Nov. 7, 2017, © Leeham Co.: The Bombardier CSeries may go the way of the McDonnell Douglas MD-95, a Wall Street aerospace analyst suggests: that is, the program is likely to remain unprofitable and be shut down.
Doug Harned, the analyst for Bernstein Research, draws a parallel between Airbus’ acquisition of a majority stake in the CSeries program and Boeing’s 1997 acquisition of McDonnell Douglas in which the MD-95 joined the Boeing family of airplanes.
The 110-seat MD-95 was renamed the Boeing 717. Boeing attempted to market the airplane, without success. Production was terminated after 156 airplanes were built.
Harned acknowledged the 717 was a good aircraft. It remains in high demand on the used aircraft market. But it was an orphan—just one model was produced—and had no commonality with the larger Boeing 737 family.
Boeing was unable to reduce costs because suppliers, facing a low-production future, were unwilling to cut costs, Harned said.
He believes Airbus faces similar challenges with the CSeries.
Harned believes the CSeries, although in two models vs the one for the 717, will remain unprofitable, eventually leading to a decision by Airbus to shut the program down. (It should be noted that Bombardier has the right to repurchase Airbus’ shares.)
He believes that like Boeing, Airbus won’t be able to cut costs because suppliers already see a difficult path to profits.
Harned believes the CSeries needs to sell for about $30m to be profitable. Airlines want prices in the low $20m range, he said.
Harned also cast doubt on the current skyline quality (something LNC has noted many times), with the prospect of cancellations.
An unidentified European customer last week signed an LOI for 31 firm and 30 option CSeries. This contract is to be firmed up by year-end, Bombardier said.
Harned sees the Airbus deal as a mechanism to eliminate a competitor and benefit from learning from the advanced technology in the airplane. But even at a $30m sales prices, this will account for only about 2% of sales, he projects, an inconsequential revenue producer for Airbus.
The market demand is a matter of debate.
Bombardier forecasts a demand of 6,800 aircraft in the 100-150 seat sector the CSeries serves. In 2014, the last year Airbus identified the demand for this sector in its 20-year forecast, Airbus projected a demand of just over 4,100 aircraft.
Boeing hasn’t publicly projected a demand in the 100-150 seat sector, but in a research note issued today by Cowen & Co., Cai von Rumohr cites a Boeing forecast of 3,000-4,500.
The Airbus-Bombardier deal is expected to close in 2H2018. Airbus plans to assemble the airplane in Mobile (AL), supplementing the current Montreal assembly line.