novels of what they think of the CSeries prospects.
Soon, we Canadian taxpayers will own the majority of the CSeries, and we will take a big hit financially to save our “corporate welfare” system of aiding companies in Quebec at any cost ! because it seems most of leaders come from Quebec.
Thank you again, keep those ‘good’ comments coming !