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Global G7000

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UPDATE: Bombardier (TSE:BBD.B) stock closes at $0.89 today after breaking the $1.00 barrier yesterday, now institutional investors, mutual funds, ETF’s will start selling the stock as they do not hold “penny” stocks and there is a risk of the shares being delisted from Canada’s TSX stock index in the next 3-6 months if things do not change. Look the company is in BIG trouble, the CSeries will be it’s Achilles heel and predatory pricing by Airbus and Boeing is the arrow that will ultimately kill it. The CSeries is just not selling, it is positioned for a poor market segment, it faces the might of Airbus and Boeing pricing supremacy, it’s small order book of 243 “firm orders” of which +/- 90 are actually “limp/doughy/non-existing” orders that go back to 2009-2011 that surely will NOT happen, entry into service (EIS) is still 5 months away, production ramp up is just starting and Chairman of the Board, and ex-CEO Pierre Beaudoin is still there. New aircraft orders in 2015 were off by 65% while current backlog may have as little as 324 aircraft or 15 months of production at past rates. CSeries will be face Airbus and Boeing at every opportunity for a sale, and pricing will win out and even if Bombardier does win a deal here and there, the price will be so low that it may be a money losing deal, and here is no way to recoup any losses as sales of Q400’s, CRJ, Learjets and Globals continue to decrease rapidly, and the future Global G7000 “cash cow” looks as if they may have another “cash bleeder” on their hands instead. These are dark times for the future of Bombardier and the future of the Canadian aerospace industry, most likely we are going to lose a major industry within the next 4 years.

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Well I have said it months ago that Bombardier’s stock (TSE:BBD.B) will become a “penny stock” by year’s end, and I missed it by 27 days, when January 27th, it hit $C 0.99 a share that is a market capitalization of only $US 2.11 billion, and I as expected today, the stock went further down … Continue reading →

SUMMARY: Bombardier finally sees that “aggressive” pricing for the CSeries is a must, as the “game changer” has no new order since September, 2014 and it is now perfectly clear to all that the fuel efficiency of the CSeries will be closely matched by Airbus, Boeing, Embraer, Comac and Irkut as they will all incorporate new generation fuel efficient engines in their new aircraft programs. This year, 2016, is the make it or break it year for Bombardier, all eyes are on sales, EIS (entry into service) and production ramp up, 12 months from now the future of the company will be clearer, one way or the other. The CSeries has now lost its main competitive advantage, its value proposition (most fuel efficient airliner) and like all the others it will have to seriously discount it’s price to win any new order, and it is not prepared or capable of waging a price war. A major price war is looming as the duopoly of Airbus and Boeing, will not only have to deal with Bombardier’s CS100/300 and Embraer’s E195-E2 at the low end, but head on competition from China’s Comac C919 and Russia’s Irkut MC-21narrow-body airliners as well within the next 5 years. It is going to get ugly for Bombardier, as surely it “hopes” that Airbus and Boeing will not continue with the slow selling A319neo or Boeing the Max7 programs (a segment that is NOT very big, and was overestimated by many), but the duopoly will stay in the segment, for if anything, just to make sure Bombardier does not get a foothold in the BIG league of commercial aircraft. A price war with the likes of Airbus, Boeing and the Chinese and Russian Governments spells disaster for Bombardier in the long run, it cannot sustain regular discounts of +40% and continue as a going concern, they just cannot compete on price at this level, where even today before the new entrants arrive, discounts of 50% from List Price are ‘common’ from Airbus and Boeing on large orders . The current United Airlines requirement for 30 new 100+ seat jets will be an example of what is to come, as United is a huge Boeing customer, with 310 x B737’s (700/800/900’s) in service today and another 100 B737Max9’s on order, there is NO way hell, Boeing will allow Bombardier to win over this customer, and the deal will probably go for $US 40+/- million per unit (50% off List Price) for the B737-700 as the NG line still needs to be filled before the MAX line takes over,. To win with United Airlines, Bombardier will be required to offer a huge discount on the $US 71.8 million CS100 and the $US 82.0 million CS300, that it would create a huge loss for the company, as it has no way of getting that loss back from its product line (unlike Airbus & Boeing that delivered 1,397 aircraft in 2015) yet a major North American order for the future success of the CSeries is a MUST if the program is to have a future. Bombardier unlike the duopoly, will have a low production rate of 10 units per month by 2020, not enough to spread its costs/losses, while the duopoly is planning on producing 122+ A320/B737’s per month by 2018, a greatly reducing unit costs, and they will fight to keep Bombardier out of it’s “turf”, especially after it announced it may go with the larger CS500 (165+ seat) jet down the road, a direct challenge to the A320/B737. Anyway, Airbus believes the CSeries will become an “orphan” aircraft, “a nice little plane”, that was probably forever doomed to be a poor seller, and Airbus should know, they were the first OEM Bombardier went to, in their attempt to sell the program last year ! All the indications are there that the market is not there, up-gauging of aircraft, low sales in the 100-150 segment by all to a lack of interest from lessors. Lastly, while the CSeries will have to deal with the duopoly, the $75 million a piece Global G7000 business jet will also have to deal with the duopoly if it plans on selling a lot, as the ACJ319/320 (Airbus Corporate Jets) and the BBJ (Boeing Business Jets) are in the same segment, a segment that has averaged only 16 units a year for the past 18 years, so the G7000 may sadly not be the “game changer” either.

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I have been quiet for awhile on Bombardier, watching what will unfold, with a heavy heart, seems that the new year is not going to be much better than last year, when Bombardier’s stock (TSX:BBD.B) lost 60.9% of its value, ROI (return on investment) was -44.0% and market capitalization is down to $2.51 billion, cash … Continue reading →

UPDATE: An insider’s opinion on what went wrong at Bombardier. With the TSX:BBD.B stock at $1.19 (Dec 11, 2015), a drop of 75.2% from year ago today and a 13.7% drop from only a month ago, it is obvious that the investment community is not buying the 5 year transformation plan presented at the company’s Investor Day in New York on November 24th. The plan calls for revenue growth to $25 billion by 2020, with Business Aircraft to hit $9.1 billion with the G7000 alone ? as the G8000 is no longer mentioned by Bombardier and the Challenger 650 is fading while the Learjets are dying. Meanwhile Commercial Aircraft plans to hit $5.8 billion in revenue (with only CS100/300’s as the CRJ and Q400 sales have little life left and by 2020 they surely will not be in production). While Transportation (trains) goes to $9.4 billion and Aerostructure grows to $0.7 billion (70% from Bombardier). Already plans are in place to out source Q400 and CRJ work to Mexico and Morocco as those brands fade into history, as current backlog of Q400’s at 73 units (36 months of production) and CRJ line with 75+/- backlog (15 months of production), the company is now looking for it’s workers for labor concessions in Belfast and Toronto. The company plans to deliver anywhere between 255 and 315 CSeries by the end of 2020, when production should be 90-120 units annually, so it is estimating a net average unit (CS100 and CS300) price of between $64 million at 90 units or $48 million at 120 units, either way it won’t reach $5.8 billion (at BEST $4.8 billion) when the price will be at best $42 million for the CS 300 and $36 million for the CS100 due to heavy price discounting competition from Airbus, Boeing and by 2020 new entrants like Comac and Irkut on their respective narrowbody aircraft. As for business jets, hitting $9.1B that is a far stretch as well, The Challenger 650 (a 35+ year old Canadair CL-600) will not be competitive by then, the Learjet line is dying as I write this, while the current Global G5000/6000 (current “cash cow” for Aerospace) is finding it hard to compete today and accordingly production is being reduced to 50 and much lower, and by before 2018 the G5000/6000 will struggle for any orders, and will be done as the new Gulfstream G500/600/650ER and Dassault 8X take over that segment. The ultra long range segment above $75 million (Global 7000 is priced at $75 million) has delivered 161 Boeing 737 Business Jets (BBJ’s) in 17 years, Airbus has delivered 116 A320/319 Airbus Corporate Jets (ACJ’s) in that time, or 277 narrowbody business jets (or just 16.3 aircraft per year on average), show me where is this market for business jets over $75 million ? governments and a few billionaires, but realistically a small market that Bombardier once again over estimated, and will pay the price for entering into. The competition here is VIP versions of commercial airliners offering great prices and much more comfort with huge cabins, the $75 million G7000 has a cabin of 2,657 ft3 and will fly up to 7,900nm the $87 million (big discounts available as low as $50 million), while the new ACJ A319neo has a cabin of 5,843 ft3 (2.2 x larger than G7000) with a range of 6,500 nm, and it will be tough going for sure.The future of Bombardier Aerospace is down to the CSeries and G7000 programs, in highly questionable markets segments that are most likely not going to support the company’s ambitions of mass production and large sales goals, they rolled the nice and they just may end up losing the company in the end.

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I will start with my usual lack of progress report on Bombardier and where it is heading, and then further below is the unedited opinion of a Bombardier insider on what the heck has been going on at the very troubled OEM. I can report on what I see for the point of view of … Continue reading →

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