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.
The ground test of the engine was a follow-on to a problem that emerged a week earlier. PW and BBD have been mum about the details, but the event did not involve the gear box, which is the key component to the engine that the industry worried would be the issue. Instead, our information from a couple of sources indicate the issue was far more mundane: an oil seal or flange that failed in a pipe that ultimately allowed too much oil to accumulate, causing the failure. This is similar to the Rolls-Royce Trent engine failure, we’re told, on the Boeing 787 test stand program. While embarrassing, tests are supposed to reveal problems.
While early reports suggested this was an “uncontained failure” on the PW engine, we understand that the cowling was open during the test, which may have been a factor in parts from the engine hitting the wing, causing damage.
With the flight test fleet grounded during the investigation of the event, it’s been suggested that BBD will have trouble obtaining orders for a plane that isn’t flying. We think this has little to do with BBD’s continued dry spell for orders.
Customers fully understand test programs, and it emerged rather quickly the gear box wasn’t an issue. BBD’s challenge is not the airplane-on-ground (AOG)–it’s going up against the muscle and vastly stronger balance sheets of Airbus and Boeing, who can sell into their existing customer bases and wrap A320/737 deals into larger, “global” transactions involving other equipment types or even recasting previous, undelivered orders. Embraer can sell its E2 jet to its existing E-Jet customer base. These existing customer bases for airplanes that are derivatives of current, in-production models give Airbus, Boeing and Embraer a huge advantage.
Bombardier, on the other hand, has to create a customer base for the CSeries; there is no commonality with its CRJ family. BBD has a balance sheet that simply doesn’t match those of its competitors, giving it less financial flexibility, and because there is no existing customer base for CSeries, BBD doesn’t have the ability to offer “global” deals as inducements.
We’re confident BBD will wind up converting most if not all of its commitments to firm orders in the months and years to come. While a couple of the current firm order customers may be questionable, the 471 firm orders and commitments already suggest to us that CSeries will be a commercial success (we never had any doubt about the prospect of it being a technical success). Most new airplane programs target 400 sales as break even (the 787 and A380 being notable exceptions). Airbus forecasts a requirement for around 4,000 airplanes in the 100-149 seat sector and BBD’s forecast is around 6,900. We expect the sector to be somewhere in between. BBD and EMB will split the lion’s share of this sector. If BBD sells only 1,000 (and we think it will do better than this), there’s no question CSeries will be a commercial success.