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.
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.
BBD entered 2014 with shrinking commercial aerospace market shares against its competitors.
The CRJ regional jet, a sector invented by BBD and once the dominate force in the RJ market, is now an also-ran to Embraer. The CRJ-700 is no longer a desirable aircraft as regional airline operations up-gauge to the more economical 90-seat jet and the Embraer E-175’s passenger experience is preferred.
The backlog at December 31 demonstrates BBD’s weaker position compared with Embraer and even the new entrants, Mitsubishi and Sukhoi.
Bombardier has also fallen far behind competitor ATR in the turbo-prop sector. BBD offers only one turbo-prop, the 70-seat Q400, compared with the 50- and 70-seat choices offered by ATR. BBD also faces the industry view that the Q400 is more expensive to buy and more expensive to operate than the competing ATR-72-600. While the Q400 is a more capable hot-and-high airplane with a higher cruising speed, most routes don’t require the high performance. BBD says that if the Q400 is throttled back to the same cruising speed as the ATR-72, operating costs are similar. Nonetheless, BBD has a shrinking market share compared with ATR.
Bombardier this year began offering a high-density version of the Q400, seating 86 passengers, and at the Farnborough Air Show announced a passenger/cargo Combi option in an effort to broaden the appeal of the airplane. So far there haven’t been any takers.
As we have written previously, some of BBD’s problems are of its own making: a mediocre balance sheet that inhibits aggressive deals and financial flexibility; a learning curve necessary to shift its sales mindset from the regional airline industry to understanding major airline calculus; and a stubborn refusal to be more flexible on pricing, just to name a few.
We’ve also previously noted that many CSeries sales were lost due to circumstances beyond its control: very aggressive pricing by Airbus; the need to create a customer base for an entirely new airplane rather than having an established customer base to sell into; target customers disappearing into a merger; and competing against the balance sheets of Airbus and Boeing, just to name a few.
And then there’s the unexpected. BBD struck a deal with Russian interests to sell 100 Q400s and potentially establish an assembly line there. The plan was to firm up the MOU this year. Who could have predicted Russia would seize Crimea and encourage and support Ukraine rebels? Sanctions imposed by the US on Russia were supported by the Canadian government and the Q400 deal stalled as a result; an engine malfunction on the CSeries Flight Test program grounded the fleet in May, which may not return to the air until next month.
The four previous delays in the CSeries program prompted BBD to announce an entry-into-service for the second half of 2015, building in about two months of margin in case something else happened. The engine issue wasn’t expected, and while BBD continues to maintain a 2H2015 EIS is still planned, Ilyushin Finance Co. said last week it shifted its deliveries five months to the right from November 2015 to April 2016. Does this portend an entire program schedule shift, or was this unique to IFC for other reasons? We don’t yet know the answer to this.
BBD’s entire aerospace division and its business aircraft unit are struggling with challenges. These issues are weighing down the company. Bombardier’s woes go beyond CSeries.