Focus on Bombardier after more executive changes

This report has been updated since it was issued to our E-subscribers last Monday to reflect our new estimate of the return to airborne status for the flight test program.

Bombardier two weeks ago made more executive changes to the CSeries program, replacing the vice president of marketing and other officials. The company said additional changes might be forthcoming—a clear signal that something more is afoot.

Bombardier has been stuck on 203 firm orders for the CSeries for the better part of this year, although the number of orders and commitments has swelled to 513 with a much better than expected Farnborough Air Show. Still, MOUs and LOIs aren’t firm orders with deposits and progress payments, and poor sales of the CRJ, Q400 and business jet divisions combine with the R&D costs of the CSeries to put a huge financial squeeze on the company. Layoffs and cost cutting, along with the management changes, add to the perception that BBD is a company in trouble.

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Odds and Ends: Order bubble, revisited; MRJ lands JAL; MH370

What order bubble, Revisited: We recently asked the question, What order bubble?

The orders don’t stop coming. Boeing landed a big fish with a large order from BOC Aviation, bringing net orders to 918–easily on the path to 1,000. Airbus lags at just over 800 net orders through July (it only reports monthly, not weekly as does Boeing), but we see Airbus hitting 1,000 this year, too. There were 121 MOUs announced at the Farnborough Air Show for the A330neo and we expect most of these to firm up, if not all. (There will likely be some swaps by Air Asia from the A330ceo to the neo, however.) We expect more A320 orders as well.

Boeing’s BOCA order was the lessor’s largest ever and included two 777-300ERs. Boeing is attempting to combine -300ER orders with 737 and 777X deals in order to bridge the production gap between the 777 Classic and the 777X.

GE Aviation and GE Engines naturally benefited from the 737 and 777 BOCA deal, since they are the sole-source engine providers on the airplanes.

MRJ lands JAL: Japan Air Lines ordered 32 Mitsubishi MRJ90s for delivery from 2021. This is the fourth customer for MRJ. JAL’s rival, All Nippon Airways, was the launch customer for the MRJ90. JAL also ordered up to 27 Embraer E-Jets.

MH370: New information emerged this week on the flight path of Malaysian Airlines MH370, which disappeared on a flight from Kuala Lumpur to Beijing and is believed to have crashed in the south Indian Ocean.

We’ve been asked by local media if MAS can survive. We believe it can, given the government backing. It’s the flag carrier and we don’t think Malaysia will allow the airline to go out of business. Korean Air Lines survived following a series of crashes and the Soviet shootdown of KAL 007 during the 1980s. MAS may become a very different airline, but we think it will continue.

After-market support becoming key to winning engine orders

Maintenance and power-by-the-hour parts and support contracts are increasingly becoming the deciding factor in deciding which engines and which airplanes will be ordered—it’s no longer a matter of engine price or even operating costs, customers of Airbus and Boeing tell us.

Ten years ago, 30% of engine selection had power-by-the-hour (PBH) contracts attached to them. Today, 70% are connected, says one lessor that has Airbus and Boeing aircraft in its portfolio, and which has ordered new aircraft from each company.

“We’ve seen a huge move in maintenance contracts,” this lessor says.

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Bombardier woes go beyond CSeries

The news last week that Bombardier reorganized its business units, laid off another 1,800 employees and saw the retirement of Guy Hachey, president and CEO of the aerospace division, was viewed by some media and observers as an indictment of the CSeries program. While it’s certainly true that delays in the program weigh heavily on BBD, the problems don’t stop with CSeries.

Bombardier has 203 firm orders and 310 commitments for CSeries. This delivery stream doesn't include any potential rescheduling as a result of the grounding of the Flight Test fleet from May as a result of the engine incident.

Bombardier has 203 firm orders and 310 commitments for CSeries. This delivery stream doesn’t include any potential rescheduling as a result of the grounding of the Flight Test fleet from May as a result of the engine incident.

Slow sales of the CRJ, Q400 and business jets–as well as program development issues with a new corporate jet–all combined to drag down financial performance and bleed cash. Bombardier doesn’t have the balance sheet strength of Boeing or Airbus, nor strong sales of other airplane family members, to weather the challenges of new airplane development programs.

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Odds and Ends: Some FAS leftovers–a big CSeries order?; EMB lands 60; and more

Farnborough Air Show leftovers:

Big CSeries order coming? Flight Global reports that lessor Macquarie Airfinance is about ready to sign a deal for 50 Bombardier CSeries. If true, this would be a major departure for the lessor, which historically hasn’t placed speculative orders–and it would be a major boost for Bombardier. The Flight Global report doesn’t say if this would be 50 firm or a combination of firm and options. BBD and MAF didn’t comment for Flight. We reached out to MAF and received this response:

“The Flightglobal release was concocted on a rumour and we don’t comment on rumours. You know how it is with lessors. We’re constantly considering every aircraft type that could provide us with value-adding opportunities.”

Bombardier has been selling the CSeries in small numbers, often to second or third tier, and even start-up carriers, a path Boeing took in the early days of the 737-200 program. Airbus relied heavily on lessors for early A320 orders. Boutique lessor LCI was a launch customer for the airplane, and Falko Regional Aircraft Leasing became a customer at FAS.

BBD now has 513 orders and commitments for CSeries.

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Farnborough Air Show, July 17: Orders summary, reflections of the show

Orders continued to trickle in as the Farnborough Air Show winds down (there could be others not listed here).

  • Airbus: Transaero, LOI for 12 A330neos and eight A330ceos; Hong Kong Aviation Capital firms up an order for 40 A320neo and 30 A321neo aircraft, announced at the Paris Air Show last year. Here is the Airbus wrap up press release.
  • Boeing: Summarizes its performance at FAS with this press release; 201 orders and commitments.

Items of interest:

Overall reflections:

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Farnborough Air Show, July 16: MRJ program analysis

After a long drought of orders or even LOIs and MOUs, the Mitsubishi MRJ program saw some life at this Farnborough Air Show.

Sales of Japan’s first commercial airplane since the propeller-era’s YS-11 stalled with orders from SkyWest Airlines, Trans States Airlines and Japan’s ANA.

But at the FAS, Mitsubishi announced an MOU with Eastern Air Lines, a US start-up carrier, for up to 40 and a much smaller order for six from Air Mandalay.

The Eastern MOU can fairly come under scrutiny if for no other reason than the company is a start-up. Little is known about its financial fund raising and the business model–to begin as a charter airline and transition to a scheduled carrier in the highly competitive US Southeast–doesn’t instill a lot of confidence. EAL, named after the old trunk carrier that went out of business in 1991, has also ordered the Boeing 737-800 after initially announcing plans to begin service with the Airbus A320.

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Farnborough Air Show, July 15: E-Jet program analysis

Embraer Monday at the Farnborough Air Show revealed its new interior designed the for E-Jet E2, the re-engined and re-winged airplane scheduled to enter service in 2018 through 2020 in the 195, 190 and 175 subtypes each year.

We had the opportunity to preview the prototype for this interior in May while visiting EMB’s Florida offices, but the viewing was put off the record in anticipation of the FAS reveal. We were impressed.

The YouTube video linked above shows the most notable feature at about 1:45: the staggered first class section. For anyone who has flown the current generation E-Jet, you will know that first class is 1×2, a reduction in the 2×2 coach seating. We’ve always complained that the overhead bin on the one-seat side was reduced to a fairly useless size (we joked that it barely could accommodate a water bottle). The design for first now allows for 2×2 seating.

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Farnborough Air Show, July 13: CSeries program analysis

The unexpected pre-Farnborough Air Show announcement by Bombardier for letters of intent for up to 24 CS100s is welcome news for the company and the program.

Although an announcement by Falko Regional Aircraft Leasing of a firm order would have been more welcome, history shows that LOIs tend to be converted into firm orders eventually, whether these are from Airbus, Boeing, Embraer–or Bombardier. With the Falko LOI, BBD now has 471 firm orders and commitments for the CSeries.

Hand-wringing headlines and stories over May’s engine incident in which a Pratt & Whitney P1000G Geared Turbo Fan during a CSeries ground test and the assumed hugely negative impact on the program these stories and headlines suggest are way overblown.

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Bombardier and Embraer square off at ISTAT

Bombardier and Embraer squared off today at the ISTAT conference in San Diego. Rod Sheridan, VP sales and asset management, appeared for BBD and John Slattery, chiefr commercial officer, appeared for EMB.

The following synopsizes and paraphrases their presentations.

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